Railcar manufacturer Greenbrier and American Railcar Industries continue to see strong demand to build new units, in what they say is an equipment market cycle that should keep growing for several years.
Amid widespread concern about where the economy is headed, “the sky is not falling, at least in the rail space and the rail supply space,” Mark Rittenbaum, Greenbrier’s chief financial officer told the Morgan Keegan investors conference Sept. 13 in Chicago.
Instead, Greenbrier executives see “the early innings of a sustained recovery” in railcar production, he said. The North American manufacturers have an orders backlog of 57,000 units, the highest since 2008.
Rittenbaum also said Greenbrier has that company has “ramped up our production rates significantly, from building a little over 2,000 cars in its fiscal 2010 to about 9,000 in the 2011 year that ended in August. “And our fiscal 2012 is going to be substantially in excess of that number,” he said.
Dale Davies, CFO at American Railcar Industries, said ARI is also “in a ramp-up mode.”
For calendar 2011, he said “we’re going to see the last six months be a lot larger than the first six months” in terms of car production.
Given the equipment cycle and customer needs across the industry, “we probably have a good four years of growth coming in this business,” he said.
Their comments are in line with those from Kansas City Southern, which told the conference that its average daily railcar volume in the first half of September was above that of August, when it had the strongest month in five years.
ARI’s current backlog is above 7,000 units to build, and “for us that’s a year’s worth of work,” Davies said.
That company specializes in tank cars and covered hoppers, which are both in high demand right now to haul petroleum and frac sand for North America’s oil and gas industry boom. Davies said of the 57,000-unit backlog for all equipment suppliers, 40 percent is tanks and 35 percent hoppers, “and that is our sweet spot.”
Rittenbaum said Greenbrier’s backlog as of its last reported quarter ending May 31 was nearly 14,000 units, and another 3,700 orders have come in since.
And the customer base has not begun to weaken, he said. “We still see the activity out there as very robust . . . there are no cancellations; we’re not having those type of discussions” with customers.