Underperformance Spurs Strategic Changes at Greenbrier

Underperformance Spurs Strategic Changes at Greenbrier

The Greenbrier Companies reported net earnings, excluding a non-cash goodwill impairment charge, were $15.7 million in the third quarter of fiscal year 2013, ending May 31, 2013, compared with $13.8 million in the second quarter of fiscal year 2013, ending Feb. 28, 2013.

A non-cash goodwill impairment charge of $71.8 million net of tax, related to the wheels, repair and parts segment, led to a net loss for the quarter of $56.0 million. Adjusted earnings before interest, taxes, depreciation and amortization for the quarter were $39.6 million, or 9.1 percent of revenue, versus $36.2 million in the second quarter of fiscal year 2013.

The company’s revenue in the third quarter was $433.7 million, increasing 2.5 percent from $423.2 million in the previous quarter. The gain was driven by a favorable change in demand and product mix in the wheels, repairs and parts segment, according to the Lake Oswego, Ore.-based company.

“We are encouraged by the growth of our diverse backlog and robust order activity, with orders in the third quarter for 5,500 railcar units,” said William A. Furman, president and CEO, in a written statement. “Since quarter end, we have received orders for an additional 2,100 railcar units, including a sizable double stack intermodal order for 1,500 units, about a third of which will be delivered in fiscal 2013, and the balance in fiscal 2014.”

New railcar deliveries were 2,500 units in the third quarter, down from 2,700 units in the second quarter, fueled by softness in intermodal demand and slower than anticipated tank car ramp up, according to Greenbrier. Since Sept. 1, 2012, Greenbrier has received orders for 13,500 railcar units valued at nearly $1.3 billion, including 1,400 units in the first quarter and 4,500 units during the second quarter. New railcar backlog as of May 31, 2013, was 14,200 units, with an estimated value of $1.57 billion, compared with 11,700 units with an estimated value of $1.30 billion as of Feb. 28, 2013. Greenbrier’s management anticipated that new railcar deliveries in 2013 will be between 11,750 and 12,250 units and revenue will range between $1.75 billion and $1.80 billion.

Marine backlog totaled $1.6 million as of May 31, 2013.

“We anticipate brighter prospects for intermodal railcar activity and downstream energy-related railcar products such as plastics, in fiscal 2014,” Furman continued. “Our marine outlook is also improving, driven by strong customer inquiries related to transportation of crude oil by barge.”

As part of its plan to reduce capital employed in its operations by at least $100 million before the end of its fiscal year 2014, Greenbrier will sell or close eight of its 38 wheels, repair and parts facilities. The company is also implementing initiatives to improve profitability and reduce capital at another six facilities that have been underperforming. Greenbrier said it expects to realize a minimum return of capital of $25 million by Dec. 31, 2013, as a result of these actions.

“Where substantial and targeted margin improvement is not attainable by the end of this calendar year, we will pursue further reductions in our capital employed in this business through the sale or closing of underperforming operations,” Furman said.

Furthermore, Greenbrier has appointed two new co-leaders, William Glenn and Rick Turner, for its wheels, repair and parts segment, effective with the retirement of Timothy A. Stuckey on June 30 as president of Greenbrier Rail Services. In addition to each executive's designated oversight duties, together, Turner and Glenn will develop a comprehensive rail services strategy that will serve Greenbrier's integrated business model.

Glenn, who joined the company in 2007, will be responsible for the repair and parts operations in the wheels, repair and parts segment. He will also continue to serve as Greenbrier’s senior vice president and chief commercial officer, a position he has held since 2009, and maintain his responsibilities for Greenbrier Europe.

Turner rejoins the company as senior vice president of wheels and strategic execution and will be responsible for wheels operations in the wheels, repair and parts segment, as well as strategic execution and operational oversight throughout the entire segment. He led Greenbrier’s wheel business from 2006 to 2010.