GATX Corp. (NYSE:GATX) Q3 2018 Earnings Conference Call Transcript

Oct 23, 2018 • 11:00 am ET

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GATX Corp. (NYSE:GATX) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day and welcome to the GATX Third Quarter Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Jennifer McManus. Please go ahead.

Executive
Jennifer McManus

Good morning, everyone, and thank you for joining GATX's 2018 third quarter earnings call. I'm joined today by Brian Kenney, President and CEO; and Tom Ellman, EVP and CFO.

(Forward-Looking Cautionary Statements)

Earlier today, GATX reported 2018 third quarter net income of $47 million or $1.22 per diluted share. This compares to 2017 third quarter net income of $49 million or $1.25 per diluted share. Year-to-date 2018, we reported net income of $162.1 million or $4.21 per diluted share. This compares to $159.9 million or $4.04 per diluted share for the same period in 2017. 2018 year-to-date results included net negative impact of $5.8 million or $0.15 per diluted share, attributed to costs associated with the closure of a railcar maintenance facility in Germany. 2017 year-to-date results include a net gain of approximately $1.1 million or $0.03 per diluted share associated with the planned exit of the majority of portfolio management's marine investments. These items are detailed on page 12 of our earnings release.

Now I'll briefly address each segment. Our third quarter results are reflective of a continued improving operating environment in Rail North America. Certain rail industry metrics are favorable for lessors relative to 2017, including railroad carloads and velocity. Rail North American's fleet utilization increased to 99.2%, and our renewal success rate was 82.9% during the quarter. The renewal rate change of GATX's Lease Price Index was negative at 11.5% with an average renewal term of 33 months.

Revenue pressure continues; however, we did see quarter-to-quarter sequential improvement in absolute lease rates across the most car types in our fleet. As indicated in the earnings release, this improving environment has resulted in lower railcar maintenance expense in 2018 than we originally anticipated, especially for mandatory tank qualification as customers are holding onto and utilizing their cars. While this is a benefit in 2018, we expect this will result in higher maintenance expense in 2019 as its work has only been deferred, not eliminated.

We continue to successfully place cars from our committed supply orders with a diverse customer base. We have already placed over 7,700 railcars from our 2014 Trinity supply agreement and scheduled deliveries with customers have been placed through July 2019, meaning our earliest available scheduled delivery is in August 2019.

Additionally, we have placed 450 railcars from our 2018 ARI supply agreement, and our earliest available scheduled delivery under this agreement is in the first quarter of 2020. The secondary market remains active. Rail North America's remarketing income was approximately $7.2 million during the quarter, bringing total remarketing income for the year to $61.7 million, which is slightly above our full year expectation. While we are always active in the market, we expect any activity in the fourth quarter to be modest in size.

Within Rail International, the European railcar leasing market