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Text: They will provide an update on Greenbrier's performance and our near-term priorities.
The recovery in our markets we forecast for the second half of this calendar year is now well underway.
Greenbrier follows a disciplined strategy throughout the pandemic and as a result, the company is in a very strong position.
Last year, we articulated our strategy centered on continuing safe operation of our facilities as critical supply infrastructure under U.S. Presidential policy number 21, U.S. Department of Homeland Security and U.S. Department of Transportation.
We also emphasized building and sustaining a strong liquidity position to withstand worst case scenarios, eliminating all non-essential spending, reducing our fixed cost, rightsizing our labor force to reduced pandemic demand.
Our actions were purposeful, and particularly regarding employee safety and those issues related to our cost base and manufacturing capacity.
Greenbrier has a flexible business plan and a flexible manufacturing strategy, along with scalable manufacturing, these are central to Greenbrier's response not only in the V-shaped downturn, but in the improving market outlook and the upturn and strong economic recovery.
This phase of our strategy is equally important.
It presents novel challenges and operational risk as we add a large number of new production lines, many involving product changeovers, manufacturing line additions and new designs.
Simultaneously, we must safely and I emphasize safely integrate large numbers of new or furloughed manufacturing employees.
Fortunately, our management team is seasoned and experienced at managing these operating dynamics.
We are confident in our ability to execute.
Of course, COVID-19 continues to be an issue we are addressing.
Reduced contagion rates among our workforce in the U.S., in Mexico and Europe are very good to see.
Brazil remains a hotspot.
But because we are proactive, cases among our Brazilian colleagues remain relatively low.
Despite these measures, we recently lost another colleague Jorge Telis to COVID-19.
Jorge worked in the paint department at our Greenbrier Sahagun, otherwise known as plant 2 facility in Mexico.
He was in his early 40s and he worked in Greenbrier for over four years.
Jorge is the eighth member of the Greenbrier family we have lost to COVID-19.
We are supporting his family through this difficult time.
As vaccines become more widely available around the world, it is essential to remember that COVID-19 is a dangerous and increasingly contagious disease.
We are urging and incenting our employees to get vaccinated.
As new COVID variance appear globally, we will remain attentive and defend our employees and our stakeholders against this continued very real threat.
I'm pleased to see that Greenbrier's financial results for the quarter demonstrate strong solid performance.
Lorie and Adrian will cover our detailed results later in the call.
For now, I will simply say that we are very pleased.
Q3 earnings moves Greenbrier solidly into the black [Phonetic] for fiscal 2021 through nine months after a very weak first half, and the outlook is strong for the fourth quarter and 2022.
Importantly, our liquidity position also remains strong.
At the end of the third quarter of 2020, we announced we achieved liquidity target of $1 billion despite some challenging quarters.
Since then, Greenbrier continues to maintain almost that level of liquidity, including cash and additional available borrowing on our debt facilities.
Future tax refunds and other initiatives underway.
In the third quarter, we also executed a strategic debt refinancing, taking advantage of the opportunity to do so in these markets where money is reasonably available and interest rates are cheap.
We extended maturities on our convertible notes to add another four years of favorable interest rates.
Liquidity is important during a steep recovery cycle of these steep cycle, remembering that this is a 100 year pandemic that everyone has had to navigate.
And this part of the cycle requires increased working capital and so we're pleased that we will have the working capital to deal and navigate through this time, particularly with supply chains being a little royal.
We are balancing efficient management of working capital and protecting our supply chain, ensuring production and labor continuity.
Our COVID strategy along with the three-year strategy of achieving scale in our business are producing solid results.
Our international backlog now is about a third of our of our base.
The results in the third quarter reflect both a steady recovery in our markets as well as Greenbrier's ability to manage through some of the most challenging quarters in the company's history and in fact, in the -- over the last 100 years.
During our last two calls I discussed many of the steps Greenbrier was taking to prepare for economic recovery and positive momentum in our markets.
This momentum is reinforced as we prepare Greenbrier's three-year plan and navigates as we achieve greater scale and efficiency.
A greatly reduced and leaner cost structure achieved during the pandemic should also be a boost to our business unit efficiency and our financial momentum.
We are joined today by an important guest, Brian Comstock.
Brian is Greenbrier's Executive Vice President and Chief Commercial & Leasing Officer.
He is here to share a little bit more about our outlook on the commercial side of our business.
Across the economy, there are positive indicators and data points that indicate a sustained recovery in rail.
In North America, the latest U.S. economic indicators reflect growing optimism with GDP consensus forecast growth continuing to be revised up.
Through May, North American rail traffic was up 12.1%.
Loadings were led by increases in grain, intermodal and auto.
We expect to see continued near-term demand for intermodal units and grain Covered hoppers as both segments continue to set monthly volume records.
These segments should remain highly active well into 2022.
Overall, system velocity has slowed approximately 2 miles per hour due to robust rail freight recovery.
Slowing rail velocity as everyone knows, decreases railcars and storage and increases demand for new railcars.
Certain railcar types are in tight supply, including intermodal units, boxcars and gondolas.
These fleets are almost fully deployed with over 95% utilization.
Total North American railcar utilization is nearly 80% as of June 1st.
Since the peak last year, over a 160,000 cars have been taken out of storage in North America, bringing the number of storage cars to approximately 360,000 units.
With higher scrap pricing and proposed tax benefits for construction of new, more efficient and environmentally friendly equipment, we expect the trend of declining cars and storage to continue.
We are also seeing robust activity in the railcar conversion market with the recent 1,000 tank car conversion order.
The increase in commodity prices almost -- across almost every important sector has captured our attention.
The current price for steel is more than three times higher than the August 2020 price.
Greenbrier continues to utilize price indexing and material escalation pass-throughs to protect gross margin dollars.
Although elevated steel prices can be a potential headwind, order cadence remains robust.
In Europe, longer-term broad scale economic reforms to address climate change are ushering in an era of modal shift for freight, from polluting and congested road travel to efficient higher speed rail service.
This modal shift will drive growth in railcar demand in the years to come.
This growth is in addition to the replacement demand as the fleets in the EU countries are aging, with many cars already well past the time for replacement.
Greenbrier's backlog in Europe was strong at the end of the third quarter.
Our focus has now turned to ramping up manufacturing output to meet the market demand with several production lines already booked well into fiscal 2023.
Finally, in Brazil, the economy is improving.
Our visibility is a good and we are experiencing our highest levels of backlog since we entered the market.
Greenbrier's global commercial team continues to see strengthening in new railcar inquiries and orders.
In the fiscal quarter -- third fiscal quarter, Greenbrier won orders for 3,800 railcars totaling $400 million and our backlog as of May 31st was 24,800 units valued at $2.6 billion.
Subsequent to quarter end, the commercial team has booked nearly 3,000 additional orders for intermodal, automotive, covered hoppers and gondolas.
I want to emphasize the conversion activity I spoke to earlier is not reflected in the new railcar orders or backlog.
Overall, pipelines are strong and I'm optimistic this momentum will carry into fiscal 2022.
Now over to Lorie for more about our Q3 operating performance.
Today, we are reporting results from operations that are significantly better than our results for the first half of our fiscal 2021.
Our employed produced a great quarter after a challenging first six months.
One thing we've learned over the last 18 months is the resiliency and flexibility are vital in an ever evolving pandemic setting.
And while it's too early to declare victory, especially as COVID variance emerge, our flexible operating model is responding quickly and efficiently as well as safely to the improving demand environment.
We delivered 3,300 units in the quarter, including 500 units in Brazil.
Our Q3 deliveries increased 57% from the second quarter.
Our global manufacturing performance this quarter shows that operating leverage of higher production rate which will continue in Q4.
This strong performance is against the backdrop of adding almost a 1,000 employees.
Brian mentioned the significant increase in raw material pricing and the volatility in the supply chain.
So I'd like to highlight the outstanding job our purchasing and sourcing group is doing.
This group is ensuring that our facilities have the materials and components to continue uninterrupted production, at times, that means even collaborated with our suppliers to work with their suppliers to make certain that we have the material we need for our customers.
Over the remainder of fiscal 2021 and into 2022, the manufacturing team is focused on building high quality railcars while maintaining employee safety.
Increased car loadings and rail traffic also began to benefit our wheels repair and parts business in the third quarter.
Each of the units that comprise our GRS business experienced double-digit revenue growth and strong sequential margin improvement.
The margins achieved by GRS in Q3 are the highest since the reintegration of our repair business in 2019.
The GRS management team continues to evaluate our footprint and refine our operations around quality, efficiency and safety, with a focus on being a key service provider to our customers.
The business is prepared for stronger activity levels and I'm cautiously optimistic that the demand recovery we've seen so far will continue to gain momentum for this business unit.
Our leasing and services team had a strong and quite busy quarter.
GBX Leasing was formed and $130 million of the initial $200 million railcar portfolio was contributed to the joint venture.
This activity was levered 75% or 3:1, so about $100 million was funded from the non-recourse warehouse credit facility.
We'll will continue to fund assets into GBX Leasing as they become available in Q4 and beyond.
And we also have several growth opportunities on the radar.
From a commercial standpoint, GBX Leasing is a strong complement to our integrated business model that enhances our distribution strategy to direct customers, operating lessors, industrial shippers, and our syndication partners, while also creating a new annuity stream of tax-advantaged cash flows.
GBX Leasing is consolidated in the leasing and services segment of our financial segment with our partner's share of earnings deducted in the net earnings attributable to non-controlling interest line.
Our capital market team, also part of leasing and services, syndicated 200 units in the quarter and yielded valuable operating leverage.
Our syndication model provide several tools to generate revenue and off-net margin.
Summer part of our normal course of business and others are available to be deployed opportunistically.
In Q3, we completed an asset sale transaction on favorable terms, which generated increased revenue and margin.
We expect syndication activity to increase meaningfully in the fourth quarter.
Our management services group also helps in leasing and services is a major strategic customer value.
We continue to drive growth in this business through a combination of onboarding new customers, expansion of services within the existing customer base, and growth and customer fleets, including the GBX Leasing service.
At the end of Q3, Greenbrier was providing management services on 445,000 railcars or about 26% of the total North American fleet.
Positive operating momentum is building as we enter fiscal 2022.
Given the strong performance in Q3 and continuing into Q4, we expect to exit the year with gross margins in the teens and further decisive actions taken over the last 15 months, Greenbrier is a stronger and leaner organization and is well positioned to benefit from the emerging economic recovery.
Greenbrier's Q3 results were much improved after a challenging first six months of fiscal 2021, a few highlights from the quarter.
Our revenues of $450 million which increased over 50% from Q2.
Each operating units increased sequentially, although increased production across North America and Europe was the largest driver.
We achieved month-over-month momentum coming out of lower production levels in our second fiscal quarter.
Book-to-bill of 1.2 times made up of deliveries of 3,300 units, which included 500 units from Brazil and orders of 3,800 new units.
This is the second consecutive quarter that book-to-bill exceeded 1 times.
Aggregate gross margin of nearly 16.7%.
In the quarter, we recognize the benefit from long-standing international warranty and contingencies after the expiration of the warranty period and final resolution of the contract.
Excluding this activity, manufacturing margin would have been in the low double digits.
Selling and administrative expense of $49 million increased sequentially, reflecting start-up costs from the formation of GBX Leasing and higher employee-related costs.
Adjusted net earnings attributable to Greenbrier of $23.3 million or $0.69 per share excludes $3.6 million or $0.10 per share of debt extinguishment losses, EBITDA of $53 million or 11.7% of revenue.
The effective tax rate in the quarter was a benefit of 64%.
This primarily reflects the tax benefits from accelerated depreciation associated with capital investments in our lease fleet, primarily GBX Leasing.
These deductions will be carried back to earlier high tax years under the CARES Act, resulting in a tax benefit in the quarter and cash tax refunds to be received in fiscal 2022.
We also recognized $1.9 million of gross costs, specifically related to COVID-19, employee and facility safety.
These costs have been trending down, but we expect to continue spending for the foreseeable future to ensure the safety of our employees.
Greenbrier continues to have a strong balance sheet and we are well positioned for the recovery that is emerging, including cash of $628 million and borrowing capacity of over $220 million, Greenbrier's liquidity remains healthy at $850 million plus another $149 million of initiatives in process.
In the quarter, Greenbrier began extending the maturities of its long-term debt with the issuance of $374 million of 2.875% senior convertible notes due in 2028.
Concurrently, we retired $257 million of senior convertible notes due in 2024, and maybe from time-to-time retire additional 2024 notes in privately negotiated transactions within the limitations of applicable securities regulations.
As part of the convertible note issuance process, we repurchased $20 million of our outstanding common stock.
The principal balance of the new convertible notes will be settled in cash with the flexibility to choose either cash or share settlement for any amounts paid over par.
The cash interest expense of the notes is about half of the cash cost of high yield notes.
Turning to capital spending, leasing and services is expected to spend approximately $130 million in 2021, reflecting continued investments into our lease fleet, primarily at GBX Leasing to maximize the tax benefits I spoke to earlier.
Manufacturing and wheels repair and parts capital expenditures are still expected to be about $35 million for the year, with spending focused on safety and required maintenance.
Spending will be higher in Q4 than in the prior few quarters as we supports the increasing production and business activity levels.
While we have extended the debt maturities of a portion of our capital structure, we will continue to opportunistically extend maturities as it makes sense for the rest of Greenbrier as long-term debt.
Today, Greenbrier's Board of Directors announced a dividend of $0.27 per share, which is our 29th consecutive dividend.
Looking ahead, Greenbrier expects the fourth quarter to be the strongest performance of the year.
In addition, a full quarter of increased production rates and increased business activity creates positive momentum into fiscal 2022.

user
q3 adjusted earnings per share $0.69.
q3 revenue $450 million versus refinitiv ibes estimate of $489.4 million.
expects q4 to be strongest performance of year.

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