Summary
In the quarterly earnings release, Greenbrier (GBX) noted that it had delivered only 800 cars compared to 1,300 last quarter and 2,200 during the comparable quarter in 2008. The decline in business will be a common theme for all railcar builders this quarter, and the outlook for the next twelve months is not encouraging. Deliveries are expected to keep falling for the rest of the year and possibly next year if the economy doesn’t show the classic “V” shaped recovery pattern in the GDP. Some builders will suffer more than others, and Greenbrier may be among the builders who see the most significant decline in new car production.
Analysis
At the end of the last quarter, Greenbrier mentioned that it would probably have to close its Mexican plant of Concarril during the summer and the recent announcement of layoffs was expected. The company has also ceased, or will soon stop building new railcars in its flagship plant in Portland OR, leaving it with only one plant producing new railcars, one that is owned by a Mexican partner in Monclova MX. Moreover, the main orders sustaining that plant are from a disputed contract with GE, which has greatly reduced its current commitments for deliveries and wants to cancel orders for cars beyond 2009.
During the last recession, the types of railcars for which Greenbrier is favored by car buyers remained in demand and allowed the company to expand its overall market share at the expense of other builders whose saw demand plummet for their main car types. During this recession, demand for Greenbrier’s main car types has dried up completely and is not expected to revive until 2011 at the earliest. Demand for car types dominated by other car builders has also contracted, but it is expected to recover sooner after the economy begins to grow again.
Unlike some of the other railcar builders, Greenbrier is a diversified railcar company, with activities in repairing, leasing, and managing a significant percentage of the national railcar fleet. Revenues from these operations should offset most, if not all of the losses in the new car side of the business. Notwithstanding past and possible future impairment charges, this company should survive the recession, albeit without any profits to report for the next few years.
