GATX Q1 2025 Earnings Call Transcript

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April 23, 2025
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Operator

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the GATX twenty twenty five First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

There Thank you. I would now like to turn the call over to Sherry Hellerman, Head of Investor Relations. Please go ahead.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

Thank you, Kate. Good morning, and thank you for joining GATX's twenty twenty five first quarter earnings call. I'm joined today by Bob Lyons, President and Chief Executive Officer and Paul Chitterton, Executive Vice President and President of Rail North America. Tom Ellman, our Chief Financial Officer, was called away on a family matter and will not be joining our call this morning. As a reminder, some of the information you'll hear during our discussion today will consist of forward looking statements.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10 ks for 2024 and our other filings with the SEC. GATX assumes no obligation to update or revise any forward looking statements to reflect subsequent events or circumstances. Before we begin, I'd like to remind everyone that our Annual Shareholders Meeting is scheduled on Friday, April 25 at nine a. M.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

Central Time and will be held in a virtual only meeting format. I will provide a quick overview of our twenty twenty five first quarter results, and then I'll turn it over to Bob for additional commentary on the current market environment. After that, we'll open the call up for questions. Earlier today, GATX reported twenty twenty five first quarter net income of 78,600,000.0 or $2.15 per diluted share. This compares to twenty twenty four first quarter net income of $74,300,000 or $2.3 per diluted share.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

The twenty twenty four first quarter results included a net positive impact of $600,000 or $02 per diluted share from tax adjustments and other items. These items are detailed in the supplemental information section of our earnings release. Our first quarter results were in line with our expectations coming into the year. In North America, supply and demand dynamics for railcars continue to remain in balance and demand for our existing fleet was solid. GATX Rail North America's fleet utilization remained high at 99.2% at quarter end And the renewal success rate was strong at 85.1%.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

We continue to achieve renewal lease rate increases while extending term. The renewal rate change of GATX's Lease Price Index was 24.5%, and the average renewal term was sixty one months. Additionally, we continue to successfully place new railcars from our committed supply agreement with a diverse customer base. We've placed over 5,700 railcars from our 2022 Trinity supply agreement. Our earliest available scheduled delivery under this supply agreement is in the first quarter of twenty twenty six.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

In addition to those ordered from our committed supply agreement, we also found attractive investment opportunities to acquire railcars in the secondary market. Total investment volume in North America during the quarter was over $227,000,000 We also continue to capitalize on a robust secondary market by selectively selling railcars, thereby optimizing our portfolio and generating over $30,000,000 in asset remarketing income in the quarter. On the maintenance front, first quarter net maintenance expense was higher compared to a year ago, driven by higher tank compliance activity, which we expected and have discussed previously. The flow of cars into the shops to meet the required regulatory compliance will continue as the year progresses, consistent with what we outlined at the beginning of the year. Within Rail International, the European railcar leasing market remained stable, evidenced by GATX Rail Europe fleet utilization of 95.1 at quarter end.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

GATX Rail India's fleet utilization remained very high at 99.6%. We continue to experience success in pushing up renewal lease rates for most car types, reflecting continued demand for Rail International's assets. Investment volume was over $62,000,000 during the first quarter as we continue to expand and diversify our fleets in Europe and India. Turning to engine leasing. RRPF, our joint venture with Rolls Royce, and our wholly owned engine portfolio both performed well and produced strong first quarter financial results, reflective of robust demand for aircraft spare engines globally.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

At this time, we continue to expect full year earnings to be in the range of $8.3 to $8.7 per diluted share, excluding any impact from tax adjustments or other items. And with that quick overview, I will now turn the call over to Bob.

Robert Lyons
Robert Lyons
President & CEO at GATX

Thank you, Sherry, and thank you all for joining the call this morning. Appreciate the time. As I talked to Tom Ellman last night about his schedule for today, I volunteered to sit in as de facto CFO in his absence. It also occurred to me that well, I spent fourteen years in that role previously. Tom is far better at that job than I ever was.

Robert Lyons
Robert Lyons
President & CEO at GATX

And so you're stuck with me today for finance related questions. But happy to have Paul here with me to talk about anything you might want to discuss in the North American rail market. With the uncertainty around the impact of tariffs in North America and abroad, along with the general uncertainty and economic conditions, I thought I'd open with some brief comments on those topics and hopefully address a number of your questions upfront. First of all, the impact of the recent tariff announcements has to date had very little impact on our business and financial results, I think reflective of what Sherry already outlined this morning. That's not surprising given that our installed base of assets around the globe is generally on long term lease with strong customers and we enter each year with a pretty predictable level of cash flow from our lease portfolio.

Robert Lyons
Robert Lyons
President & CEO at GATX

On a longer term basis, however, we're an economically driven company and a sustained pare back in economic growth as a result of tariffs or global tensions could affect GATX at some point. We certainly aren't seeing that today, but it's not outside the realm of possibility. Talking about each of our markets separately, we'll start with Rail North America. Here, our customers continue to need the railcars that they have in their fleets today, and you see that through the really high renewal success rate that we had and also the LPI at 24.5%. In short, our customers continue to need the cars that they have in their current fleet.

Robert Lyons
Robert Lyons
President & CEO at GATX

Additionally, the supply and demand across the North American rail new car market remains largely imbalanced. We're seeing the railcar builders being very disciplined about their production plans. On a direct basis, as it relates to tariffs, we do source railcars out of Mexico. However, previously enacted exemptions for cross border movement of cars remain in place, so there's no direct impact on the cost at this point. General inflationary factors remain in play, and that could continue to drive upward pressure on new car costs.

Robert Lyons
Robert Lyons
President & CEO at GATX

As we've noted before, as the cost of the new car rises, there's a residual benefit to those who own large fleets of existing cars like GATX. That said, on the direct impact, the broader risk of tariffs in North America as it is globally is more indirect. For example, economic conditions. Obviously, we can't dictate economic conditions, but we're prepared for any scenario. Another would be commodity flows.

Robert Lyons
Robert Lyons
President & CEO at GATX

If there are certain commodities that either benefit or are hurt by tariffs, we could see that impact and demand for certain car types. It's really difficult to predict which car types, so I'm not even gonna try. But I will remind people that we have an incredibly diverse fleet. We have over 800 customers, and we serve and move over 600 different types of commodities in our cars. So that provides a lot of flexibility.

Robert Lyons
Robert Lyons
President & CEO at GATX

Interest rate movements are also hard to predict these days, but we have a really strong balance sheet and an investment grade rating. We have a lot of funding flexibility. So to summarize in North America, the direct impact of the tariffs are limited and not impactful in the near term, while the longer term risks are indirect and certainly more difficult to assess right now. But as many of you know, at GATX, we've seen pretty much every environment imaginable through our history, and we're fundamentally wired for and prepared for challenging situations should they occur. To the extent there are changes in market fundamentals, we'll obviously share that with you when we see it, as we always do.

Robert Lyons
Robert Lyons
President & CEO at GATX

With GATX, Rail North America is a nimble organization, and we will adjust if needed. In fact, in times of uncertainty, we often see some of our most attractive investment opportunities. In Europe, we're seeing stable demand for the largest portions of our fleet and you saw that in their utilization numbers as well. As for the direct impact of tariffs, we source cars and components largely within Europe. So there are no direct impacts from tariffs today of note.

Robert Lyons
Robert Lyons
President & CEO at GATX

But similar to North America, the longer term impacts are indirect. And they potentially are meaningful, also very difficult to quantify. The economic environment in Europe was already pretty tepid, and that was before the developments over the course of the last month. Germany is a very important market, the largest market we serve, not only for the automotive trade, but also they serve Germany serves as EU's base for global chemical trade, and the economy is predicated and predicted to slow as global tensions rise. So we'll have to navigate that.

Robert Lyons
Robert Lyons
President & CEO at GATX

But similar to Rail North America, GATX Rail Europe is a great franchise, very strong, diverse fleet and high quality customers across a range of end markets. I'm highly confident our experienced team there will adapt and adjust as needed. In India, similar to Europe, there's a closed loop system with railcars and most components being sourced in country, so the direct impacts are muted. We also have the benefit in India of the fact that the overall infrastructure development needs remain so strong that tariffs or global turmoil, even over a medium term, will be unlikely to alter the long term outlook for infrastructure investment. Turning to engine leasing.

Robert Lyons
Robert Lyons
President & CEO at GATX

Demand for spare engines currently remains very high, and the need for spares is robust. In fact, our investment pipeline at RRPF, that's our joint venture investment with Rolls Royce, that pipeline is among the strongest across GATX. That said, a slowdown in global air travel, if it occurred over a protracted period, could temper demand for engines. We're always prepared for that scenario, and the team at RRPF and at Rolls is always prepared for that scenario, especially given that past macro shocks to travel like nineeleven, the pandemic or the war in Ukraine, they happened really quickly and they had a significant negative impact on travel and engine demand. However, what those situations also showed is that global air travel is extremely resilient as is the demand for the underlying assets and our engines.

Robert Lyons
Robert Lyons
President & CEO at GATX

They are a great store of value through cycles. At TriFleet, our tank container leasing business, the dynamics are a bit more nuanced. The hard asset itself, the tank container, that asset moves freely across global markets and does not attract any tariff risk as long as the assets continue to move. But the products within the tanks, particularly chemicals, could attract tariffs depending on their origin and destination. For example, chemicals moving between China and The U.

Robert Lyons
Robert Lyons
President & CEO at GATX

S. Would be subject to tariffs, and you could see some demand on the impact for our assets. At present, we've not seen that. We have not seen a material impact on demand. But obviously, that's something we and others in the industry are watching pretty closely.

Robert Lyons
Robert Lyons
President & CEO at GATX

I'll summarize and close my comments by stating that once again our focus as always at GATX is on the long term. Our assets hold value through cycles. Our customers are strong, sophisticated and resilient and the assets we provide to them serve a critical function. As evidenced by the fact that we reiterated our full year guidance today, we remain confident in our results for 2025. Like most companies, we'll remain on alert for signs of more direct impacts and demand fundamentals as a result of tariffs.

Robert Lyons
Robert Lyons
President & CEO at GATX

I'd certainly prefer a more stable environment. I think most corporations would. But it's something we are it appears we're entering a period of greater macroeconomic volatility. Historically, GATX has not only managed well through uncertain times, but we thrive by finding unique investment opportunities. And we'll strive to do the same as we navigate this market.

Robert Lyons
Robert Lyons
President & CEO at GATX

So with that, we'll open it up for questions.

Operator

Your first question comes from the line of Bascome Majors with Susquehanna. Please go ahead.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Thank you for the candid discussion on the concern and uncertainty around the second and third order impacts of tariffs. Can Is this an environment where you feel like you would have raised guidance if it weren't for that uncertainty and the unpredictability of it in the back half of the year?

Robert Lyons
Robert Lyons
President & CEO at GATX

Vascon, thanks for the question. Ordinarily, GATX doesn't really adjust earnings in the first quarter. We only provide annual guidance, as you know. And it's a little difficult for us to kind of assess the full year one quarter out of the gate. We tend to be a little bit more deliberate.

Robert Lyons
Robert Lyons
President & CEO at GATX

When we have raised guidance in the past or changed guidance in the past, it's usually been at the mid year point. So even this forget tariffs, forget the macroeconomic volatility, the uncertainty. I think if we look back in history, the first quarter, we usually reiterate, and that's what we're comfortable doing today. The first quarter absolutely played out the way we thought it would, and our expectations remain right in that $8.30 to $8.70 range. There was nothing that occurred during the quarter that would materially alter our thoughts around that.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Thank you for that. And we've certainly seen that mid year pattern over many years, and I appreciate you reminding us. You know, higher level, you guys and, you know, particularly, you know, Paul at the ref conference a few weeks ago, really articulated, you know, maybe the uniqueness of this cycle for railcar leasing in in in your businesses and that, you know, you've really had a tremendous amount of growth in your core markets without help from really railroad volumes, mostly from, you know, supply side inflation, be it steel prices, components, labor that's driving up the cost of new cars and replacement cost of, you many of the decades old assets you own, but but also, you know, a mix of reduction discipline and perhaps constraints on the the railcar OE side in in North America. I mean, if anything, the, you know, the glass half full take here from our perspective would be that, you know, new railcar production is getting more, not less constrained in this environment. Certainly, of those inflationary factors are ticking back up after ticking down for the better part of a couple of years from the pandemic peak.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

How do you feel about the supply side thesis today? And is it really just we have to balance some of the demand destruction potential even though demand really hasn't been a driver of this upcycle in railcar leasing?

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

So, Bascome, this is Paul speaking, and thanks for the question. It's a very good question. And yes, what I would say is we continue to believe in what we've been calling the supply led market thesis and the self correcting market thesis, which is basically to say exactly as you described that, it is relative to history, expensive to build and expensive to finance new railcars, and that has been a constraint on new car production. If you look at the ARCI numbers for the last couple of quarters, we're on an annualized run rate of around 20,000 cars of orders per year, which is well below the replacement rate, well below what we've seen in history. And as you correctly note, that is supportive of our business when we have a large and diverse installed fleet of railcars.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

So that thesis continues to hold. And just to add to that, I would say that we talked about this self correcting market as we've described it, which is to say since there isn't an overhang of idle cars in the market in any one of our markets when we see a little bit of weakness, we tend to see scrapping pickup, which again is supported by a fairly high scrap price right now and the market corrects back into balance fairly quickly, which is as compared to say the Great Recession when that did not occur. So yes, overall, the thesis that we've articulated that this is a supportive market for our core installed fleet really continues to be the case.

Robert Lyons
Robert Lyons
President & CEO at GATX

Bascome, I'd add to that too that when we provided our guidance at the beginning of the year, I'd have to look back at my specific comments, but I believe I indicated that our forecast, our expectations are certainly not predicated on carload growth. To be clear, we would welcome that, but we're not dependent on We came into the year expecting very muted carload growth. But other factors at play are very much beneficial to GATX in this market.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Lastly, and then I'll pass it on. When you think about the sort of demand risk that you highlighted and the uncertainty that,

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

you know,

Bascome Majors
Senior Equity Research Analyst at Susquehanna

that entails in a lot of your markets, Is do you feel more risk and uncertainty and variability in, say, aerospace versus North American rail or Europe and India rail? I just want to understand maybe directionally if you could rank order where you feel visibility is is more uncertain versus more certain. Thank you.

Robert Lyons
Robert Lyons
President & CEO at GATX

Sure. And I would say if I had to kind of rank order all the markets we're in or the regions of the world that we're in, Probably the one right now with the most uncertainty would be on the rail side in Europe just because of, you know, the the different factors at play there. And and we're already we're coming into the year with pretty minimal GDP growth in Europe. But again, we have a large base of installed assets in that market, highly predictable cash flow coming into the year. So if there's a little bit more stress in that market, it's not really going to change our overall outlook.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Thank you.

Operator

Your next question comes from the line of Andrush Tomcic with Goldman Sachs. Please go ahead.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Good morning. Thanks for taking my questions. First, could you just provide more color on the macro volatility that you mentioned and how it might specifically impact the North America railcar segment? And geographically, if you could get into that as well. I know you touched on it a little bit earlier, but are there any comments from customers that you could pass along sort of intra quarter or here into April that we could take away?

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Thanks.

Robert Lyons
Robert Lyons
President & CEO at GATX

Sure. I'll start there and Paul can fill in too if he wants to add. But from a commercial perspective, I think the volatility, the uncertainty of the markets where we see that manifest itself is in our customers' longer term growth plans. The more difficult it is for them to predict three to five years out, the more difficult it is for them to size their fleets accordingly and consider growth opportunities in their railcar fleets. So if we see anything, it's maybe longer decision periods or some uncertainty among our customers.

Robert Lyons
Robert Lyons
President & CEO at GATX

The flip side of that, as I mentioned at the open, is the installed base, the cars they have in their fleet today with 80 plus percent renewal success rate and 20 roughly 25% LPI, it's pretty clear they're holding on to what they have and committing on those long term. So that's a very good sign. From a pure intermediate standpoint in terms of fleet growth, it's a little bit tougher and that's maybe where we see some hesitancy in terms of committing.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

Yes. And I'll just add, I think echoing everything Bob said and just adding that to some degree, it's what customers say and what they do. Our customers in North America certainly talk about uncertainty. But as Bob said, when you look at our renewal success and our pricing, they're holding on to the assets that they have. And I think that speaks to the fact that uncertainty cuts both ways.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

And our customers don't want to let go of the assets that they have even if they feel that uncertainty because they don't they're not necessarily saying, we definitely need to shrink our fleets. In fact, quite the opposite, I think they're saying, we do need to hold on to the assets that we have today.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Thanks. And just as a quick follow-up there. In North America, is our customers buying into the notion that manufacturing could come back, sort of to The U. S, Mexico, Canada, the reshoring theme. Is that a consideration for customers?

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

And I know you mentioned not letting go of their fleet, but is there a consideration that customers could actually increase the fleet over time given those near shoring trends?

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

So it's a great question to which I'm going to give an unsatisfying answer, I'm afraid. We have a very large customer base, Bob said, over 800 customers in North America. And we get a wide range of comments from them on that. I will say we have some customers that buy that thesis and say that they're going to lean into that thesis. We have others who don't.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

And it really varies widely from customer to customer, from segment to segment. I will say to the customers that have commented that they do buy that thesis, it's very much with a long term bent. It's not something that's going to affect us one way or the other in the immediate term.

Robert Lyons
Robert Lyons
President & CEO at GATX

Yes. And I to follow on Paul's point, we renew roughly 20,000 cars in a given year. That's a lot of at bats with that 800 plus customers that we have in North America. And we survey them and talk to them all the time. If there was a clear direction we could pull from that, we'd share it with you.

Robert Lyons
Robert Lyons
President & CEO at GATX

But it's as Paul said, it's kind of getting 800 different opinions at this point in time.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

No, it makes sense. Appreciate that. And also thanks for the tariff comments earlier in the opening remarks. I just wanted to clarify, if you are seeing new railcar prices currently going higher, already and given this tariffs on steel inputs. And then how much are you able to pass through to customers if that is the case or if that will become the case?

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Thank you.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

Sure. Yes. So what I would say is the general and I'm going talk, by the way, about the general level of new car prices as opposed to the prices GATX specifically pays because obviously our contracts with the builders are confidential. But the general level of new car prices right now, we do see at relatively high levels, I would say, for some freight car types, we're seeing them pretty close to record highs. For tank cars, not as close to record highs, but certainly close.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

And for context, when we look at both hot rolled coil steel and plate steel, we're seeing input prices that are certainly at twelve month highs and are quite high relative to history. So you are definitely seeing the general level of new car prices quite high these days. In terms of the ability to pass it on to customers, what I would say is most of the pricing events in our fleet are in our existing fleet. And so the relationship between the new car price and the price on the existing fleet is very indirect. It absolutely has an effect because, of course, for some of our customers, the alternative to renewing our cars is procuring a new car.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

So there's certainly a relationship there, but it's indirect. In terms of the relationship between the new cars we're buying and the price we're getting, what I'll say is we continue to earn reasonable returns on our new car deployments. And I would say those returns maybe are a little bit compressed relative to where they've been, but they're still in the acceptable range.

Robert Lyons
Robert Lyons
President & CEO at GATX

Yes. And I think it's fair to say renewing cars in this market, obviously at 80 plus percent renewal success rate, we're doing very well on that front. New car placements, it's more competitive. It's definitely more challenging. And the fact that you have other lessors and the builders all pursuing a limited pool of new car opportunities.

Robert Lyons
Robert Lyons
President & CEO at GATX

So the pricing is a little bit more aggressive on that front.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Got it. And then lastly for me, just on the secondary market. Valuations, have they gone higher on the back of those new car commentary? And then what are the expectations for the remainder of this year for remarketing income? Is it still down year over year just to bake in some conservatism?

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Or is that still the expectation? Thanks.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

Well, we actually did not necessarily we forecast or we budgeted a modest a very, very modest decrease in remarketing income. But essentially, we budgeted a year that was going to be a lot like last year from a remarketing standpoint. So we budgeted as though this was going to be a good remarketing year, and we continue to have that view. Valuations in the secondary market have held up nicely. And whether that's a direct result of the fact that new car pricing is high is difficult to say, but that very likely has something to do with it.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

But in general, we are still seeing a good number of participants in the market. So the breadth and the depth of the market is good. We get good responses to the packages we put into the market. So overall, at this point, I would say we continue to see a very supportive secondary market within North America.

Robert Lyons
Robert Lyons
President & CEO at GATX

Yes. In 2024, we had roughly 120,000,000 of remarketing income. We came into the year and said we thought that number would be between 100,000,000 and 110,000,000 this year. Still feel very good about that. And that is a very, very healthy remarketing year for us.

Robert Lyons
Robert Lyons
President & CEO at GATX

So optimistic about that.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Thanks. Appreciate the time.

Operator

Your next question comes from the line of Brandon McCarthy with Sidoti. Please go ahead.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Great. Good morning, everybody. Thanks for taking my questions here. Just wanted to start off with the engine leasing business. Looks like a really strong quarter here.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

I wanted to tie that into the into your CapEx guidance. I think you were looking for about $1,400,000,000 heading into 2025. Just curious if kind of the macro uncertainty gives you pause on that front, I guess, from a railcar perspective and also from the engine spare aircraft engine perspective?

Robert Lyons
Robert Lyons
President & CEO at GATX

Yes. For direct investments in engines coming into 2025, our forecast was similar to 2024, which it was right around $250,000,000 for direct investment in engines. Still expect somewhere to be somewhere in that range. It could move around a little bit depending on Rolls Royce's sales activity as well. On top of that, I would add that we expected Rolls Royce and Partners Finance, our joint venture activity.

Robert Lyons
Robert Lyons
President & CEO at GATX

Those investments don't show up directly in our cash flows. It's all through the JV. They were anticipating a really strong year of north of $800,000,000 And as I mentioned in my opening comments, that pipeline is really strong. So I think we'll be there or above with at the JV level. So really good year of investment activity.

Robert Lyons
Robert Lyons
President & CEO at GATX

One nuance about that business, even in uncertain times, if if air travel declines and it it happens over a protracted period, oftentimes, you see airlines look for liquidity. And so sale leaseback opportunities with airlines actually increase during more challenging times. So I'm sure our team at Rolls Royce and Partners Finance will be on the lookout for that. Overall investment in volume for the year, you hit the number on the head. We expected coming in to be at $1,000,000,000 We did just under $300,000,000 in the first quarter totally across GATX.

Robert Lyons
Robert Lyons
President & CEO at GATX

Still expect to be in that same level, that same $1,000,000,000 And at Rail North America, we were in the $800,000,000 range for 2025 on our expectation. Still see that occurring, may come off. Mean, part of that's depending on secondary markets, so it could come off a little bit. But anything up in that $800,000,000 range is a really, by historical standards, a really strong year for North American Rail.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Great. That's helpful. I appreciate the color. And maybe just from a demand perspective, you mentioned if we see a pullback in international travel that could impact the business. But can you tie that into maybe how the or I guess maybe can you discuss how that ties into the contractual mandated maintenance schedule of these assets?

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

I think it's every three to five years or so that there's mandated maintenance.

Robert Lyons
Robert Lyons
President & CEO at GATX

Are we talking about on the engine side of the business?

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Correct. Yes.

Robert Lyons
Robert Lyons
President & CEO at GATX

Yeah. We don't see any significant change in the maintenance profile or expectations for maintenance activity within the engine leasing side, whether directly owned or at RRPF. So no significant change there.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Okay. Okay. Switching gears, just wanted to talk about the balance sheet. I know you maintain a very strong balance sheet, investment grade ratings, and I saw recourse leverage tick down in the first quarter. Are you comfortable with where interest expense is now?

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

And I guess what interest rate environment is really baked into the guidance for this year?

Robert Lyons
Robert Lyons
President & CEO at GATX

Well, we're right in the zip code of what we baked in for the year. Maybe so no significant pickup or degradation from where rates are today versus what we thought coming into the year. Total interest and depreciation last year was just over $500,000,000 We expected that number to go up meaningfully in 2025 in magnitude of 40,000,000 and we're still on course for that. So we did anticipate interest rate increase in 2025. The first quarter nothing in the first quarter would change our estimate of where we're going to end on a full year basis.

Robert Lyons
Robert Lyons
President & CEO at GATX

Overall balance sheet, yes, still in very, very strong condition. Leverage is at a very good spot. Our investment grade rating is extremely important to GATX. We're mindful of that all the time. It gives us great flexibility and funding.

Robert Lyons
Robert Lyons
President & CEO at GATX

And so we're going to keep leverage kind of right near where we're at today.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Great. And one more question for me. Just wanted to take a look at Rail Europe. I think I saw that there was a pretty sizable amount of railcars coming up for renewal in 2025. Can you touch on the renewal success rate there and maybe how that ties into the outlook for Rail International?

Robert Lyons
Robert Lyons
President & CEO at GATX

Yes. The lease terms in Europe are always shorter than they are in North America. So where we turn maybe onefive or so of our fleet in a given year in North America, it's about onethree that turns every year in Rail Europe. So that's typical of that market. It's just historically and that's industry wide.

Robert Lyons
Robert Lyons
President & CEO at GATX

That's not unique to GATX Rail Europe. It's a two to three year lease market. So nothing out of the ordinary there. Our renewal success rate was pretty high other than I would say in we continue to see significant challenges in the intermodal market. We've talked about that on prior calls.

Robert Lyons
Robert Lyons
President & CEO at GATX

So our utilization in the intermodal fleet is lower than certainly lower than where we'd like it and it's going to take a while to come back. So that is putting some undue pressure on overall utilization at GATX Rail Europe, but we expected that coming into the year.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Got it. That makes sense. Thanks everybody.

Robert Lyons
Robert Lyons
President & CEO at GATX

Thank you.

Operator

Your next question comes from the line of Justin Bergner Please go ahead.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Good morning, Bob. Good morning, Paul. Good morning, Sherry.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Good morning.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

Good morning.

Robert Lyons
Robert Lyons
President & CEO at GATX

Justin, how are you?

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Good. Thanks. Hope the same for you guys. To start, our sequential lease rates still trending flat kind of on a spot basis?

Robert Lyons
Robert Lyons
President & CEO at GATX

Actually, this quarter, they were down slightly from where they were in the fourth quarter. Again, nothing that we didn't anticipate coming into the year, but on a sequential basis, down a little bit.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. Gotcha.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

It seems like you were pretty bullish on the secondary market in the comments in your press release and the comments to start the call. Would you say that your view of the secondary market has strengthened from, you know, three months ago, or is it about the same?

Robert Lyons
Robert Lyons
President & CEO at GATX

I would say it's very much the same what we expected coming into the year. We didn't expect the macro volatility that's gone on kind of whether it be tariffs globally, what have you. Interest rates moving pretty sharply from week to week. That we did not anticipate coming into the year. So I would say the fact that the secondary market has held up has continued to be as strong as it is and the pipeline looks as good as it is, I think it speaks volumes about the quality of the underlying assets.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

Yes. And I'll just add too. There is capital that wants to invest in these assets. And because the new car market looks to be a pretty small market this year, that capital if it wants to invest is going flow into the secondary market. And so that's one of the reasons for our confidence in the continued strength.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. That makes sense. Just some quick cleanup questions. Your cash balance ending the quarter was higher than normal. Is that just money that you're getting prepared for investment needs later in the year?

Robert Lyons
Robert Lyons
President & CEO at GATX

Yes, certainly higher than normal. We did one bond offering during the first quarter. As we were looking out over the course of the year, the bond market was fairly unpredictable during the first quarter. We're always looking long term on our funding needs. We saw a relatively quiet period for over a course of a couple of weeks, so we took that opportunity to do an $800,000,000 issuance in advance of when I think historically we would have done so.

Robert Lyons
Robert Lyons
President & CEO at GATX

But the demand was great. We did both 10s and 30s at a very good coupon and essentially prefunded a pretty significant portion of our financing needs for 2025.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. Then lastly, within our within the RRPF joint venture, I mean, the equity income was high. Was there an unusually high amount of secondary sales and gains on secondary sales in the joint venture this quarter?

Robert Lyons
Robert Lyons
President & CEO at GATX

No. We came into the year expecting our total income at the RRPF joint venture to be up 20,000,000 to $30,000,000 versus where we were in 2024, within engine leasing total, excuse me, not just within the RRPF. Baked into that was the expectation that the income mix at RRPF would be about 65% operating income and about 35% remarketing income, and and that's almost exactly what it was in the first quarter.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Okay. It was only 35% or so remarketing income in the first quarter.

Brendan McCarthy
Equity Research Analyst at Sidoti & Company

Yes.

Justin Bergner
Portfolio Manager, Research Analyst at Gabelli Funds

Good to know. Alright. Well, thank you for taking all my questions.

Robert Lyons
Robert Lyons
President & CEO at GATX

Thank you, Justin.

Operator

Your next question comes from the line of Bascome Majors with Susquehanna. Please go ahead.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Thanks for taking my follow-up. Justin just asked about the sequential lease rate trend. I think you sit down a little bit. Is there any delineation between tank cars and freight cars in that? And maybe historically, you've kind of talked about your long term lease rate expectations and whether cars types, by the way you define them, percentage that are above or below?

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Just any update on how you look at the lease rate attractiveness in a historical context over a little longer term? Thank you.

Robert Lyons
Robert Lyons
President & CEO at GATX

Sure. No significant delineation between tank and freight in the first quarter in terms of the sequential the change in the sequential rates. Overall lease rates, I would say in the first quarter by and large came in as we expected. No significant deviation from the forecast we had in place. The LPI came in very consistent with what we thought.

Robert Lyons
Robert Lyons
President & CEO at GATX

And I would say on a historical basis, we're continuing to see lease rates at very, very attractive levels. And Paul can comment more on that.

Paul Titterton
Paul Titterton
Executive VP & President of Rail North America at GATX

Yes. Relative to our model, we have a long run expectation for every car type in our fleet. And in general across the fleet rates remain elevated relative to our long term expectations. So and obviously we're constantly refining and revising our model on a regular cadence to reflect additional data gathered. But yes, rates continue to be strong relative to our view of long run levels.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Thank you.

Robert Lyons
Robert Lyons
President & CEO at GATX

Thank you.

Operator

I will now turn the call back to Sherry Hellerman for closing remarks.

Shari Hellerman
Shari Hellerman
Senior Director of Investor Relations, ESG & External Communications at GATX

I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Thank you.

Operator

Ladies and gentlemen, that concludes today's call. You cannot disconnect. Thank you, and have a great day.

Executives
    • Shari Hellerman
      Shari Hellerman
      Senior Director of Investor Relations, ESG & External Communications
    • Robert Lyons
      Robert Lyons
      President & CEO
    • Paul Titterton
      Paul Titterton
      Executive VP & President of Rail North America
Analysts
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Earnings Conference Call
GATX Q1 2025
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