Trinity Industries Q1 2025 Earnings Call Transcript

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May 1, 2025
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Operator

Good morning, and welcome to the Trinity Industries, Inc. First Quarter twenty twenty five Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would now like to turn the conference over to Leanne Mann, Vice President, Investor Relations. Please go ahead.

Leigh Anne Mann
Leigh Anne Mann
VP, IR at Trinity Industries

Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's first quarter twenty twenty five financial results conference call. Our prepared remarks will include comments from Gene Savage, Trinity's Chief Executive Officer and President and Eric Marketo, the company's Chief Financial Officer. We will hold a Q and A session following the prepared remarks from our leaders.

Leigh Anne Mann
Leigh Anne Mann
VP, IR at Trinity Industries

During the call today, we will reference certain non GAAP financial metrics. The reconciliations of the non GAAP metrics to comparable GAAP measures are provided in the appendix of the quarterly investor slides, which are accessible on our Investor Relations website at www.trin.net. These slides are under the Events and Presentations portion of the website along with the first quarter earnings conference call event link. A replay of today's call will be available after 10:30 a. M.

Leigh Anne Mann
Leigh Anne Mann
VP, IR at Trinity Industries

Eastern Time through midnight on 05/08/2025. Replay information is available under the Events and Presentations page on our Investor Relations website. It is now my pleasure to turn the call over to Jean.

Jean Savage
President & CEO at Trinity Industries

Thank you, Leanne, and good morning, everyone. Before we begin with financial and operational results, I would like to congratulate our Jonesboro maintenance facility on achieving a significant milestone in March. This facility has gone five years without a lost time incident. Safety is a core value at Trinity, and this achievement is certainly worth acknowledging. As you may have heard from other companies this earnings cycle, 2025 is a year of uncertainty.

Jean Savage
President & CEO at Trinity Industries

While we are not immune to the current macroeconomic challenges, we are operating with agility and adaptability to respond to customers and market conditions appropriately. The railcar manufacturing industry has always had a cyclical element to it. And while we continue to believe the fundamentals of the industry have changed and this cycle is being led by the replacement level demand, the current environment gives us the opportunity to prove the resiliency of our platform. In the first quarter, GAAP earnings per share for Trinity Industries were $0.29 on revenues of $585,000,000 Our work to lower the breakeven on our railcars and improve the Rail Products Group margins through the cycle is reflected in this environment. Despite 38% fewer external deliveries year over year, our EPS was only down 12%, highlighting the strength and resilience of our platform.

Jean Savage
President & CEO at Trinity Industries

I am proud of our team for that work. Furthermore, our last twelve months adjusted return on equity was 14.2%, showing we continue efficiently deploying our capital to generate return. The current environment will benefit our lease fleet of 144,000 owned and managed railcars. Our customers need the railcars they have in their fleet, and higher cost and interest rates have been and continue to support lease rate expansion, improving our businesses' overall returns. The forward looking metrics for our lease fleet remains favorable, with fleet utilization at 96.8% and our future lease rate differential, or FLRD, at 17.9%.

Jean Savage
President & CEO at Trinity Industries

In summary, we expect macroeconomic forces in 2025 to have some effect on those, whether through inflation, recession or other economic conditions. But we also expect to continue to be opportunistic as a railcar lessor, disciplined as a railcar builder and innovative with our customers. Moving to a market update. Market uncertainty in the first quarter continued to slow conversions of inquiries to orders. Inquiry levels at the beginning of twenty twenty five were the highest they've been in several years, But customers are taking longer to make capital decisions.

Jean Savage
President & CEO at Trinity Industries

We think industrial production is the best predictor of growth for our business. And while macro sentiment and confidence are trending negatively due to market uncertainty, industrial production remains positive. Over the next several quarters, decisions by our customers for new railcar orders will allow us to manage our production lines efficiently. Our current expectations for industry railcar deliveries this year are 28,000 to 33,000 railcars. While we cannot control the volatility in the current market, as an organization, we are focused on making prudent decisions to support the long term investment in our fleet and growth of our business.

Jean Savage
President & CEO at Trinity Industries

Currently, we expect minimal direct cost pressures from current policy proposals. However, we have seen an impact to demand and, subsequently, revenue. Based on industry data, we saw the North American railcar fleet contract for the first time in about two years. This is further evidence that builders and lessors are remaining disciplined, limiting speculative purchases and responding to replacement needs. We did see attrition outpaced deliveries in Q1, and we would expect that to continue as long as customers delay buying decisions.

Jean Savage
President & CEO at Trinity Industries

Railcar activity stepped up in March with less than 19% of the fleet in storage. The relatively low level of railcars in storage is consistent with the healthy fleet utilization and renewal rate increases we have sustained. I would now like to provide some segment highlights for the quarter, beginning with the railcar leasing and services segment, which includes our leasing, maintenance and digital and logistics services businesses. As noted at the top of the call, our leasing business continues to perform at or above our expectations. Our FLRD has been double digit positive for twelve quarters.

Jean Savage
President & CEO at Trinity Industries

And in that time, we have repriced about 58% of our fleet. In the first quarter, renewal lease rates were 29.5% above expiring rates, and fleet utilization remained favorable at nearly 97% with a renewal success rate of 75%, demonstrating that customers are holding on to their existing equipment, and we continue to renew leases upward to market rates. We expect these positive trends to continue as lower railcar deliveries this year continues driving tightness in the market. Looking at the first quarter results, revenues were flat year over year as higher lease rates were partially offset by a lower volume of external repairs. Furthermore, weather impacted our first quarter results for the Maintenance business with lost weeks in January and February.

Jean Savage
President & CEO at Trinity Industries

We are also in a heavy tank car compliance year, which increases maintenance costs to our fleet. In summary, leasing segment operating margin was up year over year due to higher lease rates and higher gains on lease portfolio sales, partially offset by lower volume of external repairs in our maintenance services business. In the quarter, we completed $34,000,000 of lease portfolio sales and achieved gains of $6,000,000 Our quarterly net lease fleet investment was $87,000,000 in line with our full year guidance. The hard assets of our leasing business provide stable returns, which makes for a compelling investment thesis in an uncertain market. Moving to Rail Products Group, which includes our railcar manufacturing and our railcar parts businesses.

Jean Savage
President & CEO at Trinity Industries

Our results in this segment reflect the current operating environment. We delivered 3,060 new railcars in the quarter and received orders for six ninety five railcars. Evidence of the delayed investment decisions I have previously acknowledged and the lumpiness of orders quarter to quarter. As a result, quarterly revenue was down due to lower deliveries. Operating margin of 6.2% is down both sequentially and year over year.

Jean Savage
President & CEO at Trinity Industries

This margin includes costs associated with workforce rationalization. Our backlog at the end of the quarter was $1,900,000,000 and we have seen order activity improve in the second quarter. In a minute, Eric will provide updated guidance for the full year, but I wanted to acknowledge our guidance assumes that some of the inquiries we are seeing begin to convert to orders in the next few months, which will allow us to efficiently run our production line. We believe in the power of our leasing business and in the competitive and economic advantages our manufacturing and services businesses give to our lease fleet. Although short term volatility is outside our control, we are focused on making decisions that support the generation of long term economic value.

Jean Savage
President & CEO at Trinity Industries

I'll now turn the call over to Eric to talk through financial results as well as our updated guidance for 2025.

Eric Marchetto
Executive VP & CFO at Trinity Industries

Thank you, Jean, and good morning, everyone. I'll begin by discussing our first quarter financial statements, starting with the income statement. In the first quarter, we generated revenues of $585,000,000 reflecting lower external deliveries. Furthermore, 29% of our Rail Products Group revenues were eliminated as it went into our internal lease fleet. Our GAAP EPS from continuing operations was $0.29 in the quarter.

Eric Marchetto
Executive VP & CFO at Trinity Industries

We benefited in the quarter from lower corporate, interest and tax expenses. Moving to the cash flow statement, our quarterly cash from continuing operations was $78,000,000 and our net gains on lease portfolio sales were $6,000,000 in the quarter. We invested $9,000,000 in operating and administrative capital expenditures. We returned $33,000,000 to shareholders in the quarter, dollars 25,000,000 through our quarterly dividend and $8,000,000 in share repurchases. Our balance sheet is positioned for value creation and provides flexibility in an uncertain market.

Eric Marchetto
Executive VP & CFO at Trinity Industries

We have $920,000,000 of liquidity through our cash, revolver, and warehouse availability. Our loan to value of 66.2% on our wholly owned fleet is within our target range of 60% to 70. Now I want to talk about the expectations for the rest of 2025. As Gene noted, there is uncertainty in the market. We know the demand for railcars is out there given the aging profile of the fleet and solid inquiries we continue to receive from our customers.

Eric Marchetto
Executive VP & CFO at Trinity Industries

The pace at which these inquiries are converting to orders is slower than expected. We are lowering our full year industry delivery guidance to approximately 28,000 to 33,000 railcars. Our full year guidance assumes additional orders are received for delivery this year. Based on what is currently in our backlog and being manufactured, we expect the second quarter to be a low point for the year, but expect production, deliveries and subsequently earnings to pick up as we move into the back half of the year. Rail Products Group margins will be impacted by lower volumes and margin compression on new orders.

Eric Marchetto
Executive VP & CFO at Trinity Industries

Our current view is segment operating margin will be between 56% for the year. We are leaving our capital expenditure guidance for the year unchanged, dollars 45,000,000 to $55,000,000 for operating and administrative CapEx and $300,000,000 to $400,000,000 for net fleet investment. Net fleet investment guidance assumes a pickup in demand in the near term. The operating performance and cash flow generation of lease fleet remains strong. We see opportunities for lease fleet investments and expect continued strength in our fleet utilization.

Eric Marchetto
Executive VP & CFO at Trinity Industries

Lease rates are driven by many factors, but the most important is a balanced fleet, meaning there is not an excess of supply. This allows for rational and higher lease rates. In the current environment, the North American railcar fleet is imbalanced, evidenced by fleet utilization, rising lease rates, and renewal success rates. Furthermore, general inflationary pressure will drive new railcar prices upward, which will allow lessors to raise lease rates. And finally, we are refining our full year EPS guidance to a range of $1.4 to $1.6 per share.

Eric Marchetto
Executive VP & CFO at Trinity Industries

Our lease fleet continues to perform favorably, and our customers are holding on their existing fleets as they continue to need the railcars in their fleets. This provides a predictable baseload of cash flow and earnings. The long term fundamentals of our franchise remain intact. Our platform has the ability to generate significant cash and above average shareholder returns based on the strength of the hard assets in our lease fleet, and a value proposition to our customers that is unmatched. Operator, we are now ready to take our first question.

Operator

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2.

Operator

At this time, we will pause momentarily to attend our roster. The first question is from Bascome Majors with Susquehanna. Please go ahead.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Thanks for taking my questions. The FLRD measure is still quite high, but has come down from, I think you were at 24 last quarter and a few points higher than that the quarters before that. Could you help us bridge between what's happening in the expiring lease rate comps as we move forward to make that fall and what's happening in sequential sort of spot lease rate? And and then on that second question, if there's any delineation between what you're seeing in tank and freight, that would be helpful as well. Thank you.

Jean Savage
President & CEO at Trinity Industries

Sure. Thanks for asking. Great question. As we look at the FLRD, it's really affected by the mix of car types coming up for renewal in the time frame. But still, overall, very positive.

Jean Savage
President & CEO at Trinity Industries

As we mentioned in the prepared remarks, the renewal rate versus expiring rate in the quarter was 29.5%. If we look at our average lease rate, it's up both sequentially quarter over quarter and year over year. So still very positive, especially with 42% of our fleet yet to be renewed in the higher lease rate environment. So we're feeling good about that. Again, it can vary quarter to quarter more on the mix of car types coming up during that twelve month period.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Just to clarify, 29.5%, can you articulate how that's different than the FLRD at 18% and what's driving such a gap between two supposedly similar measures?

Jean Savage
President & CEO at Trinity Industries

Sure. It's gonna be the car types that expired and got renewed in that quarter versus the car types that are coming up for renewal in the next twelve months. So we're giving you the rates from the quarter that happened in the mix or the change of the cars in the next twelve months could be different. And based off the increased amount for those car types, they can change that overall number from the 29 and a half to the 17.9.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Okay. That's helpful. And I would assume that just looking out twelve months in the FLRD would probably be more representative of the overall mix of the fleet with more time there.

Eric Marchetto
Executive VP & CFO at Trinity Industries

It's representative of the expirations in the next four quarters. It's not necessarily representative of the fleet. It's just it's it's a forward looking metric on what our expirations are weighted by revenue for the next four quarters. So that's where you get the difference. But, you know, so it's a little more indicative of of future changes in revenue.

Eric Marchetto
Executive VP & CFO at Trinity Industries

But when you as Gene mentioned, the 29 and a half percent, that's that's just what the change was for this current quarter.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Oh, that's a that's a great number, and thank you for for reconciling and clarifying that. Just one more for me, and I'll hop back in queue. You made some comments on cadence, Eric. You know, I I think 2Q on both deliveries, I believe you said margin and overall earnings would probably be the weakest in your expectation. Can you walk through that in a little more detail of what's driving that cadence?

Bascome Majors
Senior Equity Research Analyst at Susquehanna

And you know, maybe bridge to sort of where you exit the year in four q, like, you know, why do you think there is some improvement from the two q trough? What do you have visibility into to drive that improvement? And and and ultimately, you know, anything else that gives you conviction that that, you know, we kinda go down and then go up from here? Thank you.

Eric Marchetto
Executive VP & CFO at Trinity Industries

Yeah. I'll start with leasing, because there's probably a lot more certainty around that. When you look at the leasing performance, as Jean mentioned, with both the FLRD and where we're currently renewing railcars, we expect revenue to continue to increase there through our renewals and also through our fleet growth. And so the leasing revenue should continue to improve along with the leasing margins. And then when you look at gains on car sales, those are back end weighted for the year in terms of the gains that we guided to the 40 to $50,000,000 We had relatively low gains this quarter.

Eric Marchetto
Executive VP & CFO at Trinity Industries

And so those are in the back half of the year. When you look at the Rail Group, we talked about the deliveries here and the deliveries that we're expecting with we expect the deliveries to be lower in the second quarter relative to the rest of the year. So it's kind of all those things that are contributing to that second quarter being lower and improving further out.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

I think there was a comment in that discussion in the prepared remarks about pricing on the railcars and rolling them through. Don't wanna pick that out of context. Can you expand on that a little bit? Then I'll pass it down the queue. Yes.

Jean Savage
President & CEO at Trinity Industries

So I'll go ahead and take that one, Bascome. When you look at the pricing on the new railcars, we expect input costs, so the material costs, some of the rates you need to finance those cars to remain higher. And those are all good for us, the overall price of that car. Where there is some competition on the lower volumes that we're projecting for industry deliveries. You see some of the margin compression from the pricing between competitors out there.

Jean Savage
President & CEO at Trinity Industries

So we've seen that come into play, and that's affecting mainly volume, but then pricing compression toward competition.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Thank you both.

Jean Savage
President & CEO at Trinity Industries

Thank you.

Operator

The next question is from Andre Tomcic of Goldman Sachs. Please go ahead.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Hey, good morning. Thanks for taking my questions. I just wanted to start with the point that you mentioned earlier. Guidance assumes some of the inquiries turning to orders in the next few months. Can you just talk about how customer conversations have sort of developed through the quarter and here into April and what's leading you to believe the inquiries will turn to orders?

Jean Savage
President & CEO at Trinity Industries

Thank you. Well, great question. As we look at what's going on in this quarter, we mentioned that inquiry levels were the highest we've seen in the last couple of years. And we are currently finalizing several orders that are approximately $100,000,000 So we're starting to see some of that convert more. I guess the other thing I would say there is that as you look at it, the brunt of the delays more in freight than tank cars.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Got it. Okay. And maybe when just when we think about sort of orders versus deliveries, when can we expect orders to outpace deliveries? Would it be safe to say that that might not occur until 2026? Or could we see an inflection still this year?

Jean Savage
President & CEO at Trinity Industries

So when you're looking at that, I don't know that we can give you the exact answer. When you're looking at this year, the macro uncertainty has the volumes down, if you go to the midpoint basically of our guidance for industry deliveries, about 30%. But it's still a supply led recovery, and the fleet is very tight. In the first quarter, we saw that even get tighter with the cars that were scrapped or removed from service being higher than what was added back in. So we're confident that it's got to come back, that they need those cars.

Jean Savage
President & CEO at Trinity Industries

But that gives us strength in our main business, which is leasing. So the lease fleet utilization remains high. Our lease rates remain high. So overall, we think the setup there is good while we wait for the overall new car orders to come through.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Okay. And maybe just to clarify, do I have it right that I think 17% of the deliveries went to internal fleet in the first quarter if I just take your owned leasing fleet change quarter over quarter? Just seeing if that's correct. And then do you still expect the 25% to 30% of the full year deliveries to go to the internal fleet this year, implying sort of the larger internal deliveries and eliminations for the remainder of this year relative to the first quarter?

Eric Marchetto
Executive VP & CFO at Trinity Industries

Andre, we may have to talk later. But eliminations for the first quarter were right around 27%, twenty nine, sorry, 29%. And for the year, we're expecting them to be over 30% of eliminations. So I think we'll have to go back and look. That really hasn't changed.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Got it. So the deliveries to the internal fleet in the first quarter were closer to, like, a thousand. Is that correct?

Eric Marchetto
Executive VP & CFO at Trinity Industries

Yeah. More or less.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Got it. Okay. Makes sense. So that that, that does clarify that. So how do we think of, I guess, total deliveries sequentially through the year relative to the 3,100 that you did in the first quarter?

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

I know you said it's going to, I think, step down potentially into the second quarter and then sequentially improving from there. Is that do I have that right?

Jean Savage
President & CEO at Trinity Industries

Andre, we gave you a little bit on second quarter to try to help you understand what we saw happening short term there. But we don't give quarterly guidance. We expect to be within our normal range, percent, just like we were deliveries in the first quarter for the year. And so I would use that as a basis.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Okay. It makes sense. And then one more question just on the manufacturing side. If the industry deliveries were closer to down to $28,000 this year, down 34% versus $20.24 for the industry, how should we think about margins for Trinity in that scenario? Should that be closer to the 5% level?

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

And then conversely, if Industry Deliveries were at the higher end, we'd be closer to the 6%. Just trying to think about the margins this year.

Jean Savage
President & CEO at Trinity Industries

Yes. The volume is the biggest driver in the change in the operating margin that you're going to see. So I would say what you're saying makes sense and is reasonable.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Okay, thanks. And then last for me was just any more share repurchases to think about this year or just to think opportunistically there?

Eric Marchetto
Executive VP & CFO at Trinity Industries

Share repurchase, we did buy back some shares in the first quarter, and we still have our authorization outstanding. We said we're going be opportunistic around share repurchases, and so we're gonna be opportunistic.

Andrzej Tomczyk
Andrzej Tomczyk
Vice President at Goldman Sachs

Got it. Appreciate the time, everybody.

Jean Savage
President & CEO at Trinity Industries

Thank you. Thank you.

Operator

The next question is a follow-up from Bascome Majors with Susquehanna. Please go ahead.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Hey, Eric. You talked a little bit about the, the term loan and the refinancing of the ABS. Can you just talk a little bit about what you're seeing in having recently gone to the credit market, why you chose to go with the term loan instead of an ABS structure? And any impact to either that you want to call on the balance sheet or interest expense from that refi going forward? Thank you.

Eric Marchetto
Executive VP & CFO at Trinity Industries

Yep. Thanks, Bascome. Yeah. You're noting that we did close a $1,100,000,000 bank term financing yesterday. That was we had a a term loan that was maturing later in the year, so we we refinanced that.

Eric Marchetto
Executive VP & CFO at Trinity Industries

So that was one of the reasons why we stayed with the bank term market is we were that was the capital that we were repaying, and we were able to merge that with another bank term loan that we had and combine it and upsize it. So we really are happy with the execution. The spreads were, in my opinion, attractive. The ABS market is still an attractive market for us. And so we'll, in the future, I'm sure we'll be accessing the ABS market as well.

Eric Marchetto
Executive VP & CFO at Trinity Industries

But we really took advantage of the bank's appetite for funded loans, and so we think we got really good execution there.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Any impact on net interest short term?

Eric Marchetto
Executive VP & CFO at Trinity Industries

You know, the rates are the spread is lower, so that's that's good. But you're you're increasing the leverage a little bit. So, you know, the the the effect is there'll be a little bit more debt, but I think nothing material changing from our trend line. Thank you. Yep.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Jim Savage, Chief Executive Officer and President, for any closing remarks.

Jean Savage
President & CEO at Trinity Industries

Well, thank you for joining us today. And as we stated today, although customers are taking longer to make order decisions, which will impact our short term performance, we remain confident in the long term fundamentals of the business. Our platform is unparalleled, and we have implemented necessary changes to our business to ensure we can generate strong returns through the cycle. We look forward to sharing our progress with you next quarter.

Executives
    • Leigh Anne Mann
      Leigh Anne Mann
      VP, IR
Analysts
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Key Takeaways

  • Trinity reported GAAP EPS of $0.29 on revenues of $585 million in Q1, with EPS down only 12% despite 38% fewer external deliveries, highlighting the resiliency of its platform.
  • The leasing business maintained 96.8% fleet utilization and a 17.9% future lease rate differential, with renewal rates 29.5% above expiring levels and $6 million gains on $34 million of lease portfolio sales.
  • In Rail Products Group, Trinity delivered 3,060 new railcars, received orders for 695 cars, and ended Q1 with a $1.9 billion backlog, while aligning industry delivery expectations to 28,000–33,000 railcars amid margin pressures from lower volumes.
  • Full-year guidance was updated to a narrowed EPS range of $1.40–$1.60, Rail Products Group margins of 5%–6%, industry deliveries of 28K–33K railcars, and capex unchanged at $45–55 million for OpEx and $300–400 million for net fleet investment.
  • The balance sheet remains strong with $920 million of liquidity, a 66.2% loan-to-value ratio on the owned fleet, and $33 million returned to shareholders in Q1 via dividends and share repurchases.
A.I. generated. May contain errors.
Earnings Conference Call
Trinity Industries Q1 2025
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