Freightcar America Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 4, 2026

Key Takeaways

  • Positive Sentiment: Order intake and backlog strengthened significantly: FreightCar America booked approximately 3,000 units, including 2,600 new railcars, capturing about 45% of industry orders. Ending backlog nearly doubled sequentially to 3,972 units valued at approximately $344 million, with deliveries extending through 2028.
  • Negative Sentiment: A later-than-planned production ramp pushed some deliveries into early 2027, leading the company to reduce 2026 guidance to 3,500–3,900 railcars, $410 million–$460 million of revenue, and $36 million–$44 million of adjusted EBITDA. Management characterized the change as a timing issue rather than canceled demand.
  • Positive Sentiment: The Castaños workforce and footprint realignment incurred $2.2 million of costs but is expected to generate approximately $12 million in annualized structural savings beginning in the third quarter, while preserving production capacity and improving future operating leverage.
  • Positive Sentiment: Aftermarket revenue rose 13% year over year, and the company completed its second aftermarket acquisition in less than a year, which management expects to be immediately accretive. The business also generated $11.3 million of free cash flow, ended the quarter with $63 million in cash, and reduced debt by approximately $7.3 million since year-end.
  • Neutral Sentiment: Management expects railcar demand to recover as fleet retirements accelerate, projecting industry demand could approach 30,000 units in 2027 and roughly 40,000 in 2028. FreightCar America continues preparing for a late-2027 or 2028 entry into new tank-car manufacturing, while evaluating the potential impact of tariffs.
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Earnings Conference Call
Freightcar America Q2 2026
00:00 / 00:00

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Operator

Welcome to FreightCar America's second quarter and fiscal year 2026 earnings conference call. At this time, all participants are in a listen-only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note this conference is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Chris O'Dea with Riveron Investor Relations .

Chris O'Dea
Investor Relations Representative at Riveron

Thank you and welcome. Joining me today are Nick Randall, President and Chief Executive Officer, Mike Riordan, Chief Financial Officer, and Matt Tonn, Chief Commercial Officer. I'd like to remind everyone that statements made during this conference call related to the company's expected future performance, future business prospects or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FreightCar America's Form 10-K for a description of certain business risks, some of which may be outside of the control of the company, that may cause actual results to materially differ from those expressed in the forward-looking statements. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events, or otherwise.

Chris O'Dea
Investor Relations Representative at Riveron

During today's call, there will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles, or GAAP. Reconciliations of these Non-GAAP measures to their most directly comparable GAAP measures are included in the earnings release issued yesterday afternoon. Our earnings release for the second quarter 2026 is posted on the company's website at freightcaramerica.com, along with our 8-K, which was filed at market close yesterday. With that, let me now turn the call over to Nick for a few opening remarks.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Thank you, Chris, and good morning to everyone. Thank you for joining us today. The second quarter demonstrated important progress across three areas of our business. First, we delivered one of the strongest commercial quarters in FreightCar America's recent history, with an exceptional order intake, significant sequential backlog growth, and continued expansion of our customer base. Second, we continue to build a broader and more durable business through organic aftermarket growth and a second acquisition in the aftermarket space. Third, we completed an important structural optimization of our Castaños manufacturing operation, locking in the productivity gains achieved over the past two years and positioning the business to operate at a meaningfully lower cost base going forward. Against those positive developments, the production ramp we anticipated for the second quarter began later than originally planned.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Customer demand was deferred rather than canceled, but the timing shift means that a portion of the units previously expected to be delivered in 2026 will now move early into 2027. As a result, we are updating our full-year delivery and revenue outlook. We believe the second quarter represents the low point of the year for adjusted EBITDA and margin. Production is scheduled to increase meaningfully during the second half, with the significant majority of our planned second-half deliveries supported by our firm backlog, and we will begin realizing the benefits of the structural operation actions completed during the quarter. The key point is that the lower 2026 delivery outlook does not reflect a weakening of our commercial position. In fact, the opposite is true. We booked approximately 3,000 units during the quarter, including approximately 2,600 new railcars.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

These new car orders represented roughly 45% of the total industry new railcar orders during the period, our largest quarterly share of industry orders in recent history. That activity was anchored by a milestone multi-year award for 1,900 railcars, with deliveries extending through 2028. Orders came from both repeat customers and first-time buyers and covered each of our principal market segments. That breadth is important. It demonstrates that our customer reach is expanding while our established relationships continue to deepen. Customers do not make multi-year commitments of this scale unless they have confidence in the supplier's products, responsiveness, and the ability to execute. We have consistently said that we must earn the right to win every order, and this quarter our team did exactly that.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

We ended the period with a backlog of 3,972 units valued at approximately $344 million, compared with 2,058 units valued at $156 million at the end of the first quarter. Backlog units increased approximately 93% sequentially, while backlog value increased 121%. The backlog is diversified across new railcar builds, conversions, and retrofit programs, with deliveries extending through 2028. It provides meaningful visibility through the balance of 2026 and increasingly into 2027 and 2028. This performance is particularly significant given the broader market environment. Industry demand remains well below long-term replacement requirements, with annual deliveries expected to remain below 25,000 units, compared with normalized replacement demand of approximately 35,000 units-40,000 units per year. Despite that environment, we continue to gain ground by offering customers what they value. We have not built our strategy around being the lowest price producer.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

We are focused on being the most valuable and responsive producer, combining quality, engineering capability, flexible manufacturing, and reliable execution. For certain products and available production slots, our manufacturing model allows us to move from order placement to delivery in as little as 9 weeks-12 weeks. That responsiveness matters to customers whose requirements can change quickly and who increasingly value certainty of execution. Alongside the strength of our new car order intake, we continue to expand our aftermarket platform. Aftermarket revenue grew 13% year-over-year, reflecting both continued organic growth in parts and components and the contribution from our first acquisition in this space. Following the end of the quarter, we completed our second aftermarket transaction in less than a year. Together, these businesses broaden our parts and components offering, expand our customer relationships, and deepen our involvement across the railcar life cycle.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

This is a deliberate element of our strategy. Aftermarket demand is more repeatable and less cyclical than new railcar manufacturing and generally carries a stronger margin profile. It allows us to serve customers beyond the initial manufacture of a railcar and creates additional opportunities across parts, repairs, conversions, and ongoing fleet support. We are building this platform through a combination of organic growth and disciplined acquisitions. We believe it will become an increasingly meaningful contributor to revenue, earnings, and cash flow over time. Turning to operations, we completed an important structural optimization during the quarter. Over the past two years, our TruTrack operating system, continuous improvement culture, and targeted investments in automation and vertical integration have increased manufacturing productivity by approximately 50%. Those gains have fundamentally changed how we build railcars and how many resources are required to support a given level of production.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

During the second quarter, we used a period of lower production activity to complete a concentrated realignment of our Castaños footprint, staffing model, and operating resources around that new productivity baseline. These actions were not a reaction to a single quarter or simply a response to lower near-term volumes. They were the next step in capturing and institutionalizing the benefits of the operational improvements delivered over the past 24 months. Completing the work during the slower production period allowed us to make the changes efficiently and less disruptive to our customer deliveries than would have been possible during a peak period of output. The realignments resulted in $2.2 million of costs during the quarter and is expected to generate approximately $12 million of annualized structural savings. Importantly, we preserved our installed production capacity, principal manufacturing lines, and the critical skills and capabilities required to increase output as demand recovers.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

The result is a more efficient operating structure that improves the economics of each railcar we produce while maintaining the ability to scale. As volumes increase, we expect the combination of a lower structural cost base and improved fixed cost absorption to create stronger margins and generate greater operating leverage across the cycle. The benefit begins in the third quarter and extends well beyond the current year. Cash generation also remained a strength during the quarter. We generated $12.1 million of operating cash and $11.3 million of free cash flow, an increase of 43% year-over-year. Stepping back, the freight car industry remains in a cyclical trough, but the underlying fundamentals continue to build. Railcars are being scrapped faster than they are being ordered. The average fleet continues to age, and traffic growth is broadening across many of the commodity segments we serve.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Prolonged periods of underinvestment have historically been followed by stronger replacement demand. We continue to believe that the normalization towards annual demand of approximately 35,000 railcars-40,000 railcars is a question of timing rather than fundamental need. When that recovery develops, FreightCar America will enter with available capacity, a more efficient operating footprint, a broader product portfolio, a growing aftermarket platform, and a substantially stronger customer and market position. In the meantime, we are not building our plan around waiting for the cycle to improve. Our priorities for the second half are clear. We will convert our backlog into profitable deliveries, increase production, and restore margin performance, realize the benefits of our lower structural cost base, continue scaling our aftermarket platform, and execute the initial phase of our tanker car retrofit program. The opportunity ahead of us is significant, but the focus is now execution.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

We have the orders, the capacity, the operating improvements, and the commercial momentum. Our responsibility is to convert those advantages into stronger earnings and cash flow through the balance of 2026 and into 2027. With that, I'll turn it over to Matt to discuss the market environment and our commercial performance in greater detail.

Matt Tonn
Matt Tonn
Chief Commercial Officer at FreightCar America

Thanks, Nick, and good morning, everyone. I'll offer some perspective on the market environment and our commercial activity during the quarter. Industry order activity remained muted in the second quarter, with new railcar orders across the industry totaling approximately 5,800 units compared to approximately 6,200 units in the prior year period as customers continued to evaluate timing of new railcar acquisitions. Despite the challenging market environment, our commercial performance stood out. Our team captured approximately 45% of all industry new railcar orders in the quarter. Excluding tank cars, our share of the addressable market was approximately 56%, significantly above our historical market share levels for order intake in a quarter. Our disciplined commercial strategy is centered on earning long-term customer trust through transparent engagement, collaborative product development, operational expertise, and reliable execution.

Matt Tonn
Matt Tonn
Chief Commercial Officer at FreightCar America

These capabilities continue to support repeat business, strengthen customer relationships, and enhance the quality of our order book. Our success in the covered hopper market is a strong example of how our new product strategy is creating value. Covered hoppers represent the largest rail car segment in North American fleet, making this an important strategic market for FreightCar America. Over the past four years, our focused commercial strategy, combined with innovative engineering and close collaboration with customers, has resulted in new and enhanced railcar designs that improve operational efficiency, reduce lifecycle operating costs, and address evolving customer requirements. As a result, we have increased our market share, demonstrating the strength of our differentiated approach and continued market acceptance. However, this is only part of the story. Conversions, retrofits, and other specialized programs supplement our new car activity and give us second avenue for growth.

Matt Tonn
Matt Tonn
Chief Commercial Officer at FreightCar America

This kind of customized work takes engineering expertise and manufacturing flexibility. Those capabilities continue to differentiate us in the market and help support our strong order momentum while the new car market recovers. The underlying demand picture continued to improve through the second quarter. 16 of the 20 carload segments tracked by the Association of American Railroads showed year-over-year growth, up from 13 segments in the first quarter and the broadest gains in five years. Carload traffic, excluding coal through the first half, was the highest since 2008, and June set an all-time record for intermodal volume. Grain and grain mill shipments posted some of the strongest gains consistent with the activity we see in our covered hopper pipeline. These trends support the replacement demand that continues to build as fleets age. Looking at the broader picture, FreightCar America continues to execute well in challenging market.

Matt Tonn
Matt Tonn
Chief Commercial Officer at FreightCar America

We are gaining share in new railcar orders while our conversion retrofit and specialized manufacturing business provides a stable source of earnings and customer engagement. Although industry order activity remained below historic levels during the quarter, we are encouraged by customers increasingly moving from inquiry to order, supported by healthy, diversified pipeline across multiple railcar segments. As industry demand returns toward long-term replacement levels, we believe our differentiated product portfolio, disciplined commercial execution, and deep customer relationships position FreightCar America for success while delivering sustainable, profitable growth. With that, I'll turn the call over to Mike to walk through the financials in more detail.

Mike Riordan
Mike Riordan
CFO at FreightCar America

Thanks, Matt, and good morning, everyone. I'd like to begin with a few second quarter highlights. Revenue for the quarter was $113.1 million, compared to $118.6 million in the second quarter of 2025, and we delivered 927 railcars, compared with 939 units in the prior year period. The year-over-year comparison primarily reflects production timing ahead of the planned second half ramp that Nick described. Aftermarket revenue increased 13% year-over-year, driven by organic growth in parts and components, together with the contribution from our recent acquisition. We expect the aftermarket to remain an increasingly meaningful contributor to our profitability, cash flow, and long-term growth. Gross profit was $6.2 million, representing a gross margin of 5.5%, compared with gross profit of $17.8 million and a margin of 15% in the prior year period.

Mike Riordan
Mike Riordan
CFO at FreightCar America

The decline primarily reflects lower delivery volumes and the resulting reduction in fixed cost absorption, as well as $2.2 million of costs associated with the workforce realignment completed during the quarter. Turning to that realignment, the actions we took align our cost structure with the productivity improvements achieved across our manufacturing operations over the past two years. We expect the program to produce approximately $12 million of annualized cost savings, with benefits beginning in the third quarter and building toward the full run rate thereafter. Importantly, these savings are structural at current production levels and do not limit our ability to increase output as demand recovers towards long-term replacement levels. Selling, general, and administrative expenses were $10.5 million, compared with $10.1 million in the prior year period.

Mike Riordan
Mike Riordan
CFO at FreightCar America

We expect SG&A to remain relatively consistent during the second half of 2026, creating favorable operating leverage as our backlog converts into meaningfully higher deliveries compared with the first half of the year. We reported a net loss of $30.1 million, or $0.94 per diluted share. This result included a $24.9 million non-cash loss associated with the remeasurement of our warrant liability, reflecting the appreciation in our share price during the quarter. Excluding non-cash and other adjusting items, adjusted net loss was $0.8 million or $0.02 per diluted share, compared with adjusted net income of $3.8 million or $0.11 per diluted share in the prior year period. During the quarter, a shareholder exercised a substantial portion of its outstanding warrants. As a result, the warrant liability declined from $119.4 million at March 31st to $14 million at quarter end, and stockholders' equity became positive at $36.2 million.

Mike Riordan
Mike Riordan
CFO at FreightCar America

The warrant exercise did not result in incremental dilution to our reported EPS because the underlying shares had already been included in the weighted average share count used to calculate basic and diluted EPS since the warrants were issued. Following the exercise, our actual common shares outstanding are now much more closely aligned with the share count reflected in our EPS calculation. Additionally, the significant reclassification from liability to equity accounting should substantially reduce the future quarterly earnings and balance sheet volatility associated with remeasurement of the remaining warrant liability. adjusted EBITDA was $1.2 million, representing a margin of 1%, compared with $9.3 million and a margin of 7.8% in the prior year period. The decline was primarily driven by the lower deliveries and fixed cost absorption consistent with the production timing discussed earlier.

Mike Riordan
Mike Riordan
CFO at FreightCar America

We expect profitability to improve sequentially as deliveries increase through the balance of the year and the benefits of our cost savings program begin to take effect. Cash generation was a notable strength during the quarter. Cash flow from operating activities was $12.1 million, compared with $8.5 million in the prior year period. Free cash flow was $11.3 million, an increase of 43% year-over-year, and capital expenditures were $0.7 million. We ended June with $63 million of cash and cash equivalents and have reduced total debt by approximately $7.3 million since year-end. For the full year, we continue to expect capital expenditures of $7 million-$10 million, including approximately $4 million-$5 million of maintenance capital and the completion of our previously announced tank car manufacturing investments.

Mike Riordan
Mike Riordan
CFO at FreightCar America

Turning to capital allocation, we completed the acquisition of Southern Parts & Equipment in July, representing our second aftermarket transaction in less than a year. The acquisition fits squarely within our disciplined investment framework by adding capabilities adjacent to our core rail markets, and we expect it to be immediately accretive. With the production capacity required to support future rail car growth already in place across our existing manufacturing footprint, we are positioned to direct capital towards opportunities that increase the durability of our revenue, earnings, and cash flow. Moving to our full year outlook, we have revised our 2026 guidance to reflect the later start to the second half ramp, with some deliveries now expected to shift into early 2027. We now expect rail car deliveries of 3,500-3,900, revenue of $410 million-$460 million, and adjusted EBITDA in the range of $36 million-$44 million.

Mike Riordan
Mike Riordan
CFO at FreightCar America

Importantly, this change is isolated to the timing and mix of new rail car deliveries. Our aftermarket business continues to grow and remains on plan, and the second half of the year is underpinned by orders already in our backlog. Looking ahead, our cost-saving initiatives will partially offset the impact of lower full-year deliveries and improve the profitability of each rail car we produce. At the same time, the growing contribution from Aftermarket continues to improve the quality and diversity of our revenue mix. These initiatives are complementary. One lowers our structural cost base, while the other expands our higher value and less cyclical revenue streams. Together, they improve the underlying margin and cash flow profile of the business at current production levels, with benefits extending into 2027 and beyond. Overall, FreightCar America exits the first half of 2026 structurally stronger than it entered the year.

Mike Riordan
Mike Riordan
CFO at FreightCar America

We have a lower cost base, increased revenue visibility, a growing aftermarket platform, strong liquidity, and a cleaner balance sheet. As we move through the second half, we expect higher deliveries, improving profitability, and continued cash generation. We will remain disciplined in deploying capital across our operating segments to strengthen the business and create long-term value for our shareholders. With that, we will now open the line for question-and-answer.

Operator

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. The first question is from Mark Reichman for Noble Capital Markets. Please go ahead.

Mark Reichman
Mark Reichman
Analyst at Noble Capital Markets

Thank you. I was very encouraged with the strong order activity, congratulations on that. What I was wondering is, if you look at your midpoint of your guidance, that'd be 3,700 rail cars, which would imply at the midpoint roughly 2,196 rail cars in the second half. Meanwhile, you've got the backlog of 3,972 rail cars. I was just kind of wondering, not that the guidance is overly wide, but what gets you to the high end versus the low end? What are the variables there?

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Hey, Mark, good morning. It's Nick. I'll start with this one, and then Matt can help us if we need to go into any further details. Really, it's a question of, we talked about in how Q2, the ramp-up was somewhat delayed from our original assumptions, some orders moved back, pushed into 2027. It's more to do with being able to have customers who are willing to take orders in 2026 so that we can really fill out that upper end. The order backlog we've had, as you just mentioned, is pretty significant now. We've got a lot of orders. It's a question of, we don't want to be in a position where we're building things too far ahead of when our customers want them. It's not good for us or the customers in that position within an acceptable range.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

The real sort of big mover on there is the orders that we get from this point to the end of the year. If customers are still willing or wanting to take them before December 31st, then that would push it up towards that upper half of that guidance, if that makes sense.

Mark Reichman
Mark Reichman
Analyst at Noble Capital Markets

It does. Just a question for Mike on the aftermarket business. The revenue growth was impressive at 13%. Year-over-year gross margin was pretty much flat. The gross margin as a percentage of revenue, I think went from about 36% in the second quarter of 2025 to about 32%+ thereabouts. 32.6%, I guess. Do you think that 32.6%, is that kind of a normalized level, going forward or would you expect that as you continue to make acquisitions and grow volumes and revenue, that you might see that gross margin as a percentage of revenue go down a little bit?

Mike Riordan
Mike Riordan
CFO at FreightCar America

Hi, Mark. That's a good question. I think we'll see. Historically, our aftermarket was primarily focused on the railcars and coal replacement parts, and that's now expanded pretty significantly. In terms of a long-term rate, I think the 32%-33% is a good overall rate. Some of the differences quarter-to-quarter in the aftermarket is the difference between the new segments we're getting into with distribution and replacement parts for the coal fleet out there. You will see quarter-to-quarter, the margin might change a little bit, one quarter higher than the other depending on mix, but a good long-term rate would be that 32%-33% for the next 2027, 2028.

Mark Reichman
Mark Reichman
Analyst at Noble Capital Markets

The last question is just a question for Nick on the planned entry into the tank car business. Now that you have those 232 tariffs on tank cars for Mexico, I think Greenbrier has mentioned that on their conference calls. It may not be as onerous depending on what parts are actually the tariff applies to, how does that influence your thinking in terms of moving into the tank car business?

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Well, it's certainly something we look at, Mark. It's a good question. There's two ways to answer this. One is we have the retrofits which are imminent Q3, Q4, and what's into 2027. They are not wrapped up in that same 232 tariffs. That's one thing to avoid. On our entry into the new tank car market, we've always said late 2027 into 2028 and beyond when we would work through that to release it to the market to make shipments. We've got some time to fully review what happens with those 232 tariffs and how they're calculated. It's still something of significant importance. Just as a general overview, generally in a normal year, tank car demand is about 10,000 units-11,000 units across North America. There certainly isn't that capacity installed in the United States to fulfill 10,000 units-11,000 units.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

The question is going to be, the demand stays there, likely, yes. The question of where can they be manufactured and what tariffs rates would they apply, and who would pay those tariffs. We will continue to work through that. When it comes to the things we're planning to do in the near term, none of the processes that we've done for the retrofit program are in jeopardy. They'll continue as we've always said. We don't have to make any key commitments on capital for a while yet to still support those original dates. We'll keep reviewing that. There's a couple of things that may or may not shake out. Certainly we'll work with customers as always, as our job is to fulfill the demand of the customers.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Whether they get tariffed or not will be a discussion we'll have with those individual customers at the time. It certainly doesn't change our thinking, Mark. We're still planning to configure our manufacturing operations with the engineering required and the approvals required because they're low cost. We'll obviously make that review and decision before any serious commitment to capital, that will be quite some time yet before we need to do that. We will keep getting ourselves smarter up until that point, we'll have to make a call at that point. That won't be for another 12 months, 13 months at the earliest before that commitment needs to be made.

Mark Reichman
Mark Reichman
Analyst at Noble Capital Markets

Meanwhile, you're experiencing strong order activity. You're becoming leaner with the productivity improvements. Margins should benefit from that. Okay. Like you said, you pushed any capital commitments, maybe, that's the flip side is you avoid that if you choose to delay. Is that the right way to think about it?

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

There's a number of unknowns. What happens with the appendix on the 232 tariffs as to whether tank cars remain there, yes or no, and can they continue to open multiple years? Let's assume it does stay in place. Then there's a whole point of where you source all the materials from. There's quite a number of complex nuances to look at. Either way, we'll be fully prepared to go through them. From an outlook and a multi-year outlook in sort of what we said about entering the tank car market, it's just another thing to consider. It certainly doesn't change our thinking that it's an attractive market. We think we've got great products.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

We've got great support of a great engineering and manufacturing process, a great commercial process. We will meet what customers need, and we'll figure out how to be compliant and still fulfill customers' needs at the same time. That's how we typically thought about it. We've navigated through a lot of tariff questions and concerns over the last two years now. I don't see it as a reason to stop that thought, if that's the question. It's another thing to think about as we think through.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Right now, we'll continue to making the same progress we were planning to make. Then when we get to those large commitments some point in the future, we'll have better prepared thoughts at that time. Nothing slowing down at the moment for it.

Mark Reichman
Mark Reichman
Analyst at Noble Capital Markets

Right. Well, that's very helpful. Thank you very much.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

No problem. Thank you.

Operator

The next question is from Brendan McCarthy from Sidoti & Company. Please go ahead.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti & Company

Thank you. Thanks for taking my questions here. I wanted to start off on the delivery shift underpinning the new guidance. Is this simply customer preference here, and ultimately, why do you think customers are preferring to delay deliveries at this point?

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Hey, Brendan. Nick. Yeah, it's making sure we meet our customers' expectations, if we call it customer preferences. We don't want to be in a position where we're pre-building too many cars with an order behind it, but before a customer needs it, because it ends up with congestion and costs our stoppings. We looked at making sure that we could build as we would normally to the demand schedules of our customers. That's typically how we run our supply chain processes. It can take up a lot of cash in inventory if we start building too far ahead of when customers truly need cars. That's really what was the driver for being able to take orders from our order book and make truly ship in Q3 as opposed to build and ship in Q2 with a slight delay.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti & Company

That makes sense. I appreciate the detail there, Nick. When you look out to these deliveries shifting into early 2027, I guess what really gives you confidence that those deliveries will occur in early 2027, or do you think there's a chance they get further kind of kicked down the road to 2028?

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

I doubt they'll be kicked to 2028. These are ones where when we talk about 2027, it's the difference of someone wanting to take something December versus January. It's not a huge shift, but 30 days or 60 days can make a difference at the end of the year, and that's what you see in Q2, that the delivery dates are measured in a deviation of days, not quarters. When that happens and it rolls over past December 31st, we just have to be conscious that if a customer doesn't want something in 2026 and they want it in 2027 because of their own needs, we just have to be respectful of that within a reasonable limit. It's not something that I think there's a risk that we've got booked orders and all of a sudden they shift by quarters.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

That's not the risk we were managing through. It's really about making sure that we don't have things built in month one that are shipped in month two, and we just tie up a lot of capital for 30 days, 60 days that we don't want to do.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti & Company

Understood. That's very helpful to understand. Obviously really strong order intake in the quarter. I think that's great to see. Did you have to make any pricing concessions there to win these orders, or do you anticipate the same kind of mid-teens gross margin profile on the orders that are in the backlog at this point?

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

I'll answer in the same way. Our strategy is not to be the cheapest one out there. We build a very engineered, tailored car to the needs of our customers. Some of these multi-year orders, because if we've carefully configured a product to really maximize the value for our customer, we really don't have to take massive pressure on pricing discounts or various things that you've alluded to. Our key strategy is to meet the value proposition of our customers and to truly understand what they need. We've talked many times about the benefit of being a purpose builder is that we can have a level of intimacy with our customers, that we can truly expose what the pain points are and design and configure our product around those pain points, thus creating value for the end user and the customer.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

We continue to do that, and we will continue to do that. That just puts us in a position where we're not in the position where we're going to try and be the price discounts or any of those sort of related activities. To second your question, as the higher volumes go through the second half, as we look out to the future years of that volume returns, yes, I would fully expect with the improvements we've made on operations and the productivity lock-in, plus the volume of return to sort of a normal build rates for us, yeah, you'd expect those margins to quickly get back to those lower teens and above across our product mix.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti & Company

That makes sense. Thanks, Nick. Last question from me, just on the aftermarket segment. I know I think it's only been roughly 10% of total revenue at this point through the first half of 2026, it's a highly fragmented industry. Just curious as to how large you think that you're aiming to grow this business long term.

Mike Riordan
Mike Riordan
CFO at FreightCar America

Hi, Brendan. Yeah. I don't think we're going to comment on the long-term target yet, but I will say we do view this as a meaningful growth platform for us, as I mentioned, and with Castaños pretty well situated when we look at capital allocation. This is an area that's very attractive to us to continue to grow and then generate meaningfully higher revenue and earnings and cash flow as a percentage of the consolidated entity.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti & Company

Understood. Thanks, Mike. Thanks, Nick. That's all from me.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Thank you.

Operator

As a reminder to ask a question, please press star one. The next question is from Aaron Reed from Northcoast Research Partners. Please go ahead.

Aaron Reed
Analyst at Northcoast Research Partners

Great. Thank you. Yeah, I was hoping to get a little more color in terms of, obviously we're looking at this more of as a trough in the overall railcar demand. I was wondering if you had any better idea in terms of cadence of what that recovery might look like in terms of, is it something to be expected a little bit more gradual, a little bit more sharp? Things progress, what's it looking like to you right now?

Matt Tonn
Matt Tonn
Chief Commercial Officer at FreightCar America

Aaron, Matt Tonn. I think when you look at the current environment, we still see a demand environment that's tied very closely to retirements, railcar retirements. We don't see that changing in the near term. This year looks to be total order activity and deliveries in the 20,000-23,000 range. As we look ahead at when railcars are going to expire due to the 50-year age limit, then overall demand approaching 30,000 railcars in 2027 and then upwards of 40,000 railcars in 2028. All the markers are there for a return to the replacement demand of that 35,000 railcars-40,000 railcars, just based on two successive years or two past years of sub-replacement demand deliveries, along with cars scrapping at a higher rate than new cars being delivered. It's just not sustainable to maintain operations for the shipping community.

Aaron Reed
Analyst at Northcoast Research Partners

Great. That's helpful. One other question on the tank car retrofit. Right now, looks like you have a pretty good visibility into the orders right now. Do you expect any additional tank car demand to come from more retrofits or new builds? Do you have any idea which way that might fall when demand continues to come in?

Matt Tonn
Matt Tonn
Chief Commercial Officer at FreightCar America

On the retrofit side, we think we're at the tail end of the demand of taking the DOT-111s to the DOT-117Rs. Many of those cars have already been converted, and we think we're at the tail end of that. Moving forward, as Nick had mentioned, we will be evaluating our entry into the marketplace, which is really a late 2027, early 2028 discussion.

Aaron Reed
Analyst at Northcoast Research Partners

Great. Thank you.

Matt Tonn
Matt Tonn
Chief Commercial Officer at FreightCar America

Thanks, Aaron.

Operator

The next question is from Mark Reichman from Noble Capital Markets. Please go ahead. Mark Reichman, your line is open.

Mark Reichman
Mark Reichman
Analyst at Noble Capital Markets

I just wanted to follow up on your market share gain. You captured 45% of the industry new railcar orders during the quarter, which is pretty impressive. According to the Railway Supply Institute, orders were 5,826 in the second quarter, and deliveries were 5,527. I was just wondering, you've had kind of this history of gaining market share, but the second quarter, I guess, clearly was influenced by, you'd had that 1,900 multi-year order from a key customer, and then you had 3,000 orders in the second quarter, 2,600 of those were for railcars, I guess. I mean, what do you see as your competitive advantage here? Was it just a low order quarter for the industry and you just happened to snag a really big order? Or is this kind of a good signal that the market share gains could actually accelerate?

Mark Reichman
Mark Reichman
Analyst at Noble Capital Markets

Just some color there, if you can.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Hey, Mark. I'll start. Thank you for highlighting that. Q2 order intake was a good signal for us. It's not the first time we've seen a reasonable increase in market share. I would characterize it is that we've been growing market share on order intake consistently quarter-over-quarter for a number of quarters now. There's a piece where it's more of a build-up and more of a testament to the credibility of that build-up. I'll turn over to Matt to talk about some of the things we do commercially. Just to reinforce the same question that Brendan asked about pricing. We truly take our commitments to creating value for our customers seriously, evident from the first contact of our commercial and engineering leads right through to the production, manufacturing, and shipments of the products to the customer's needs on time, in full, high-quality products.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

I think it's being able to repeatably deliver what the customers want and when they want it, and they recognize that as they get that service, that look in their future orders and repeat orders, why would you sacrifice that given that you've had that experience from FreightCar America? Matt will talk a bit more in detail because obviously, the commercial lead are the tip of that spear leading that charge for us. Matt?

Matt Tonn
Matt Tonn
Chief Commercial Officer at FreightCar America

Obviously, Q2 was a very strong quarter for us, but I would point out that our customer engagement and how we win has been tied to the value that we create for our customers, and truly understanding specific operational needs. That's sort of how we win. Not sort of how we win, it is how we win. When we look at our activity and market share growth over the course of the last couple of years, just looking at 2022, we were about 5% of the market, and every year since then, we have grown our market share. Looking at year to date, including Q1 and Q2, we are over 27% of order intake.

Matt Tonn
Matt Tonn
Chief Commercial Officer at FreightCar America

For the last four years, despite a declining overall market of demand, we have continued to increase our market share year-over-year, and it is because of how we engage with customers, the collaboration from an engineering perspective, the ease of doing business, and an overall commitment to excellence and on-time delivery. Those are the things that differentiate us.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

Mark, just to hammer that home. As the market migrates back to its normal sort of 35,000 units-40,000 units a year, we fully intend to continue to take the same approach and be able to defend our market share by the value proposition that we have rather than price.

Mark Reichman
Mark Reichman
Analyst at Noble Capital Markets

Well, that's a very good point because now you've got leverage to growth in the overall market when you've been growing in a kind of a down market. Well, that's really helpful color. I very much appreciate it.

Nicholas Randall
Nicholas Randall
President and CEO at FreightCar America

You're welcome. Thank you.

Operator

This concludes the question and answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

Analysts
    • Chris O'Dea
      Investor Relations Representative at Riveron
    • Nicholas Randall
      President and CEO at FreightCar America
    • Matt Tonn
      Chief Commercial Officer at FreightCar America
    • Mike Riordan
      CFO at FreightCar America
    • Mark Reichman
      Analyst at Noble Capital Markets
    • Brendan McCarthy
      Analyst at Sidoti & Company
    • Aaron Reed
      Analyst at Northcoast Research Partners
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