GATX FY Profit Up 21% Driven by NA Rail Segment Earnings



GATX Corporation reported Q4/14 net income of $58.5 million, up 9.8% from net income of $53.3 million in Q4/13. Net income for the full year 2014 was $205.0 million up, 21.1% from net income of $169.3 million in the prior year.

Rail North America segment profit of $83.7 million in Q4/14, compared to $75.2 million in the fourth quarter of 2013. The improvement in quarterly segment profit was driven by increased lease revenue resulting from higher lease rates and positive contributions from the recently acquired boxcar fleet, partially offset by lower asset remarketing income.

Full-year segment profit was $321.0 million in 2014, up 38.6% from $231.6 million in 2013. Several items contributed to this increase in segment profit, including higher lease revenue, positive contributions from the recently acquired boxcar fleet, and lower financing costs. These positive elements were partially offset by increased maintenance expense, due in part to expected compliance work.

At December 31, 2014, Rail North America’s wholly owned fleet comprised more than 126,000 cars, including approximately 19,000 boxcars. The following fleet statistics exclude the boxcar fleet.

Fleet utilization was 99.2%, up from 98.8% at the end of the prior quarter and 98.5% at 2013 year end. During the fourth quarter of 2014, GATX’s Lease Price Index (LPI), a weighted-average lease renewal rate for a group of railcars representative of Rail North America’s fleet, increased 39.2% over the weighted-average expiring lease rate. This compares to a 46.9% increase in the prior quarter and a 37.1% increase in the fourth quarter 2013. The average lease renewal term for cars included in the LPI during the fourth quarter was 67 months, compared to 68 months in the third quarter and 60 months in the fourth quarter of 2013. For full-year 2014, the LPI increased 38.8% and railcars in the LPI had an average renewal term of 66 months, compared to an increase of 34.5% and average renewal term of 62 months in 2013.

Rail North America’s investment volume in 2014 was more than $800 million, including the acquisition of approximately 18,500 boxcars for $340 million. Asset remarketing income was $62.6 million, as secondary market activity was robust.

Brian A. Kenney, president and chief executive officer of GATX, said, “In 2014, North American tank car demand remained near record levels and freight car demand improved materially as the year progressed. We capitalized on this environment by continuing to lock in attractive lease rates while also lengthening lease terms. For the full year 2014, this led to GATX’s Lease Price Index (LPI) experiencing a positive 38.8% renewal rate change and an average renewal term of 66 months. Fleet utilization exceeded 99% at the end of the year, and our renewal success rate was more than 85%.

“This operating performance enabled us to continue to build our high-quality, committed cash flow. At the end of 2014, Rail North America’s committed cash flows were $3.6 billion, up nearly $400 million from the prior year.

“Despite increasingly high railcar values, we executed on a number of attractive opportunities to grow the North American fleet. We invested more than $800 million in North America in 2014, a record level, and further diversified our position across a variety of end markets with the acquisition of 18,500 boxcars. We also entered into a new four-year supply agreement that begins in 2016, adding to our ability to meet our customers’ railcar needs in the future.

“GATX Rail Europe invested more than $150 million in new railcars as we continue to work with customers to replace older, less efficient railcars in their fleets. American Steamship Company (ASC) moved more cargo in 2014 than in the prior year, as expected, but segment profit was negatively impacted by operating inefficiencies due to extreme icing conditions on the Great Lakes early in the season. The Rolls-Royce and Partners Finance (RRPF) joint ventures were the biggest contributors to Portfolio Management’s segment performance, as the spare aircraft engine leasing business continues to have strong operating results.”

Kenney continued, “In 2015, we expect Rail North America’s segment profit to increase, primarily driven by higher lease revenue as we continue to renew expiring leases at higher lease rates across many car types. We also expect modest improvement in Rail International’s segment profit in 2015. ASC anticipates stable customer demand and a more normal start to the shipping season in the coming year, resulting in improved segment profit in 2015. Within Portfolio Management, we anticipate another solid year from the RRPF affiliates and the inland marine barges.

“We are optimistic about the year ahead. We will continue to benefit from the diversity of our fleet, the rate and term structure of our North American lease portfolio, the strength of our committed cash flows, and the attractive investments made in recent years. We expect 2015 earnings per diluted share to be in the range of $5.15 to $5.35, which would be another record year for GATX.”

Rail International’s segment profit was $18.9 million in the fourth quarter of 2014, compared to $19.6 million in the fourth quarter of 2013. The decrease in quarterly segment profit was driven by lower lease revenues and increased maintenance costs at GATX Rail Europe (GRE). While more railcars were on lease during the quarter, the lower euro to US dollar exchange rate negatively affected lease revenues.
Rail International reported segment profit of $78.7 million in 2014, compared to $97.4 million in 2013. The 2013 full-year results include the pre-tax benefit from Other Items of $17.0 million. The decline in segment profit was primarily driven by the absence of income from GATX’s interest in a joint venture that was sold during the third quarter of 2013.

At the end of 2014, GATX Rail Europe’s fleet consisted of approximately 22,000 cars. Utilization was 95.9%, compared to 95.1% at the end of the third quarter and 96.6% at 2013 year end. Investment volume in 2014 at Rail International was more than $160 million, primarily for new tank cars in Europe.

To view the full GATX news release, click here.


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