GATX 35% Q2 Earnings Increase Driven by Asset Dispositions

GATX reported Q2/16 net income of $61.2 million, up 34.8% compared to net income of $45.4 million in Q2/15. The company noted a net gain on asset dispositions of $36.9 million, up $28.2 million from $8.7 million for the same quarter in 2015. Net income for the first six months of 2016 was $130.5 million compared to $107.6 million in the prior year period.

Rail North America reported a Q2/16 segment profit of $76.8 million compared to $84.9 million in Q2/15. Year-to-date, Rail North America reported segment profit of $185.5 million, compared to $190.7 million in the same period of 2015. The company said while railcars were on lease at higher average rates, lower gains on asset dispositions contributed to the year-over-year variance in segment profit.

At June 30, 2016, Rail North America’s wholly owned fleet comprised approximately 124,000 railcars, including approximately 18,200 boxcars. The following fleet statistics and performance discussion exclude the boxcar fleet.

Fleet utilization was 98.1% at the end of the second quarter, compared to 98.9% at the end of the prior quarter and 99.3% at the end of the second quarter of 2015. During the second quarter of 2016, the GATX Lease Price Index (LPI), a weighted-average lease renewal rate for a group of railcars representative of Rail North America’s fleet, decreased 25.4% over the weighted-average expiring lease rate. This compares to a 6.4% increase in the prior quarter and a 36.3% increase in the second quarter of 2015. The average lease renewal term for cars included in the LPI during the second quarter was 34 months, compared to 34 months in the prior quarter and 54 months in the second quarter of 2015. Rail North America’s investment volume during the second quarter was $145.4 million.

“Despite continued deterioration of conditions in the railcar leasing market, GATX produced excellent financial results in the second quarter,” said Brian A. Kenney, president and chief executive officer at GATX. “The combination of productivity improvements in our maintenance network, tight management of SG&A, higher than anticipated railcar scrap prices, and continued low interest rates more than offset the market pressure on lease revenue during the quarter. However, revenue pressure is increasing as the year progresses due to the growing oversupply of railcars, fewer car loadings, and improved railroad velocity. Thus, the renewal lease rate change of GATX’s Lease Price Index decreased by 25.4% during the quarter, the average renewal term was 34 months, and the renewal success rate was 62.6%. While lease rate pressure is most significant in cars serving the energy markets, the majority of car types across our fleet and the industry are experiencing various levels of lease rate pressure. Fleet utilization for Rail North America was 98.1% at the end of the quarter with the quarter-over-quarter decline predominantly driven by coal cars.”

“Our strategy in this environment remains unchanged: continue to compete aggressively on lease rates to protect utilization and reduce the length of lease term where possible.

“GATX Rail Europe continues to experience stable demand for existing tank cars. At American Steamship Company, 11 vessels continued to sail as favorable operating conditions helped to offset soft demand for iron ore on the Great Lakes. In the Portfolio Management segment, remarketing income during the quarter was approximately $20 million higher than originally anticipated on a pre-tax basis.

Kenney concluded, “Incorporating the higher than anticipated remarketing income in the second quarter in our Portfolio Management segment as noted above, we are increasing our 2016 full-year expectations to a range $5.55 to $5.75 per diluted share.”

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