GATX Reports Lower Q3 Earnings on Marine Exit Strategy



GATX reported Q3/15 net income of $39.5 million compared to net income of $51.3 million in Q3/14. Net income through September 2015 was $147.1 million compared to $146.5 million a year earlier. The Q3/15 and YTD results include a net after-tax loss of $26.6 million related to the company’s decision to exit the majority of its marine investments within the Portfolio Management segment.

“The North American railcar leasing environment in 2015 has been consistent with our initial outlook,” said Brian A. Kenney, president and chief executive officer of GATX. “Certain North American car types, especially coal cars, are experiencing decreasing demand. However, GATX’s Lease Price Index, renewal metrics, and remarketing income all remain strong. Rail North America’s utilization remains extremely high at 99.2%, reflecting the composition and term structure of GATX’s diverse fleet.”

Rail International, particularly our European fleet, continues to achieve solid operating results. At American Steamship Company, favorable weather conditions, higher water levels, and spot cargoes helped to partially offset softening demand for iron ore on the Great Lakes.

“During the Q3/15 we made a strategic decision to exit the majority of our marine investments within our Portfolio Management segment. Although our investments in inland marine assets historically performed very well for GATX, our investments in ocean-going vessels have experienced significant earnings volatility,” said Kenney. “Given that inland marine and ocean-going investments are no longer core to GATX, we are opting to monetize these investments. The investments in Rolls-Royce and Partners Finance are unaffected by this decision and these joint ventures continue to perform very well.”

With regard to the exit strategy noted above, GATX said its Portfolio Management segment reported a net loss of $17.3 million, including a net pre-tax loss of approximately $42.5 million ($26.6 million after-tax) associated with the planned exit of the majority of Portfolio Management’s marine investments.

Kenney concluded, “We expect our 2015 full-year earnings to be at the upper range of our previously stated estimate of $5.15 to $5.35 per diluted share, excluding any impact of the exit from Portfolio Management’s marine investments. Looking longer-term, the growing over-supply of tank cars is decreasing tank car renewal rates and making it more difficult to place new tank cars delivering in 2016. Our early recognition of the impending changes in the tank car market was the backdrop for our strategy to lock in attractive lease rates for longer terms and maintain a disciplined investment strategy. As a result of this strategy, our committed lease revenues are at record levels, and this base of stable cash flow will serve us well when the environment for more attractive investment opportunities develops.”

Rail North America reported a Q3/15 segment profit of $90.0 million, compared to $70.6 million in the third quarter of 2014. The increase in quarterly segment profit was primarily attributable to improved utilization and higher lease rates across the fleet.

Year to date, Rail North America reported segment profit of $280.7 million, compared to $237.3 million in the same period of 2014. The increase in year-to-date segment profit was driven by increased lease revenue from higher lease rates as well as a nine-month contribution and higher utilization from the acquired boxcar fleet compared to six months at a lower utilization rate in the prior year.

At September 30, 2015, Rail North America’s wholly owned fleet was approximately 125,000 cars, including more than 18,500 boxcars. The following fleet statistics exclude the boxcar fleet.

Fleet utilization was 99.2% at the end of the third quarter, compared to 99.3% at the end of the prior quarter and 98.8% at the end of the third quarter of 2014. During the third quarter, the GATX Lease Price Index, a weighted average lease renewal rate for a group of railcars representative of Rail North America’s fleet, increased 25.6% over the weighted average expiring lease rate. This compares to a 36.3% increase in the prior quarter and a 46.9% increase in the third quarter of 2014. A lackluster coal market continues to negatively impact GATX’s LPI. The average lease renewal term for all cars included in the LPI during the third quarter was 60 months, compared to 54 months in the prior quarter and 68 months in the third quarter of 2014. Asset remarketing income was approximately $10.5 million during the quarter, and total investment volume was nearly $98 million.

Rail International’s segment profit was $15.5 million in Q3/15, compared to $19.7 million in the third quarter of 2014. Rail International reported segment profit of $56.4 million YTD 2015, compared to $59.8 million for the same period in 2014. The decrease in the segment profit was driven primarily by the effects of a weaker Euro. These foreign exchange rate impacts have been partially offset by higher lease revenue and lower maintenance costs at GATX Rail Europe (GRE).

At September 30, 2015, GRE’s fleet consisted of approximately 22,800 cars and utilization was 95.7%, compared to 95.5% at the end of the second quarter and 95.1% at the end of the third quarter of 2014.


Like this story? Begin each business day with news you need to know! Click here to register now for our FREE Daily E-News Broadcast and start YOUR day informed!

Leave a comment

View Latest Digital Edition

Terry Mulreany
Subscriptions: 800 708 9373 x130
[email protected]
Susie Angelucci
Advertising: 484.459.3016
[email protected]

View Latest Digital Edition

Visit our sister website for news, information, exclusive articles,
deal tables and more on the asset-based lending, factoring,
and restructuring industries.
www.abfjournal.com