GATX YTD Earnings Higher Despite Cost of Foreign Facility Closure



GATX reported Q3/18 net income of $47.0 million compared to net income of $49.0 million in Q3/17. Year-to-date 2018 net income was $162.1 million compared to $159.9 million in the prior year period.

2018 year-to-date results include a net negative impact of $5.8 million attributed to costs associated with the closure of a railcar maintenance facility in Germany in the second quarter. The 2017 year-to-date results include net after-tax gains of $1.1 million related to the exit of Portfolio Management’s marine investments and other items.

Brian A. Kenney, president and chief executive officer of GATX stated, “The operating environment for Rail North America continued to improve in the third quarter, as railroad car loadings increased and railroad velocity decreased relative to 2017. Despite absolute lease rates increasing across our fleet, revenue pressure continues as the renewal lease rate change for GATX’s Lease Price Index was a negative 11.5% for the quarter. Fleet utilization increased to 99.2% and our renewal success rate was 82.9% during the quarter. The improving operating environment is resulting in substantially lower railcar maintenance expense in 2018 than we anticipated, especially for tank qualifications. This is expected to result in higher maintenance expense in 2019 as this mandatory work is completed.”

“Rail International is performing well. Utilization at GATX Rail Europe increased to 98.4%, as we continue to see gradual improvement across the markets we serve. Rolls-Royce and Partners Finance affiliates’ performance was solid as the demand for aircraft spare engines remains strong. At American Steamship, 10 vessels are sailing under favorable operating conditions on the Great Lakes.”

Kenney concluded, “Based on year-to-date performance and our outlook for the remainder of the year, we continue to expect our 2018 full-year earnings to be in the range of $4.90 to $5.10 per diluted share. This guidance excludes any impact from Tax Adjustments and Other Items.”

Rail North America reported segment profit of $68.2 million in the third quarter of 2018, compared to $70.2 million in the third quarter of 2017. Lower segment profit was a result of lower revenues partially offset by lower maintenance expense. Year to date, Rail North America reported segment profit of $241.3 million, compared to $238.1 million in the same period of 2017. Lower revenues in 2018 were more than offset by lower maintenance expense and higher gains on asset dispositions in 2018, resulting in slightly higher segment profit.
At September 30, 2018, Rail North America’s wholly owned fleet was comprised of approximately 119,000 railcars, including approximately 16,000 boxcars. The following fleet statistics and performance discussion exclude the boxcar fleet.

Fleet utilization was 99.2% at the end of the third quarter, compared to 98.9% at the end of the prior quarter and 98.5% at the end of the third quarter of 2017. During the third quarter of 2018, the GATX Lease Price Index (LPI), a weighted-average lease renewal rate for a group of railcars representative of Rail North America’s fleet, was a negative 11.5%. This compares to an LPI of negative 16.1% in the prior quarter and a negative 27.0% in the third quarter of 2017. The average lease renewal term for railcars included in the LPI during the third quarter was 33 months, compared to 41 months in the prior quarter and 35 months in the third quarter of 2017. Rail North America’s investment volume during the third quarter was $129.1 million.

Additional fleet statistics, including information about the boxcar fleet, and macroeconomic data related to Rail North America’s business are provided on the last page of this press release.

Rail International’s segment profit was $20.7 million in the third quarter of 2018, compared to $20.1 million in the third quarter of 2017. Rail International reported segment profit of $52.5 million year-to-date 2018, compared to $50.1 million for the same period of 2017. The year-to-date 2018 results include $8.6 million of expense ($5.8 million after-tax) related to the closure of GATX Rail Europe’s (GRE) railcar maintenance facility in Germany. Favorable results in the comparative periods were driven by more cars on lease and foreign exchange impacts.
At September 30, 2018, GRE’s fleet consisted of approximately 23,000 railcars and utilization was 98.4%, compared to 97.8% at the end of the prior quarter and 95.6% at the end of the third quarter of 2017. Additional fleet statistics for GRE are provided on the last page of this press release.

Portfolio Management reported segment profit of $9.0 million in the third quarter of 2018, compared to a segment profit of $12.8 million in the third quarter of 2017. Segment profit year-to-date 2018 was $34.3 million, compared to $47.3 million year-to-date 2017. The decline in year-to-date segment profit is primarily driven by lower residual sharing fees and lower marine operating results partially offset by strong operating performance at the Rolls-Royce and Partner Finance affiliates (RRPF). 2017 year-to-date segment profit includes a net pre-tax gain of approximately $1.8 million ($1.1 million after-tax) associated with the planned exit of the majority of the marine investments.

American Steamship (ASC) reported segment profit of $11.9 million in the third quarter of 2018, compared to $12.1 million in the third quarter of 2017. Segment profit year-to-date 2018 was $20.7 million, compared to $18.4 million year-to-date 2017. ASC carried 8.7 million net tons of cargo in the third quarter of 2018, compared to 9.8 million net tons in the prior year period. Lower tonnage transported was more than offset by favorable operating conditions and efficient fleet performance resulting in slightly higher segment profit in 2018.

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