CHICAGO – Earnings for the Rail North America segment of leasing company GATX dropped by nearly 11% for the third quarter of 2019, but corporate officials are “cautiously optimistic.”
Regarding the future of the economy and its effect on GATX, CEO Brian Kenney told those on the company’s quarterly earnings call, “I don’t have that crystal ball.
“I’m a pretty lousy economist,” Kenney says, “ but we do track what our customers are saying and how they’re acting and you can see demnd is still extremely good — it’s reflected in our high fleet utilization — but I will say in the last quarter or so, it’s starting to feel like it’s losing some steam.”
Despite GATX fleet utilization of 99.2%, railcar loadings have been down every quarter this year, according to Kenney.
Besides decreased carloadings, GATX has faced challenges including precision scheduled railroading, tariffs, and increased railroad velocity, according to Tom Ellman, chief financial officer.
While tank car lease rates have held steady over the past year, “the tank car market has been a little bit stronger than what we had expected and the freight car market has been a little bit weaker,” Ellman says.
Lease rates for older flammable-liquid tank cars are down 10 to 15 percent, he says. “This is primarily due to customer preference for the newer DOT 117 tank car.”
Given customer preferences, he says GATX is not involved in retrofits of older tank cars which must be completed by May 2023.
Ellman reports that an indicator of market strength in the pricing of car leases is lead time for construction of new tank cars, which is currently nine to 12 months. He says GATX would prefer tank car lead times of more than a year; less than nine months would represent “challenges.”
Second quarter figures indicated 69,000 railcars under construction, half of them tank cars.
Freight car leases were down an average of 5% to 10% from the second quarter and about 20% from a year ago, Ellman says: “There’s a lot of variability among individual freight car types and some individual freight car types like small-cube covered hoppers for frac sand [and] center-beams for lumber are down even more that 20 percent on a year-over-year basis.”
Third quarter 2019 Rail North America segment profits were $60.9 million, compared to $68.2 million in the third quarter of 2018. Year-to-date segment net income was $215 million, down from $241.3 million in the previous year.
Although revenues increased, GATX profits in its international rail division serving Europe and India dropped 4% due to “higher maintenance expense and foreign exchange impacts,” according to its third quarter earnings statement.
Besides being engaged in railroading, GATX has a joint venture with Rolls Royce to lease jet engines, and operates 11 Great Lakes boats.
Overall GATX corporate net income dropped from $47 million in the third quarter of 2018 to $45.1 million in the quarter ending September 30.
