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GATX Corporation (GMT - Analyst Report), leading railcar leasing company, reported first-quarter 2014 adjusted earnings of 82 cents per share, beating the Zacks Consensus Estimate of 74 cents. The results showed a massive improvement from adjusted earnings of 60 cents a year ago.

Adjusted earnings for the reported quarter excluded the impact of benefits from tax adjustments and other items of $3.5 million (8 cents per share).

Revenues increased 5.3% year over year to $286.6 million, below the Zacks Consensus Estimate of $291 million.

Operating expenses increased to $223.0 million from $220.8 million in the year-ago quarter.

Segment Results

Profit from the Rail North America segment increased to $75 million in the first quarter from $50.3 million in the year-ago quarter driven by higher lease rates and asset remarketing activities.

GATX’ Lease Price Index (LPI) improved substantially to 33.9% from 30.8% in the year-ago quarter. Further, the term of lease renewals was 62 months versus 65 months in the comparable quarter last year.

The North American fleet totaled approximately 108,361 cars compared with 109,637 cars at the end of first-quarter 2013. Fleet utilization increased to 98.5% from 97.8% in the year-ago quarter.

Profit from the Rail International segment was $20.7 million compared with adjusted income (excluding the negative impacts of $1.4 million in pre tax and other items) of $20.0 million in the year-ago quarter. The growth was driven by higher lease revenue based on increased numbers of leased railcars and higher lease rates.

Rail International fleet totaled approximately 21,774 compared with 22,012 in the year-ago quarter. Fleet utilization was 95.8% versus 93.4% in the year-earlier quarter.

Profit from Portfolio Management was $11.9 million in the first quarter against $12.5 million in the year-ago quarter. The decline in profits was due to lower asset remarketing income that clouded the gains from the Rolls-Royce partnership. 

The segment currently comprises approximately $855 million worth of owned assets and third-party managed portfolios worth approximately $111 million.

Loss from the American Steamship Company (ASC) segment was $1.2 million compared to profit of $0.8 million in the year-ago quarter. Seasonal impacts of winter were primarily responsible for the decline in profits.

Liquidity

The company exited the first quarter with cash and cash equivalents of $447 million compared with $379.7 million in 2013.

Guidance

GATX expects its full-year 2014 earnings in the range of $4.15 to $4.35 per diluted share, higher than previously estimated $3.85–$4.05 per share.

Our Analysis

We expect market fundamentals to continue to improve in 2014 for GATX, supporting higher lease rates, carloads, increased asset utilization and remarketing opportunities. The company remains focused on expanding its asset base to enhance its long-term performance. Further, the tie-up with Rolls Royce is generating strong results, strengthening GATX’ competitive position.

GATX carries a Zacks Rank #2 (Buy).

Other Stocks

Other stocks worth considering in this sector include American Railcar Industries, Inc. (ARII - Snapshot Report), Trinity Industries Inc. (TRN - Snapshot Report) and CAI International Inc. (CAP - Snapshot Report). While American Railcar and Trinity Industries sport a Zacks Rank #1 (Strong Buy), CAI International has a Zacks Rank #2.

Read the Full Research Report on GMT
Read the Full Research Report on TRN
Read the Full Research Report on ARII
Read the Full Research Report on CAP


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