GATX Ests Cut, Post-Report

GATX Corporation (GMT - Analyst Report, or GATX) posted diluted EPS before nonrecurring items of $0.68, down 24% year over year. This was well above consensus of $0.50 and our $0.54 estimate, primarily reflecting lower-than-expected expense growth due to volume-related declines in SG&A, other operating costs and marine operating expenses.

For the quarter, the company recorded revenue of $263 million compared to $289 million in the year-ago quarter. GATX’s fleet utilization remains solid, though it is on a declining trend. North American railcar fleet utilization was 96.5% at March 31, 2009, and was down from 97.9% at December 31, 2008 and 98.1% at the end of the prior-year quarter. European tank car utilization was 96.5% at March 31, 2009, decreasing from 97.1% at December 31, 2008 and 97.5% in the year-ago quarter.

Negatively, railcar renewal pricing continues soft. First quarter 2009 lease renewal pricing declined 5.5% on GATX’s most common car types. This compares to gains of 3.3% in 2008’s fourth quarter, 11.6% in the year-ago quarter, and 5.2% for full-year 2008.

By business segment, rail reported first quarter pretax income before nonrecurring items of $57.4 million, down 22% from $73.8 million earned in the prior-year period, largely due to lower lease and remarketing income. At Specialty, first quarter pretax income was $23.0 million versus $30.0 million in the prior-year quarter, principally due to a $6.0 million decline in affiliate earnings. At American Steamship Company, pretax profits before nonrecurring items dropped to a loss of $0.8 million from a gain of $0.7 million in the year-ago quarter, due to a decline in net marine operating revenue.

We are cutting our 2009 diluted EPS estimate from $2.30 to $2.00, well below GATX’s earnings guidance that calls for EPS at roughly $2.50 per diluted share, due to a sharp decline in estimated revenues. We expect results to reflect effects from economic slowing, including pressure on lease rates, utilization, and lower scrap and remarketing income. Our initial 2010 EPS estimate is $2.15.

GATX recently increased its annual dividend by 4% to $1.12.

We are continuing our Hold recommendation on GATX. The current Zacks rank is 3, indicating no clear directional pressure on the share price over the near term. The shares were up 5.3% in trading on Thursday, closing at $30.11.

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