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GATX Corporation (GMT - Analyst Report), a leader in leasing transportation assets, reported first quarter 2011 adjusted earnings of 28 cents per share, which missed the Zacks Consensus Estimate of 32 cents and was below adjusted earnings of 42 cents in the year-ago quarter.

Revenue for the first quarter inched up 0.5% year over year to $265 million and surpassed the Zacks Consensus Estimate of $261 million aided by improving lease rates and strong demand at the American Steamship Company segment.

Segment Results

Profit from the Rail segment declined to $44.4 million in the reported quarter from $50.2 million in the year-ago quarter. Lease renewal pricing on cars showed a massive improvement in the reported quarter.

GATX’s Lease Price Index (LPI) improved substantially to negative 0.5% from negative 15.2% in the year-ago quarter due to the lower number of idle railcars. Further, the company increased the term of lease renewals to 41 months compared to 31 months in the year-ago quarter.

As of March 31, 2011, North American fleet totaled approximately 109,780 cars compared with 108,918 cars at the end of first quarter 2010. Fleet utilization rose to 97.8% from 96.0% in the year-ago quarter. The European wholly owned tank car fleet totaled approximately 20,524 cars and utilization was 95.8% versus 94.4% in the year-earlier quarter.

Profit from the Specialty segment decreased to $10.7 million in the reported quarter from $12.1 million in the year-ago quarter due to lower asset remarketing income. The Specialty portfolio currently comprises approximately $763.6 million of owned assets (including on and off balance sheet assets) and third-party managed portfolios of approximately $226.7 million.

Profit from the American Steamship Company (ASC) segment shot up 100% year over year to $0.8 million in the first quarter on solid demand.

Dividend

The company declared a quarterly dividend of 29 cents per share payable on June 30, to shareholders of record on June 15, 2011.

Guidance

For fiscal 2011, management stuck to its previously projected earnings estimate of $1.70–$1.80 per share.

Our Analysis

Given the ongoing economic improvement, we believe GATX will remain focused on improving lease pricing, asset utilization, effective asset remarketing and improve infrastructure through investing in railcars. The company has already ordered 12,500 new railcars in March that will be deployed over a five-year period.

However, we remain on the sidelines due to volatilities in lease pricing and difficult market conditions surrounding marine joint ventures. Additionally, the company also faces competition from J.B. Hunt Transport Services (JBHT - Analyst Report) in Specialty and ASC segments.

We are currently maintaining our long-term Neutral recommendation on GATX. For the short-term (1-3 months), the company has a  Zacks #4 Rank (Sell).

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