GATX Corporation (GMT - Analyst Report), a leader in leasing transportation assets, reported second quarter 2012 adjusted earnings of 80 cents per share, which breezed passed the Zacks Consensus Estimate of 61 cents.
Adjusted earnings for the second quarter shot up 86% from 43 cents per share in the year-ago quarter. This increase was primarily driven by higher lease rates, better asset utilization, and improvement in lease terms alongside higher demand for locomotives.
Adjusted earnings in the second quarter exclude the negative impact of special items related to tax adjustments that amounted to $15.3 million (or 31 cents per share).
Revenues for the second quarter increased 9% year over year to $343 million and surpassed the Zacks Consensus Estimate of $338 million, aided by lease rates, North American fleet utilization and growth in the lease terms.
Adjusted profit from the Rail segment increased to $65.9 million in the reported quarter from $49.8 million in the year-ago quarter. Adjusted profit for the quarter excludes the negative impact of $16.3 million related to pre-tax expenses. The year-over-year growth was aided by lease renewal, pricing improvement higher asset remarketing and lowered inventory costs.
GATX's Lease Price Index (LPI) improved substantially to 23.9% from 4.4% in the year-ago quarter. Further, the term of lease renewals increased to 59 months from 41 months in the year-ago quarter.
As of June 30, 2012, the North American fleet totaled approximately 109,187 cars compared with 108,764 cars at the end of second quarter 2011. Fleet utilization remained at 98.3% compared with 98.2% in the year-ago quarter. The European wholly-owned tank car fleet increased to approximately 21,209 cars from 20,675 in the year-ago quarter. Fleet utilization was 96.3% versus 95.7% in the year-earlier quarter.
Profit from the Portfolio Management segment increased to $14.6 million in the reported quarter from $8.8 million in the year-ago quarter driven by higher asset remarketing opportunities and strong performances by marine joint ventures operating in ethylene market. The segment comprises approximately $804.7 million worth owned assets (including on and off balance sheet assets) and second-party managed portfolios of approximately $149.0 million.
Profit from the American Steamship Company (ASC) segment reported profit of $14.0 million versus $8.6 million in the year-ago period. The year-over-year growth was attributable to increased volumes and pricing.
The company exited second quarter 2012 with cash and cash equivalents of $227.7 million compared with $248.4 million in 2011.
For fiscal 2012, management raised its earnings estimate to the range of $2.65-$2.75 from previous forecast of $2.40-$2.60 per diluted share.
We expect GATX Corp. to benefit from higher lease rates and increased asset utilization and remarketing opportunities. The company’s segments remain poised to deliver strong results given improvements in underlying market fundamentals.
Further, expansion of the company’s asset base to enhance its long-term performance as well as paying higher returns to shareholders through dividend payments bode well for increased market traction. However, regulatory pressures and competitive threats from carriers like J.B. Hunt Transport Services (JBHT - Analyst Report) compel us to remain cautious on the stock.
We currently have a long-term Neutral recommendation on GATX. However, for the short term (1-3 months), the stock has a Zacks #3 Rank (Hold).