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GATX Corporation (GMT - Analyst Report), a leader in leasing transportation assets, reported third quarter 2012 adjusted earnings of 75 cents per share, which surpassed the Zacks Consensus Estimate of 66 cents and also improved from the year-ago adjusted earnings of 67 cents. The year-over-year growth was aided by higher lease rates, fleet utilization and rising demand for tank cars.

Adjusted earnings for the quarter excluded the impacts of tax adjustments and Other Items related gains of $18.2 million (or 38 cents per diluted share)

Revenues for the third quarter were $343.4 million, below the Zacks Consensus Estimate of $363 million, but slightly up from $337.9 million in the year-ago quarter.

Segment Results

Adjusted profit from the Rail segment decreased to $65.6 million in the reported quarter from $66.1 million in the year-ago quarter. The segment’s adjusted profit was mainly impacted by lower remarketing activities and scrap rate along with increased other expenses.

Adjusted profits for the reported quarter excluded the negative impacts of $2.1 million related to pre-tax expense and other items.

GATX’ Lease Price Index (LPI) improved substantially to 26.4% from negative 9.6% in the year-ago quarter on fewer idle railcars. Further, the term of lease renewals increased to 59 months from 49 months in the year-ago quarter.

The North American fleet totaled approximately 109,162 cars in the third quarter compared to 109,091 cars at the end of third quarter 2012. Fleet utilization remained flat year over year at 98.2%. The European wholly owned tank car fleet totaled approximately 21,314 cars against 20,828 in the third quarter of 2011. Fleet utilization was 96.6% versus 96.0% in the year-earlier quarter.

Profit from the Portfolio Management segment increased to $15.0 million in the reported quarter from $11.5 million in the year-ago quarter driven by higher asset remarketing activities. In the reported quarter the segment comprised approximately $815.1 million of owned assets (including on and off balance sheet assets) and third-party managed portfolios of around $147.5 million.

Profit from the American Steamship Company (ASC) segment was $13.2 million in the third quarter compared to $8.5 million in the year-ago period. The year-over-year growth was primarily attributable to higher volumes and rate improvements.

Liquidity

The company exited third quarter 2012 with cash and cash equivalents of $430.6 million compared with $248.4 million in 2011.

Guidance

For fiscal 2012, management expects adjusted earnings in the range of $2.65 - $2.75 per diluted share.

Our Analysis

We believe GATX will remain focused on improving lease pricing, asset utilization and asset remarketing opportunities. Further, enhancing infrastructure through investing in railcar also bodes well given the current momentum in rail intermodal services. The company’s expansion of asset base to enhance its long-term performance would remain accretive to increase market traction.

However, we remain on the sidelines due to economic volatilities and difficult market conditions surrounding its businesses. Additionally, regulatory pressures and competitive threats from carriers like American Railcar Industries, Inc. (ARII - Snapshot Report) compel us to remain cautious on the stock.

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

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