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GATX Corporation (GMT - Analyst Report), a leader in leasing transportation assets, reported adjusted fourth quarter 2012 earnings of 56 cents per share, beating the Zacks Consensus Estimate of 54 cents. However, earnings for the quarter fell 9.7% from the year-ago adjusted earnings of 62 cents.

Adjusted earnings for the fourth quarter excluded the favorable impacts of the benefits from tax adjustments and other items amounting to $2.8 million (6 cents per share).

For fiscal 2012, adjusted earnings per share were $2.81, up 39.8% year over year from $2.01. Adjusted earnings for 2012 excluded the favorable impacts of benefits from tax adjustments and other items amounting to $3.5 million (7 cents per share).

Revenues for the quarter increased 0.5% year over year $331.7 million, but missed the Zacks Consensus Estimate of $346 million. For the full year, revenues increased 4.3% year over year to $1,243.2 million.

For the fourth quarter, operating profits decreased 11.5% year over year to $76.1 million. For fiscal 2012, profits increased to $ 325.6 million from $303.5 million.

Total operating expenses (including ownership cost, and other costs and expenses) increased 3.2% year over year to $276.7 million in the reported quarter. For the full year, operating expenses increased 2% year over year to $1,004.1 million.

Segment Results

Profits from the Rail segment increased 19.8% year over year to $59.8 million in the reported quarter from the adjusted profit of $49.9 million in the year-ago quarter.

GATX’ Lease Price Index (LPI) improved substantially to 32.3% from 13.2% in the year-ago quarter. Further, the term of lease renewals increased to 65 months from 48 months in the year-ago quarter.

The North American fleet totaled approximately 109,551 cars compared with 109,070 cars at the end of fourth quarter 2011. Fleet utilization decreased to 97.9% from 98.2% in the year-ago quarter. The European wholly owned tank car fleet totaled approximately 21,840 compared to 20,927 in the year-ago period. Fleet utilization was 95.1% versus 97.1% in the year-earlier quarter.

Portfolio Management reported loss of $1.4 million in the fourth quarter compared to a profit of $16.6 million in the year-ago period. The decline was due to a $14.8 million loss recognized in the reported quarter from GATX’ interest disposition in a joint venture. The segment currently comprises approximately $797.4 million of owned assets (including on and off balance sheet assets) and third-party managed portfolios of approximately $143.2 million.

Profits from the American Steamship Company (ASC) segment dipped 12.8% year over year to $8.2 million in the fourth quarter. The decline was due to lower shipments owing to disruption in operations given low water levels on the Great Lakes.

Liquidity

The company exited fiscal 2012, with cash and cash equivalents of $234.2 million compared with $248.4 million in 2011.

Guidance

GATX expects full-year 2013 earnings in the range of $3.10 to $3.20 per share.

GATX expects the North American chemical and petroleum markets to provide a favorable operating environment for tank car leasing despite demand weakness across certain freight car types. The company expects cars scheduled for maintenance, in particular, tank car will increase in 2013, consequently increasing maintenance costs over 2012 levels.

GATX expects Portfolio Management segment to continue benefit from Rolls-Royce and Partners Finance affiliates. It expects ASC segment’s volume to remain subdued from the year-ago level. Moreover, low water levels on the Great Lakes will disrupt the operating environment. Further, marine investments are also expected to yield low volumes.

Other Stocks

Other stocks worth considering within the sector are Aircastle LTD (AYR - Snapshot Report), which has a Zacks Rank 1 (Strong Buy), American Railcar Industries, Inc. (ARII - Snapshot Report) and Ryder System, Inc. (R - Analyst Report), both having a Zacks Rank #2 (Buy) rating.

Our Analysis

Despite the surrounding weakness in the European freight car market, GATX mainly benefited from higher lease rates and strong utilization of European tank in 2012. The company benefited from the significant investment opportunities that prevailed in the European market. In 2012, the company also stepped into emerging markets like India with the purchase of railcars.

We expect market fundamentals to continue to improve in 2013, 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 joint venture with Rolls Royce is also producing strong results for the company, uplifting its competitive position.

The company currently retains a Zacks #4 (Sell).

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