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Bear of the Day: Greenbrier (GBX)

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Greenbrier Companies (GBX - Free Report) is back in the cellar of the Zacks Rank after reporting quarterly earnings last month of $1.31 per share, missing the Zacks Consensus Estimate of $1.38 per share. This compares to earnings of $0.80 per share a year ago. 
Greenbrier, which belongs to the Zacks Transportation-Equipment and Leasing industry, posted revenues of $914.25 million for its Q4 FY19 (ended August), missing the Zacks Consensus Estimate by 5%. This compares to year-ago revenues of $689.21 million.
While GBX has struggled to meet EPS estimates in the past year, the company has topped consensus revenue estimates two times over the last four quarters.
In the prior quarter, it was expected that this maker of railroad freight car equipment would post earnings of $0.96 per share when it actually produced earnings of $0.89, delivering a surprise of -7.29%.
In July, my colleague Tracey Ryniec wrote about GBX as the Bear of the Day after that earnings miss. After the ensuing downward estimate revisions from analysts, GBX shares subsequently fell 21% from $28 to $22. Here's what Tracey observed at the time...
The Greenbrier Companies recently gave disappointing guidance as the railcar market remains in flux. This Zacks Rank #5 (Strong Sell) is expected to see a double digit earnings decline in fiscal 2019.
Greenbrier is a supplier to the global freight transportation markets. It designs, builds and markets freight railcars and marine barges in North America. In Europe, Greenbrier Europe operates as an end-to-end freight railcar manufacturer, engineer and repair business with operations in Poland, Romania and Turkey.
It's also the leading provider of freight railcar wheel services, parts, repair and refurbishment and retrofitting services in North America and owns a lease fleet of 8,900 railcars and performs management services for 374,000 railcars.
A Miss in the Fiscal Third Quarter
On July 2, Greenbrier reported its fiscal third quarter results and missed on the Zacks Consensus Estimate by 7 cents.
Earnings were $0.89 versus the consensus of $0.96.
It saw record quarterly revenue of $856.2 million.
During the quarter, it received orders for 6,500 diversified railcars, valued at $730 million.
The new railcar backlog as of May 31, 2019, was 26,100 units with an estimated value of $2.74 billion.
So what went wrong?
Fourth Quarter Guidance Below Consensus
While it expected the back half of the fiscal year to be robust, some of that was tempered by the weakness in the repair business and in some international markets as well as the costs of integrating the American Railcar Industries acquisition.
It expects some of the headwinds to become tailwinds, especially in Brazil and Europe, but it still gave a soft fourth quarter forecast.
Greenbrier expects fiscal fourth quarter earnings to be in the range of $1.30 to $1.50. This was well below the consensus so it's not surprising that analysts moved to cut.
Six estimates were cut since the earnings report for the fourth quarter which pushed the Zacks Consensus down to $1.37 from $1.89.
That meant the analysts also had to slash the full year estimates. 8 estimates were cut pushing the full year consensus down to $3.09 from $3.62.
That's a decline of 25.2% as the company made $4.13 in fiscal 2018.
Analysts were also bearish about fiscal 2020 as 6 estimates were cut in the last month.
(end of excerpt from Tracey Ryniec's July report)
Clearly, GBX missed the lowered guidance when it reported for Q4 last month.
And while the current fiscal year which began in September is expected to see revenues grow 12.25% to $3.4 billion, the EPS outlook is for another annual loss of about -3.5%.
Rail transport has surged in the last few years as the economy continues the expansion. But railcar supply and demand dynamics may have peaked in the cycle.
Whether or not we have the data to know that for certain, what we do have is company expected to see continuing decline in profits.
There may be fundamental value in buying GBX in the low $20's but not here, not now. The Zacks Rank will let you know when the real turnaround comes.
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