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Trinity Industries (TRN) Up 11.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Trinity Industries (TRN - Free Report) . Shares have added about 11.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Trinity Industries due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

In-Line Earnings at Trinity in Q3

Trinity Industries’ earnings of 39 cents per share were in line with the Zacks Consensus Estimate. The bottom line was also flat year over year. Total revenues came in at $813.6 million, which surpassed the Zacks Consensus Estimate of $809.7 million.

The Railcar Leasing and Management Services Group generated revenues of $326.4 million, up 29.9% year over year. The increase was primarily due to growth in lease fleet, higher volume of railcars sold and favorable average lease rates. Segmental operating profit came in at $115.7 million, up 25.5% from the year-ago quarter’s figure owing to factors like higher profits from sale of railcars and lease fleet growth. Moreover, the company’s lease fleet came in at 102,900 units as of Sep 30, 2019. The fleet size grew 7.6% compared with the figure at the end of third-quarter 2018.

Revenues at the Rail Products Group (before eliminations) totaled $723 million, up 45.3% from the prior-year quarter’s tally. Segmental operating profit came in at $65.4 million compared with $28 million a year-ago. Operating profit improved primarily due to higher railcar deliveries, favorable railcar pricing and product mix changes. Notably, the group delivered 5,320 railcars and received orders for 2,530 railcars compared with 3,990 and 7,725 in the year-ago quarter, respectively.

Revenues at the All Other Group grossed $90.4 million, down 11.7% year over year. The decline was due to sluggish demand and lower shipping volumes in Trinity’s highway products operations. Segmental operating profit came in at $3.9 million, compared with $9.5 million a year ago.

The company exited the third quarter with cash and cash equivalents of $97.6 million compared with $179.2 million at the end of 2018. Meanwhile, debt totaled $4,685.2 million as of Sep 30, 2019, compared with $4,029.2 million at 2018 end. During the third quarter, Trinity repurchased 5.2 million shares for approximately $100.9 million.

Outlook


For 2019, Trinity now anticipates earnings per share in the $1.17-$1.27 range (earlier guidance $1.15-$1.35).  The change in guidance is due to the anticipation of fewer railcar deliveries in 2019, some of which were expected to be added to the lease fleet. Additionally, Leasing and Management revenues are estimated in the range of $760-$765 million, while operating profit for the segment is projected between $320 million and $325 million.

Meanwhile, Rail Products Group revenues are expected to be $3 billion. Operating margin for the segment is estimated into be 9%. Railcar deliveries for the year are now envisioned in the 21,500-22,000 range (previous guidance: 23,000-24,500). Further, operating profit at the All Other Group is anticipated in the $10-$15 million range.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.73% due to these changes.

VGM Scores

At this time, Trinity Industries has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Trinity Industries has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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