Idled production, layoffs continue at Greenbrier

Worker on Greenbrier production line

A week after warning of the potential for future manufacturing shutdowns and layoffs on its fiscal second quarter 2020 (ended February 29) conference call, railcar and equipment manufacturer Greenbrier (NYSE: GBX) announced that it has idled railcar production at its flagship Gunderson facility in Portland, Oregon.

In its April 16 press release, Greenbrier announced that it has suspended production of double stack intermodal railcars due to the negative impacts from the COVID-19 pandemic, which has exacerbated the industry’s surplus of intermodal railcars. This is the first time in 25 years that production on this line has been halted.

In the week ended April 11, total North American intermodal traffic declined 18.6% year-over-year, and was down 8.8% through the first 15 weeks of the year compared to 2019 according to the Association of American Railroads.

Total Intermodal Containers (U.S.) – SONAR: RTOIC.USA

Greenbrier said that the Gunderson facility will continue to build food-grade refrigerated cars and insulated boxcars into July. Once the “work-in-progress” production is completed, that line will shut down, but could be restarted “after the current crisis subsides.” 

The facility’s Jones Act marine manufacturing operations will remain at “full strength” given a backlog that extends through 2020.

The workforce reductions at Gunderson include 200 production workers and office staff. 

“It is difficult to part with Greenbrier Gunderson workers who have served us for many years and persevered through this and other national emergencies,” stated Chairman and CEO William “Bill” Furman. 

A week ago, management estimated that production rates company-wide accounted for approximately 75% of its total manufacturing capacity. On the earnings call, management announced plans to further reduce capacity, potentially cutting the number of daily production shifts and workdays in the week.

Since the beginning of its fiscal year beginning in September 2019, the railcar manufacturer has eliminated more than 20% of its workforce, nearly 4,000 workers, at facilities in Mexico and abroad as demand for railcars has declined.  

A weak industrial economy and improved asset utilization by the railroads has resulted in an increase in the number of railcars in storage. Currently, 24% of the North American railcar fleet – nearly 400,000 railcars – and 20% of the intermodal fleet are in storage.   

“Going forward, we intend to identify opportunities to profitably build railcar products at Greenbrier Gunderson. Meanwhile, we plan to keep and deploy some of our most experienced team members to other locations in our network, where different kinds of railcars are built,” Furman said.

At the close of its second fiscal quarter the company had total liquidity of $620 million with a stated goal of increasing that number to $1 billion through cost actions and capital expenditure (capex) reductions. The company ended the quarter with $713 million in net debt and a net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of 2.1x.

Shares of GBX are 2% lower in midday trading.