Trinity Industries eyes better market conditions in second half of 2021

A photograph of a tank car and two railcars parked in a rail yard.

Although market conditions are improving for Trinity Industries (NYSE: TRN), the railcar lessor and rail equipment manufacturer anticipates persistent headwinds through the first half of 2021 as prospective customers take a wait-and-see approach to gauging market demand.

“Market uncertainty as it relates to COVID-19 remains the predominant story on the economic and rail industry outlook. We see early indicators of a recovery with improving year over year railcar traffic volumes, slowing train speeds, and, more importantly, higher overall cycle times for shippers, all of which require more railcars to return to service,” Trinity Industries CEO E. Jean Savage said in a release detailing Trinity’s fourth-quarter 2020 earnings. 

“However, given the pace of improvement, customers are hesitant in their long-term planning for railcar assets. Industry forecasts currently suggest a recovery in the second half of 2021, and our customer inquiry levels align with these expectations,” Savage continued.

Trinity is “seeing some improvement in lease rates,” and the company’s lease fleet utilization rate has remained stable through the beginning of 2021, Savage said. The company expects modest fleet growth and improved maintenance cost efficiency to offset headwinds from renewing lease rates.

Trinity also predicts its rail products business will achieve improved operating results as the company outsources fabrication and implements more automation in its facilities, it said. 

Fourth-quarter 2020 financial results

Trinity viewed 2020 as a year when it focused on its rail operations, which resulted in rationalizing its footprint, including ending its trucking and logistics businesses, and optimizing Trinity’s cost structure. 

The company also sought to weather the decline in railcar demand as a result of the COVID-19 pandemic-related economic impacts. 

“While our leasing operations results performed well during the year, the decline in lease portfolio sales and railcar deliveries created earnings headwinds to overcome. Our team responded to the crisis and offset some of this headwind through strong management of our fleet maintenance costs and significant reductions in headcount” and overhead costs, Savage said.

Trinity sustained a net loss of $127.2 million in the fourth quarter of 2020, or 4 cents in adjusted diluted earnings per share, compared with net profit of $21.6 million, or 35 cents in adjusted diluted earnings per share, in the fourth quarter of 2019.

A 21.3% decrease in expenses wasn’t enough to offset a 51% drop in revenue. Fourth-quarter expenses were $56.1 million while revenue was $415.6 million. 

(Trinity Industries)

The decline in fourth-quarter revenue came largely from a 65% drop in revenue for Trinity’s rail products group. That segment saw fourth-quarter revenue of $313.3 million, compared with $899 million in the fourth quarter of 2019, amid lower railcar deliveries.

(Trinity Industries)

Orders in the fourth quarter were the fewest since the financial crisis of 2009, which wasn’t surprising given the number of railcars available and the slow recovery pace of the industrial economy, Savage said during Trinity’s fourth-quarter earnings call on Wednesday. 

“2020 was a challenging year, but Trinity’s team made difficult decisions that put our Company on a path to accelerate our financial performance. In 2021, we intend to further optimize our manufacturing platform through outsourced fabrication activities and integrating advanced technologies, and to enhance our product portfolio through evolutionary products and services for our customers,” Savage said in a release.

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