Trinity Industries' Quarterly Profit Falls But Revenues Rise

Trinity Industries' TRN net profit in the fourth quarter of 2019 fell amid higher expenses, although quarterly revenues grew nearly 16% year-over-year.

Fourth-quarter net income attributable to Trinity Industries totaled $21.6 million, or diluted net income of 17 cents per share, compared with $27.3 million, or 19 cents per share, in the fourth quarter of 2018.

Company revenues in the fourth quarter were $850.7 million, a 15.7% increase from $735 million for the same period in 2018.

Of that, Trinity's railcar leasing and management services segment saw revenue of $313.3 million in the fourth quarter, compared with $227.3 million in the prior-year period, and it experienced an operating profit margin of 42.2%. The company attributed the revenue growth to a higher volume of railcars sold from the lease fleet, growth in the lease fleet and higher average lease rates, which were partially offset by lower utilization and lower service-related fees compared with the fourth quarter of 2018.

Meanwhile, Trinity's rail products group reported quarterly revenues of $887.6 million, compared with $694.8 million in the prior-year period, with an operating profit margin of 11%. In the fourth quarter, Trinity saw higher railcar deliveries and experienced "favorable" railcar product mix changes compared with the same period in 2018.

Source: Trinity Industries

Trinity's wholly owned and partially owned lease fleet grew to 103,705 units in the fourth quarter, up from 99,215 for the same period in 2018, with a lease fleet utilization of 96% by the end of the fourth quarter, compared with 98.5% in the prior-year period.

Fourth-quarter expenses included a pretax restructuring charge of $14.7 million, or approximately 9 cents per diluted common share. Trinity attributed the charge to write-downs related to underutilized assets associated with its nonoperational facilities and employee transition costs. The company also saw a one-time, noncash deferred tax expense of $9.7 million, or 8 cents per common diluted share, with the expenses associated with a planned expansion of its maintenance service operations.

Trinity said 2019 marked its first year as a rail-focused company. In January, it named a new president and CEO, E. Jean Savage, who was already on Trinity's board and most recently served as vice president of the surface mining and technology division for construction equipment manufacturer Caterpillar CAT.

"While railcar industry fundamentals declined throughout the year as a result of uncertainty in trade policy and the North American industrial economy, Trinity's team delivered strong results in a very challenging market," said Melendy E. Lovett, chief financial officer. "Continued growth of our leased railcar portfolio, an emphasis on improving our lease rates while maintaining high utilization, and higher manufacturing railcar deliveries with a favorable product mix resulted in a 32% increase in full year operating profit year over year."

For 2020, Trinity projects full-year company revenues of $2.5 billion-$2.7 billion, compared with $3 billion in 2019. It estimates an adjusted diluted earnings per share from continuing operations of $1.15-$1.35, compared with $1.26 per adjusted earnings per share for 2019.

"The railcar industry is experiencing changing dynamics across the industrial end markets we serve, including increasing customer service expectations and the utilization of technology within supply chains," Savage said. "As a result of our rail-focused strategy, we have an opportunity to assess our business, evaluate our processes, and align our organization to deliver a premier experience for our customers based on their evolving business needs."

Trinity also said it is finalizing an assessment of the estimated useful lives and salvage value assumptions of the railcars in its leased railcar portfolio. The company expects a change in the weighted average useful life of railcars in its lease fleet to go to 37 years from 34 years, which could ultimately lower Trinity's annual depreciation expense in 2020 by $27 million-$33 million.

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