GATX: Rising Steel Costs, View of the 2022 Ukrainian Conflict

The dispute between Ukraine and Russia is unlikely to affect rail vehicle lender GATX’s North American operations, but the company’s European division is operationally affected, executives said Wednesday’s first quarter of GATX. I mentioned it at the financial results briefing.

Although it is unlikely that profits from the international segment of GATX will be affected, GATX is operationally open to the public. GATX (NYSE: GATX) is Poland’s leading rail vehicle lender, according to CFO Thomas Ellman. Poland also has a large rail vehicle facility with many employees based in Warsaw. Many employees are also volunteering to support refugee efforts, and GATX provides financial support to those who have accepted some refugees, Elman added.

“This is, first and foremost, a terrible humanitarian crisis. It’s not the GATX way of thinking to think positively,” Elman told investors in a statement. “Each business has different implications, but the approach is the same. We adhere to our commitment, work constructively with all our members, and prioritize employee safety and well-being. Over 120 years. Overcome this turmoil, just as many crises have occurred in the meantime. “

GATX also operates a small rolling stock leasing business in Russia with three customers and 380 rolling stock. The company has invested a total of $ 20 million in its business in Russia, executives said on Wednesday phone that the business is still in operation and customers are paying leasing fees. GATX is also compliant with sanctions and counter-sanctions.

In addition to the conflict in Ukraine, rising steel costs take into account how GATX views the leasing and manufacturing markets for rolling stock. Rising steel costs are affecting railcar manufacturing costs and scrap prices, executives said. Rising steel prices can also support leasing fees.

However, some customers are willing to add cars with higher leasing fees, so they are postponing new cars. This will reduce opportunities for new spots, executives said.

However, the ultimate factor in North American leasing fees is whether the supply and demand of rolling stock is balanced or unbalanced. The balance between supply and demand also depends on the model, executives said.

In addition, while US rail transport is declining year-on-year, the leasing cycle is driven by rail vehicle supply rather than rail vehicle demand, Elman said. The number of rolling stock stored each month is consistently declining, benefiting rail car lenders and manufacturers.

Wednesday’s earnings announcement was the last for Brian Kenny. Retired person After serving as CEO of GATX for 17 years. Bo Lyons, Executive Vice President of GATX and President of Rail North America, will replace him on Friday.

“It was fun, rewarding and honest, and it was fun to work with all of GATX’s shareholders and analysts. I hope you find me honest and transparent in communicating with you. “That’s what Kenny told investors over the phone.

GATX 2022 Q1 financial results

GATX had a total net income of $ 75.8 million in the first quarter of 2022, or $ 2.10 per diluted share, while net income in the first quarter of 2021 was $ 36.5 million, or 1.02 per diluted share. It was a dollar. Net income increased 108% year-on-year.

“Despite the growing economic uncertainty caused by the war in Ukraine, the situation continues to grow across the global rail vehicle leasing market,” Kenny said in a statement.

Results for the first quarter of 2022 included a $ 11.5 million negative impact of net impairment of Russian aircraft spare engines at Rolls-Royce and its partners in Partners Finance, or 32 cents per diluted share. .. According to GATX, there was also a net positive impact of $ 3 million (8 cents per diluted share) in connection with the tax cuts enacted in Austria.

GATX’s North American division saw “high” fleet utilization of 99.3% compared to 99.2% in the fourth quarter of 2021 and 97.8% in the first quarter of 2021.

GATX also experienced a lease renewal rate of 80% in the first quarter of 2022. “As the number of idle rail cars in the industry continues to decline, the increase in leasing rates from the previous quarter has accelerated for most car models,” Kenny said. ..

GATX revenue from the North American division was $ 223.7 million, compared to $ 224.6 million in the first quarter of 2021. Segment profit was $ 120.4 million, up from $ 65.7 million in the year-ago quarter, as profits from asset disposals increased in the first quarter of 2022.

GATX’s international division saw segment profit of $ 24.9 million, with more rolling stock leased, compared to $ 21.8 million in the first quarter of 2021.

“Rail International continues to be strong and demand for rail vehicles in Europe and India remains strong. Fleet utilization is above 99% and renewal lease rates for most vehicle models increase relative to the expiration rate. I kept doing it, “said Kenny.

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