Greenbrier Defies the Energy Bust With Strong Growth

Greenbrier's tank car exposure is no liability. Image source: Greenbrier

The plunge in oil prices has had far-reaching impacts across the economy, with a host of companies that play supporting roles in the energy boom having seen their stock prices slide in recent months. Greenbrier is one of those companies, as many saw its business of providing tank cars and a variety of other railroad cars and equipment to be in jeopardy from a potential production cut among oil and gas producers. Yet in Tuesday morning's fiscal second-quarter financial report, Greenbrier proved that at least for now, the company has seen no signs of any imminent slowdown, and the Oregon-based equipment maker boosted its guidance for the full year. Let's look more closely at Greenbrier and how it fared so well to begin 2015.

Greenbrier rides the rails higherGreenbrier's quarterly results easily overcame any concerns that investors had about the company's prospects. Revenue soared 27% to $630 million on the strength of increased railcar deliveries, crushing expectations for just $614 million in sales. Similarly, earnings of $1.57 per share tripled last year's quarterly results, even though most of those following the stock had only expected to see $1.20 per share on the bottom line.

Looking at Greenbrier's various segments, overarching strength in its manufacturing business produced most of the company's overall growth. Segment sales climbed by 45% from year-ago levels, and an improving mix of product sales and stronger pricing power helped Greenbrier push operating margins up by more than 4 percentage points to 18% in just the past three months. With 5,200 deliveries, Greenbrier shipped 30% more railcars than it did in the first quarter of 2015. The leasing and services division also showed signs of strength, with gains of 24% from year-ago sales levels.

Not all of Greenbrier's businesses did well, though. Sales of wheels and parts dropped by a quarter from year-ago levels, but the company noted that on a sequential basis, segment revenue was up 19% from 2015's fiscal first quarter.

Source: Greenbrier.

Still, Greenbrier was able to tout its diversification in showing its results weren't dependent on the energy industry. As CEO William Furman said, "Nearly 80% of our year-to-date orders for 24,200 railcars are non-energy related," pointing to demand for intermodal, grain, automotive, and scrap-steel transportation as driving the company's business forward. Moreover, Greenbrier's backlog of 46,000 new railcars marked the sixth straight quarter of increases, with multiyear orders providing stability and certainty for the company and its shareholders.

Can Greenbrier keep powering forward? Based on its positive results so far, Greenbrier also gave investors good news about the rest of the year. The railcar company boosted its guidance for fiscal 2015, with deliveries of 21,500 units producing sales of between $2.6 billion and $2.7 billion, falling at the upper end of the consensus figure. Moreover, earnings guidance of $5.65 to $5.95 per share is $0.45 higher than its previous guidance, with conditions continuing to improve in the second half of the year.

Even though Greenbrier doesn't want to rely too much on energy, it's also looking forward to more clarity about the tank car business going forward. Multiple accidents involving rail cars has led to a call for greater regulation, but Greenbrier expects the regulatory picture for crude-oil-carrying tank cars to become clearer by next month. With the company's "Tank Car of the Future" positioning itself for greater demand following any regulatory changes, Greenbrier could see a boost to its business from stronger restrictions on the type and quality of tank cars used in transporting hazardous materials.

Greenbrier shareholders couldn't have been happier with the news, sending shares up more than 7% in the first two hours of premarket trading following the announcement. With fears that the company would suffer from energy's decline having been proven wrong, Greenbrier looks like it's weathering the oil storm well and has plenty of ways to keep its business improving throughout 2015 and beyond.

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