GATX Corporation (GMT), a leader in leasing transportation assets, has reported third quarter 2011 adjusted earnings of 70 cents per share, which was fairly ahead of the Zacks Consensus Estimate of 61 cents. Earnings for the third quarter shot up 44.4% from 45 cents in the year-ago quarter primarily on higher lease rates.
Revenue for the third quarter grew 8.1% year over year to $339.7 million and surpassed the Zacks Consensus Estimate of $329 million aided by lease rates and North American fleet utilization.
Segment Results
Profit from the Rail segment soared to $63.0 million in the reported quarter from $32.7 million in the year-ago quarter. Lease renewal pricing on cars showed a massive improvement on the heels of increased asset remarketing and lower inventory cots due to increased fleet utilization.
GATX’ Lease Price Index (LPI) improved substantially to 9.6% from negative 15.7% in the year-ago quarter on fewer idle railcars. Further, the term of lease renewals increased to 49 months from 41 months in the second quarter and 36 months in the year-ago quarter.
The North American fleet totaled approximately 109,091 cars compared with 108,800 cars at the end of third quarter 2010. Fleet utilization remained flat sequentially at 98.2% but increased from 96.8% in the year-ago quarter. The European wholly owned tank car fleet totaled approximately 21,000, flat with the second quarter and utilization was 96.0% versus 95.7% in the year-earlier quarter.
Profit from the Specialty segment decreased to $11.5 million in the reported quarter from $13.6 million in the year-ago quarter. The results were primarily impacted by impairment losses incurred by GATX on the dissolution of a joint venture. The company and Clipper Group, a global shipping company terminated their Clipper Fourth joint venture that involved 14 chemical parcel tankers. Upon dissolution, GATX received 6 of these vessels a loss of $5.2 million for the company. The losses were partially offset by strong asset remarketing and continued growth in aircraft engine leasing joint venture with Rolls Royce. The Specialty portfolio currently comprises approximately $864.8 million of owned assets (including on and off balance sheet assets) and third-party managed portfolios of approximately $176.7 million.
Profit from the American Steamship Company (ASC) segment fell 32.0% year over year to $8.5 million in the third quarter. The segment suffered a massive loss on volumes due to strikes conducted by American Maritime Officers union on expiration of labor contract in August. However, operations were resumed after an expired contract was extended. Negotiations are still in process for a new long-term contract.
Guidance
For fiscal 2011, management maintained its projected earnings estimate of $1.85–$1.95.
Our Analysis
Despite the current fluctuation in the economy and employee disruption affecting the ASC segment, GATX showed strong resilience on the heels of improving lease rates, increased fleet utilization and solid asset remarketing. Further, the quarter also remains benefited from the deployment of new railcars under the company’s 12,500 new railcar order over a five-year period. Further the joint venture with Rolls Royce is also producing strong results for the company, uplifting its competitive position against rivals like J.B. Hunt Transport Services (JBHT).
We are currently maintaining our long-term Neutral recommendation on GATX. For the short-term (1–3 months), the company has a Zacks #2 (Buy) Rank.
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