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July 27, 2010
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GATX Corporation (GMT), a leader in leasing transportation assets, reported second quarter adjusted earnings of 39 cents per share, which is below the Zacks Consensus Estimate of 40 cents as well as the year-earlier earnings of 41 cents. Earnings were disappointed due to the challenging North American railcar leasing market.
Despite the improvement in absolute lease rates and fleet utilization, revenues remained under pressure. Revenues inched up 1.9% year over year to $288.2 million.
Segment Results
Profit from the Rail segment was $29.4 million compared with $44.3 million in the year-ago quarter. The decline was the result of market pressures that negatively affected renewal lease rates. Lease renewal pricing on cars in GATX’s Lease Price Index (LPI) decreased 18.6% in the second quarter compared with a decrease of 9.8% in the year-ago quarter, reflecting the ongoing challenges in the rail market. The average lease renewal term for cars in LPI was flat year over year at 36 months.
At the end of the second quarter, North American fleet totaled approximately 109,000 cars, and fleet utilization upped to 96.5% from 96% in the year-ago quarter due to higher fleet activity. The European wholly-owned tank car fleet totaled approximately 20,000 cars and utilization was 94.4% versus 95.6% in the year-ago quarter.
Profit from the Specialty segment jumped 98.6% year over year to $14.5 million, primarily driven by higher asset remarketing income. The Specialty portfolio currently comprises approximately $699.4 million of owned assets (including on and off balance sheet assets) and third-party managed portfolios of approximately $228.1 million.
American Steamship Company (“ASC") segment profit shot up to $9.1 million from $4 million in the year-ago quarter, primarily attributable to the increase in demand for iron ore shipments.
Dividend
GATX will pay a quarterly dividend of 28 cents per share on September 30, 2010, to shareholders of record as of September 15, 2010, as announced by the board of directors on July 23, 2010.
Outlook
Management reiterated its adjusted earnings guidance range of $1.50–$1.70 per share for 2010.
Our Analysis
While there are some signs of recovery, we expect revenues to remain under pressure until there is sustainable improvement in global economy. Marine rates will remain under pressure due to weak markets. Although ASC shipping volume was higher-than-expected in the reported quarter, we expect iron ore demand to soften in the second half of the year. However, GATX is focused on cost containment, asset utilization and growing asset base to enhance the long-term performance of the company.
We are currently maintaining our Neutral recommendation with the Zacks #3 Rank (Hold).
Read the full analyst report on "GMT"
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