GATX Corporation Q4 FY2025 earnings call

• 2025 results: EPS increased 11% over 2024, ROE above 12%, capital spent $1.3 billion. Rail North America maintained 99% utilization, closed over $640 million in new investments. Rail International Europe raised lease rates, India grew portfolio. Engine leasing had strong earnings growth. • 2026 outlook: Integrating Wells Fargo Rail acquisition, expect EPS $9.50 - $10.10 per diluted share. Acquisition integration progressing well, IT cutover on January 1 went well. Dividend increased 8.2%, $300 million share repurchase authorization approved. SG&A expected $275 million in 2026.

For Rail North America in 2026, lease revenue is expected to be in the range of $1.6 billion, other revenue around $160 million, net gains on asset dispositions around $200 million, interest expense around $440 million, depreciation around $520 million, maintenance expense around $500 million, other operating expense around $85 million, and segment profit around $415 million. For Rail International, segment profit is expected to increase by $5 million to $10 million in 2026. For GATX engine leasing, segment profit is expected to increase by $15 million to $20 million in 2026, with engine leasing market remaining favorable due to strong global air travel and long-term trends.

• EPS expected $9.50 - $10.10 per diluted share in 2026. • Rail North America lease revenue expected ~$1.6 billion, net gains on asset dispositions ~$200 million. • Rail International segment profit increase $5M - $10M. • Engine Leasing segment profit increase $15M - $20M. • SG&A expected ~$275 million.

Q: Wanted to start off on the guidance for EPS. First, are you just able to frame up the magnitude of gains on sales factored into the low versus the high end? And then maybe just a question on if supply-demand tightens further for railcars through 2026, given below replacement delivery. Is that a scenario where you could see upside to your gains target through the year?

A: Yes. So maybe I'll start on the first part and then let Paul chime in on the second. So as Bob stated, we're targeting something in the range of $200 million for gains on sales. As you know, those tend to be pretty lumpy quarter-to-quarter. But if you look over the past few years on how the year has actually played out compared to what our original expectations were, that gives you a pretty good guidance to what magnitude the range might be. So something on the order of $10 million, $15 million either way is something that we've seen historically. But that's no guarantee for the future. It's really hard to say exactly how that will play out. And then I'll just add to that. This is Paul speaking. We've talked about some of the benefits of the fact that new car production is down to levels that we have not seen in quite some time. And what I'll say is there remains a tremendous amount of capital that would like to be deployed in the railcar market, and we believe that capital and we're seeing evidence that, that capital is going to flow into the secondary market as it looks for investments. So if you're in a situation like we are where you're the largest owner of railcars in North America, that should be a very supportive environment to generate the secondary market gains.

Q: I wanted to start off by asking about whether you're seeing any potential railcar shortages in any particular car types, if you're seeing any of that in any places in interacting with investors, there's thought that it could be starting to happen here and there due to the scrapping and age of fleet would be curious to hear your thoughts on what you're seeing?

A: Yes. Thanks, Ben. This is Paul. I'll take that. So we continue to stand by the thesis we've been advancing for a few years now, which is that we are in a market that is what we're calling supply led, which is to say that there are fewer new cars being produced, and thanks to supportive scrap rates, we are seeing cars leave the fleet. And as a result, we're seeing net fleet shrinkage in the North American fleet. And again, that's a positive when you're the largest owner of railcars in North America because those conditions should be supportive of stable utilization and stable pricing environment. So certainly, those are favorable dynamics for our business. In terms of outright shortages, I would say no, we're not seeing outright shortages, but we certainly continue to see a stable and supportive market in most of the car types in which we invest.

Q: I wonder if just a quick follow-up on your $0.20 to $0.30 accretion from the Wells deal. Is the variability in that largely due to gains? Is there anything else that might take you from the low end to high end?

A: So I would say that -- I'll start and I'll let Bob add on. But Overall, what I would say is the same factors that drive the overall business is what drives the incremental piece from Wells Fargo. It's the same business, the same core business that we're in. So the #1 thing, of course, is variability around gains on asset sales. And then I would make the same comment I made about the magnitude of the maintenance spend and a small variability being potentially impactful.

Q: Just wanted to circle back to that CapEx question. Can you provide a further breakdown there as you look into 2026 just among railcar assets in the engine leasing business?

A: Yes. So thank you for that follow-up. So the $1 billion, I would say, about 3/4 of that is expected to be at Rail North America and about 1/4 of it expected to be in Rail International. But in addition to that, we anticipate doing significant investment via the JV. So GATX does not typically have to make nor do we anticipate making any capital contribution, but in 2025, the JV invested about $1.4 billion. So our percentage share of that investment would have been another $700 million. And in 2026, we anticipate the JV will do another $1 billion of investment or more. So that would translate our share to being another $500 million. But again, the engine leasing, the JV is self-funded, so GATX does not typically make a capital contribution.

Q: Congratulations on closing the deal for Wells Fargo. First question would be any contours around the specifics of the repurchase? Or is it just pretty open-ended time-wise and pace-wise?

A: It's very open ended. As I mentioned, the authorization that we just exhausted in the fourth quarter was granted in 2019. And so we look first, invest; second, manage the balance sheet; and third, as we said, kind of what is the increment or the extra left over for dividends and share repurchase. So we don't have a targeted amount in any given year. It's just what makes sense in the overall capital allocation framework.