The Greenbrier Companies, Inc. Q1 FY2026 earnings call

Management Statement and Operational Highlights:

• Greenbrier delivered good Q1 performance, demonstrating disciplined execution and resilience. The integrated manufacturing and leasing model performed well.
• Customers in North America and Europe were circumspect about capital investments due to freight volumes, trade policies, and improved rail service, but underlying long-term replacement demand remained.
• Operationally, manufacturing production rates were moderated, headcount adjusted primarily in Mexico to focus on overhead optimization. In Europe, restructuring and rightsizing initiatives were ongoing. Brazil provided diversification with stable operations.
• Capital allocation priorities remained: deploying capital for strong returns, maintaining balance sheet strength, and returning capital to shareholders through dividends and buybacks.
• Leasing and fleet management business provided stability and growth, with disciplined fleet construction and management.

Segment Performance:

• Manufacturing: Q1 revenue was $706 million. Aggregate gross margin was 15%, influenced by lower production rates and deliveries in Q4 but offset by strong leasing and fleet management margins.
• Leasing and Fleet Management: Fleet utilization was nearly 98%, strong retention and improving economics on renewals. The fleet size was relatively stable with opportunistic asset sales, and fleet mix was optimized. Recurring revenue from leasing provided stability.
• Europe: Market conditions were complex, with operating inefficiencies affecting performance, but restructuring and rightsizing initiatives were ongoing to strengthen the platform.
• Brazil: Provided diversification, with stable economic conditions, steady customer engagement, and consistent operational performance.

Guidance:

• Reiterated fiscal 2026 guidance: new railcar deliveries 17,500 to 20,500 units (including ~1,500 in Brazil).
• Revenue between $2.7 billion to $3.2 billion.
• Aggregate gross margin 16% to 16.5%, operating margin between 9% and 9.5%, and EPS $3.75 to $4.75.
• Capital expenditures in manufacturing projected at ~$80 million, gross investment in leasing and fleet management ~$205 million, proceeds from equipment sales expected ~$165 million.

Risks:

• Tariff uncertainty and geopolitical events could impact customer capital investment decisions and supply chains.
• Market conditions in Europe remain complex, and any setbacks in restructuring initiatives could affect competitiveness and profitability.
• Fluctuations in the secondary market for railcars could impact proceeds from asset sales and fleet optimization.

Q: Happy New Year. I wanted to start on the manufacturing deliveries and maybe we're just curious, if you could talk a little bit more detail on what visibility you currently have into the second half of this year as far as year-over-year delivery growth and when you might expect to see that? And then maybe just what's driving that between Europe and North America?

A: Yes, Andrzej, it's good to hear from me. Hope you had a good holiday. This is Justin. Yes, we've got pretty good visibility with, I would say, most of our open space, as historically, we see it as in the summertime, so kind of the June, July, August time period. But leading into that, we do have pretty good visibility. And I think, I would say that we do see some opportunities for year-over-year growth in that time period, since we were kind of ramping down production last summer, and we'll be increasing production heading into our next fiscal year.

Q: Andrzej Tomczyk: Got it. That's helpful. And I know it's very early here, but I was just curious, given the recent news and events Greenbrier's thinking on maybe the potential medium- to longer-term impacts related to Venezuela any indirect or direct impacts on your manufacturing business that we should consider maybe that you guys have thought through?

A: Andrzej, this is Brian. We don't see any impacts at all at this point from Venezuela. There's no -- there's no lap between what we do in Brazil or other areas. And so quite frankly, we don't think for our business, it will be impactful.

Q: Andrzej Tomczyk: Okay. That's helpful. Maybe 1 more for me on manufacturing and then delivery environment. I'm curious as we sit here today, if you're seeing any incremental improvement or changes in the tenor of customer ordering behavior into December and January? And maybe in that same context, would you expect sequentially or what would you expect, I guess, sequentially in terms of deliveries 1Q to 2Q as well as the margin expectations throughout the year relative to the 11% you guys just did?

A: Yes. I'll take the first part of that, and I think, Michael, you take the second part. From a customer perspective, I think in our scripts, we talked about how the order activity towards the end of Q3 had picked up and we're continuing to see that our Q4, and we're continuing to see that activity into Q1. December was unusually high for that period. It's typically a slower month. And we had a nice number of diverse deliveries come in, in December. So we're seeing it continue to tick up.

Q: Andrzej Tomczyk: Got it. That's helpful. Maybe just shifting a little bit to the leasing side of your business. Are you able to share how lease rates trended sequentially 4Q to 1Q? And maybe also just remind us how much of your lease book is up for renewal this year?

A: Yes. So I would say for the lease rates they've been, especially for more of the, I would say, specialty cars like tank cars lease rates on an absolute basis have been relatively stable. We continue to see strong renewal activity. And then on the more commoditized cars, lease rates have been pressured some for us, it's about maintaining our focus on discipline around pricing and returns focused. Then with regard -- go ahead.

Q: Andrzej Tomczyk: Understood. And then I guess just on the first quarter, there was the large gain, I think, $18 million roughly was more than you did in the entire year last year. Was curious what we should be thinking in terms of full year gains this year or maybe relative to the first quarter levels, if you could provide that?

A: Yes. We did have an opportunistic gain in the first quarter, looking at the market. And we continue to look at that as the year progresses, we're really excited in terms of what that could do for us this year.

Q: Andrzej Tomczyk: Understood. And maybe just as a follow-up on the leasing fleet itself and growth expectations. Should we expect maybe like high single digits? Or can you comment on the type of fleet growth that you guys expect this year in terms of the lease fleet? I think you did close to double-digit growth in 2025 and mid-teens in 2024 as you guys have pushed more into leasing. So I'm just curious what trajectory we should be thinking about over the near term, would be very helpful.

A: Yes. I mean I think we would say that we're not going to give an explicit number because this is still a very active environment. But we do believe that we will grow this year probably in the single-digit range, maybe a little higher. It kind of depends on how a few different opportunities manifest. But ultimately, we are committed to growing the leasing business and kind of thinking about this from the long-term shareholder value perspective.

Q: Andrzej Tomczyk: Understood. And maybe just to close out for me to sort of higher level questions. On the tariff front, would you say that those are ultimately an incremental positive or negative to your business? And then the same question also goes for the potential for Class 1 rail consolidation. With Greenbrier be a proponent of rail mergers? Or would you rather sort of the merger not go through?

A: Sure. And I'll launch into these, and I'm sure that my colleagues will jump in and help out. When it comes to tariffs, I will say that thus far, it's been neutral to our financial performance, although the uncertainty created by the changing landscape in tariffs definitely has been a headwind or has our customers take a pause on committing additional capital for new railcars. So that has been an impact as well where there are tariffs on foreign sourced materials, it allows U.S. sourced materials to have higher prices. So that also has resulted in, I would say, a bit higher prices right now for railcars, which are primarily utilizing steel. So that can also be a consideration when you're thinking about an investment. So overall, I would say the dollar or percentage amount of tariffs has not had a tremendous impact. It's more the uncertainty to try to understand the operating environment and what those tariffs might do to supply chains and logistics as our customers are looking at where they're sourcing their materials and where their finished goods going to go and how are they going to be transported. That said, and Brian is shaking his head, so I'm saying I'm going to get this right. I think that most of our customers are coming to terms with the fact that we're just going to all have to live in a slightly more uncertain world. And we just have to get after running our business, and that's what we do day in and day out as deal with whatever is coming up and deal with that. Anything that you would change...

Q: Bascome Majors: Maybe just to follow-up on some of the geopolitical angles that we closed with in the prior session here. The USMCA, how engaged are your people or industry organizations or internal or external obvious in that effort as that review comes closer and what are you hearing as far as how that may play out? And how do you feel about the exemptions that have been favorable for the no tariff impact on the railcars existing into 2027 and beyond.

A: Bascome, thank you for that question. I strongly am supportive of USMCA. I do believe, as I was saying that the rail network is a circulatory system of the U.S. economy, and I think the free flow of railcars across our border to the north and south is very critical, not just for the rail industry, but for the overall economy. So just like with everything and maybe as we each get a little bit older, we can look back in the past and say there might be opportunities to refine things and do things a little bit better. I think that we could all try to have continuous improvement as part of our vocabulary. But I don't think it needs to be totally upside down and redone. I think it's been working really nicely for a very long time, and I hope that, that's the conclusion that we come to on that.

Q: Bascome Majors: And maybe back to the guidance. Just want to follow some of the pacing comments on deliveries earlier. You talked about, I think, 4,500 or so deliveries for this quarter if you include roughly the run rate on Brazil, that would be kind of annualized to the lower end of your guidance. But I think you also talked about maybe taking production down a little bit in the second quarter and then raising it into next year and also mentioned some white space in the summer. So how do I bring all that together? Where do you have visibility to get kind of closer to the midpoint of the production guidance for the year, where do you need orders to come in and fill some of that white space? And how do you feel about inquiry levels and the level of certainty you need to get there?

A: Yes. I think I can start out with that, Justin, and then maybe Michael can fill in. From the order perspective, Bascome, that white space is getting filled as we speak. And -- in fact, we're already making plans to ramp the back half of the year to some degree. So some of these head count reductions are temporary in nature, just as we get through the order book and we get to the more robust part of the cycle. So the white space itself is very limited at this stage. And in fact, in some of our more specialty type of cars, we are indeed going through the planning exercise of bringing people back.

Q: Ken Hoexter: So you kept your EPS outlook $3.75 to $4.25, but it looks like you have a $0.55 gain on sale this quarter, the $17.7 million which sounds like, Lorie, you said you're being opportunistic on some asset sales. So are you decreasing your EPS guide for the rest of the year given the gain on sale presumably to this scale was not in your outlook? Or is there something else adjusting in those numbers?

A: Yes. Yes. And thank you for the question. Really, that was about a $0.30 impact to our earnings per share as we looked at it. And it is impacted by just when we're looking at the market and how opportunistic it is. So that shifted possibly between quarters as we look at it and that's why we didn't really affect our guidance.

Q: Ken Hoexter: Okay. So was that higher than you would have expected?

A: I think we would say the G&A was -- is trending in line with what we expected for the year. Maybe it's up a little bit in the quarter by a few million dollars, but not significantly.

Q: Ken Hoexter: And last 1 for me, just is always the below-line stuff, Justin, if you can be any helpful in terms of how we should think about going forward. The minority was a positive versus a negative equity in loss of unconsolidated was negative versus a positive. I don't know, is there any ballpark how we should think about that below the line?

A: I think -- probably our activity is -- well, I don't know, maybe we can take that kind of touch base on our follow-up calls. I think broadly, we're expecting to track where we were at in the prior year and kind of based on our preliminary guidance, earnings from unconsolidated affiliates, which is primarily Brazil, is going to be modestly positive throughout the year that would be accretive to earnings. And I'm not saying that to you, I have to say it out loud to myself to make sure我don't get myself confused. The earnings or loss attributable to noncontrolling interest is our partner's share of earnings in Mexico and in Europe, a negative of about -- or an earnings deduction of about $1 million. We do see that fluctuating throughout the year based on cadence of activity in Mexico, in Northern Mexico and in Europe. And that's -- I guess that's about kind of as far as we're going to go at this point.