Trinity Industries, Inc. Q2 FY2025 earnings call

• Market overview: Inquiry levels healthy, order activity increasing but slower than initially anticipated, industry on pace for full year deliveries 28,000 - 33,000, car loads improved in second quarter driven by energy and agriculture markets, railcars and storage picked up slightly. - Leasing business: Performed exceptionally well with higher lease rates, maintenance business benefited from favorable pricing. - Product segment: Second quarter was bottom of cycle, delivered 3% margin, expecting volume increase in second half of year. - Tax: Purchased $40 million in transferable tax credits at discount, benefited quarterly tax rate, tax bill providing clarity for business investment decisions.

Railcar Leasing and Services segment: Segment revenues increased sequentially and year-over-year due to higher lease rates and maintenance business growth (21% y-o-y increase in maintenance services revenue). FRD future lease rate differential was 18.3% for the quarter, 63% of fleet repriced, renewal rate 17.9% above expiring rates, renewal success rate 89%, fleet utilization 96.8%. Completed $29 million in lease fleet portfolio sales with gains of $8 million. Cost of revenues increased 13.7% y-o-y. Rail Products segment: Second quarter results in line with expectations, delivered 1,815 railcars, segment operating margin 3%, received orders for 2,310 railcars, book-to-bill ratio above 1x for first time in 10 quarters. Full year operating margin guidance 5% to 6%.

• Industry delivery forecast: 28,000 to 33,000 railcars. - Net lease fleet investment: $250 million to $350 million. - Gains on lease portfolio sales: $50 million to $60 million. - Operating and administrative capital expenditures: $45 million to $55 million. - Full year EPS guidance: $1.40 to $1.60. - Segment margin: Rail Products segment full year guidance 5% to 6%.

• Uncertainty from recent tax legislation and ongoing trade developments. - Potential for industry deliveries to be below initial expectations. - Risk of fleet growth not meeting targets due to secondary market dynamics.

Q: Can you talk a little bit about the production plans for the second half and how build rates should trend versus the quarter?

A: Jean Savage said second quarter was bottom of cycle, products group delivered 3% margin, lower deliveries in second quarter were due to resetting line to second half pace, expecting volume increase in second half.

Q: Can you talk about tax management, why purchasing tax credits made sense for Trinity?

A: Eric Marchetto said tax credits related to 2024 tax year, new tax bill with full bonus depreciation and fix on 163J reduces tax burden and improves cash flow, tax bill providing clarity for business investment decisions.

Q: Could you speak a little bit more to the current competitive environment and secondary market perspective in lease rates?

A: Jean Savage said market still very tight and imbalance, good FLRD, renewal rate and success 89%, positive indicators for lease fleet; Eric Marchetto added secondary market still very good, gains on sale increased due to secondary market outlook.