Trinity Industries, Inc. Q1 FY2026 earnings call

• Grew earnings per share year over year 10% with revenue down 16%, showing operating leverage. Adjusted return on equity over last 12 months was 24.6%. Cash flow from continuing operations was $100 million. - Closed a transaction with Napier Park related to rail car investment partnership, expect to record non-cash pre-tax gain of approximately $130 million in second quarter. - Raised full year EPS guidance to range of $2.20 to $2.40 from previous 1.85 to 2.10. - Expect full year gains on sale activity to be in range of $160 million to $180 million, including $22 million in first quarter and ~$130 million from Napier Park transaction in second quarter. - Rail economy improving: Industrial production grew at 2.4% annual rate in first quarter, manufacturing PMI above 50 for three straight months. - Leasing segment performed with 37.9% operating margin, renewal rates 6.6% above expiring rates, fleet utilization 97.3%. - Rail products delivered 7.4% operating margin on lower volumes, reflecting cost work over years.

Leasing and services: The segment delivered a 37.9% operating margin in the quarter. Revenue was down year over year due to a railcar partnership exchange in the fourth quarter reducing the consolidated fleet. Own fleet ended the quarter at 101,960 railcars, down about 7% year-over-year, while combined owned and investor-owned fleet was 146,670 rail cars, up 1.6% year-over-year. Net fleet investment was $68 million in the quarter. Completed $83 million of lease portfolio sales in the secondary market. Fleet utilization improved to 97.3%. Renewal rates were 6.6% above expiring rates in the quarter. The future lease rate differential (FLRD) was a positive 1.2%. Rail products: Delivered 1,970 rail cars at a 7.4% operating margin. Expected full-year rail products group margins to average 5% to 6%. Received orders for 1,660 new rail cars. Backlog stands at $1.6 billion.

• Raised full-year EPS guidance to range of $2.20 to $2.40. - Expect full year gains on sale activity to be in range of $160 million to $180 million. - Slightly lowering expected full-year net lease fleet investment to range of $350 million to $450 million. - Investing $55 million to $65 million in operating and administrative capital expenditures. - Expect industry deliveries of 25,000 railcars in 2026 and Trinity to maintain historical share of deliveries.

• Inflation is still elevated. - Employment has flattened, weighing on consumer-driven markets, particularly autos and intermodal. - Tariff uncertainty remains.

Q: Hi, thanks for taking my questions today. Maybe just to start off with the gains...

A: This is Eric. The gains can be a little lumpy, secondary market is still strong.

Q: Can you give us maybe a sense of where that transaction with Napier Park ended up...

A: Structure is a little different, took 11% interest in all Napier assets, accounting will be equity method going forward, gain came in better than expected.

Q: Maybe just shifting to the FLRD...

A: FLRD had been positive for 19 consecutive quarters, utilization up to 97.3%, average lease rate up quarter over quarter and year over year.

Q: And then maybe just to close for me, just shifting over, and you mentioned elevated new car costs...

A: We've been dealing with tariff uncertainty, team is working on it, typically don't disclose production mix percentage, still expecting 25,000 industry deliveries for the year.

Q: Hey, thanks, everybody. Morning. Just kind of curious on leasing to start out...

A: If betting, expect to beat FLRD percentage, overall parameters still favor raising lease rates.

Q: I think last call you talked about the market value of your fleet...

A: Market value of fleet is still 35 to 45% higher than carrying value, long-term see 3% to 4% inflation in rail car asset prices and 1% to 2% in lease rates.

Q: Just on that last point on leasing, how are you thinking about the spread sort of between lease rates and your cost of capital...

A: Always evaluating hurdle rates against weighted average cost of capital, seeing fairly disciplined lease pricing.

Q: Maybe shifting gears to a little bit to the manufacturing side...

A: Team has done cost takeout initiatives, continuous improvement, Q1 had favorable mix, expecting more standards in second through fourth quarter, still expect 5% to 6% full-year average margins.

Q: Just on the headcount...

A: Typically go to overtime first when production rate needs to improve, during downturn many employees want to come back, total employment now closer to 6,000 vs ~10,000 several years ago.

Q: One was just what's the earliest sort of indicator that you guys are watching internally...

A: Utilization, cars in storage, inquiry levels, PMI are key indicators.

Q: Secondly, just looking ahead, the 160 to 180 million of gains this year, is that sustainable...

A: Selling in secondary market and buying are integral to business, will see both every year, will give more guidance on 2027 when closer to it.