Magyar Bancorp Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
June 29, 2023

There are 11 speakers on the call.

Operator

And welcome to the Greenbrier Company's 3rd Quarter of Fiscal 2023 Earnings Conference Call. Following today's presentation, we will conduct a question and answer session. Each analyst should limit themselves to only 2 questions. Until that time, all lines will be in a listen only mode. At the request of the Greenbrier Companies, this conference call is being recorded for instant replay purposes.

Operator

At this time, I would now like to turn the conference over to Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts, you may begin.

Speaker 1

Thank you, Anthony. Good morning, everyone, and welcome to our Q3 fiscal 2023 conference call. Today, I'm joined by Laurie Tocorius, Greenbrier's CEO and President Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer And Adrian Downs, Senior Vice President and CFO. Following our update on Greenbrier's performance in Q3 and our outlook for fiscal 2023, We will open up the call for questions. In addition to the press release issued this morning, additional financial information And key metrics can be found in a slide presentation posted today on the IR section of our website.

Speaker 1

Matters Discussed on today's conference call include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, We will describe some of the important factors that could cause Greenbrier's actual results in 2023 beyond to differ materially from those expressed in any forward looking statement made by or on behalf of Greenbrier. And with that, I will hand the call over to Lori.

Speaker 2

Thank you, Justin, and good morning, everyone. I hope everyone's enjoying the start to summer. Yesterday, Hopefully, you saw that we announced that Pat Ottensmeyer will join the Greenbrier Board of Directors. I'd like to publicly welcome Pat to our Board and look forward to working with Pat to get his perspectives on the freight rail market as well as his insight into the U. S.-Mexico activity.

Speaker 2

As many of you know, Greenbrier hosted our inaugural Investor Day on April 12. For those of you who are unable to attend in person Or via webcast, the replay will be available on our website for a short period of time and the full presentation will be available forever at the SEC website. And during the 3 hour event, we touched on 4 areas: First, our leadership position in our markets second, our diverse manufacturing capabilities and long track record of innovation 3rd, our strong lease origination capabilities and differentiated syndication model. And lastly, The consistent improvement in our financial performance across economic cycles. We also laid out Greenbrier's strategy to increase margins in our manufacturing segment, grow our recurring revenue base through lease fleet investments and follow a capital allocation strategy focused on returning value to shareholders.

Speaker 2

And while it's only been 2 months since at Investor Day. I'm pleased to share the progress we've made in each of these areas. In some cases, we're ahead of our own internal schedules And in others, we're laying the foundation to execute our strategic plan. And as I briefly recap results for this quarter, I'll highlight some achievements towards these goals with the important caveat that we do not expect our progress to be linear And our strategic plan and targets contemplate a 5 year time horizon. So turning to the quarter, We generated revenue of $1,000,000,000 Our deliveries totaled 6,600 units, down from Q2 due to the timing of syndication And while revenue dipped slightly compared with the prior quarter, aggregate gross margin improved by 190 basis points to 12.3%.

Speaker 2

Increasing our aggregate gross margin to the mid teens by fiscal 2026 It's one of the targets we provided during the Investor Day and we're pleased to report the progress on that front. Gross margins in manufacturing of 9.6 percent increased 260 basis points compared with the prior quarter As some of the efficiencies we discussed during the Investor Day materialized more quickly than expected, And while there will be unforeseen issues that occur during some quarters, we're confident that many of the efficiencies achieved thus far will continue. In particular, supply chain issues that have been a recent headwind seem to be largely in the rearview mirror. And as we've discussed previously, we're bringing fabrication in house for basic primary parts and sub assemblies as part of our make versus buy The first phase of this work will be completed in the Q4 that we're in today and we expect to achieve our full cost savings targets of $50,000,000 to $55,000,000 in fiscal 2025. Additionally, in the quarter, we completed the sale of Gunderson Marine in Portland As part of our capacity rationalization plan, that's expected to result in annual savings of $15,000,000 to $20,000,000 These are costs that are getting taken out of the system permanently.

Speaker 2

Gunderson Rail completed its last railcar on May 18 after shipping over 110,000 units since 1985. I'm extremely pleased to share The Gunderson's new owner will retain many of the hard working production workforce at that facility. Now moving across the business, Magna Services continued the positive momentum seen since the start of the year despite ongoing labor challenges. Their margins continue to improve sequentially on improved pricing, volume and the operating efficiencies we've been focused on establishing over the last 2 years, Expecting a strong end to the year from this segment. And as Brian will discuss shortly, we've We laid the foundation for our expanded leasing strategy.

Speaker 2

This is an important component of our multi year plan and is expected to result in the doubling of recurring revenues within the next 5 years. The market backdrop for leasing remains very positive and we're in a great position to execute our plan. Now returning capital to shareholders is an integral part of our capital allocation strategy. I'm pleased to report that our Board increased our quarterly dividend by 11% to $0.30 per share yesterday. Our dividend has doubled since its reinstatement in 2014 and illustrates the importance the Board places on this activity.

Speaker 2

The broader economic background is somewhat mixed with several factors creating economic crosscurrents. Despite the ongoing economic murkiness, Our outlook in North America remains unchanged with railcar deliveries to be at or near replacement levels for the next few years. In Europe, there's softness in demand for intermodal wagons, but this is being more than offset by the bulk rail freight sector, where we continue to see strong demand across wagon types. Backdrop aside, at the company level, We continue to take actions to create a stronger, more sustainable Greenbrier. We're confident in the long term strategy we set forth during our Investor Day And our team's ability to execute on that strategy, which is focused on the things we can control and not reliant on overly optimistic demand scenario.

Speaker 2

I look forward to sharing our progress towards these targets on future calls. And now I'll turn it over to Brian to discuss the railcar demand environment And our leasing activity.

Speaker 3

Laurie,

Speaker 4

to 3 Greenbrier secured New railcar orders of 4,600 units worth $650,000,000 Subsequent to the end of the quarter, We received orders for 7,900 units valued at $975,000,000 Orders continue to be broad based And diverse across most railcar types with the exception of intermodal. As of May 31, Greenbrier's Global backlog was 23,400 units valued at $2,900,000,000 This figure excludes The 7,900 units ordered after the end of the quarter. As a reminder, our new railcar backlog does not include 1,000 units valued at $85,000,000 that are part of Greenbrier's railcar conversion program. Despite weakness in freight volumes, The railcar demand environment remains stable due to pent up replacement demand and tight supply. And we continue to see healthy railcar inquiries and orders for a variety of railcar types.

Speaker 4

We are pleased with the performance of leasing and management services in the quarter. Our lease rates on renewals are increasing by double digits and we are extending lease terms while maintaining a high fleet utilization of nearly 99%. In terms of the underlying leases, the durations are staggered to both mitigate the impact of cyclicality and create upside potential through favorable renewals. We do have a high volume of renewals in 2024, Resulting from the portfolio we purchased in September of 2021, and we are actively As we described during the Investor Day, we intend to grow our fleet more steadily over the coming years. And we have committed to invest $300,000,000 per year for each of the next 5 years on a net basis.

Speaker 4

We remain focused on railcar types that will maintain a balanced fleet portfolio and reduce concentration risk. I want to emphasize that we will only invest in the right assets with the right lease terms and counterparties. During Q3, we funded $54,000,000 of debt from our non recourse leased railcar warehouse facility, Backed by $72,000,000 of assets and have funded a total of about $120,000,000 through the warehouse over the last two quarters. As you may have seen in our press release this morning, we recently upsized our warehouse facility $550,000,000 from the prior $350,000,000 borrowing capacity to support our growth plan. The terms of the upsized facility are unchanged.

Speaker 4

4th quarter fleet activity in the warehouse facility will continue to be leveraged at a 75% debt to equity ratio. We are regularly evaluating our financing strategies as we prepare to meaningfully Increase the size of our lease fleet with the goal of more than doubling recurring revenue in the next 5 years. As you heard during the Investor Day from William Glenn, who had Greenbrier's European operations, we are building a leasing capabilities in Europe. Our entry into the European leasing is well ahead of plan and the pipeline for leasing deals is robust, including finalizing our 1st syndication agreement. Our Capital Markets team syndicated 800 railcars in the quarter, A decrease from Q2, reflecting the timing of production schedules.

Speaker 4

This market remains liquid and a strong appetite for the asset class, And our team is preparing for another busy year in 2024. Within management services, we continue to shift our commercial focus And business development efforts towards customers whose needs are more closely aligned with our core competencies As we seek to deepen relationships within our customer base. This is an exciting time for Greenbrier as we work to optimize our manufacturing capabilities and grow the leasing and management business. We have been clear with our growth initiatives, We will now speak to the financial highlights in the quarter.

Speaker 3

Thank you, Brian, and good morning, everyone. Before moving into the highlights of the quarter, I would like to remind everyone that quarterly financial information is available in the press release and supplemental slides, which can be found on our website. Our performance in the quarter was strong across all business segments with improved aggregate gross margin and adjusted EPS in Q3 compared to Q2. Following the highlights of the Note for the quarter include 2nd consecutive quarter with revenues of $1,000,000,000 or higher, deliveries of 6,600 units was the 2nd highest quarter for deliveries since the Q4 of 2019 and includes 200 units from our unconsolidated joint venture in Brazil. Aggregate gross margin of 12.3 percent was 190 basis points higher than the prior quarter, resulting from stronger margins in the Manufacturing and Maintenance Services segments attributed to improved operating efficiencies in both segments and higher pricing and volumes in the Maintenance Services segment.

Speaker 3

We expect the operating momentum will continue as a result of the initiatives described during the Investor Day in April. Selling and administrative expense of 60 $3,000,000 is 7% higher from Q2, primarily attributed to an increase in employee related costs due to higher incentive compensation expense as a result of increased profitability. We had a pretax charge of $17,000,000 related to the sale and exit of our Gunderson Marine business The consolidated tax rate of 12.9% was primarily a result of favorable discrete items in Mexico. Excluding the impact of the Gunderson loss on sale and exit related costs, adjusted net Attributable to Greenbrier of $34,000,000 generated adjusted EPS of $1.02 Additionally, adjusted EBITDA for the quarter was about $97,000,000 or 9.3 percent of revenue. Turning to liquidity, Greenbrier's operating cash flow turned positive on a year to date basis due to a strong third quarter and Sorry, due to strong Q3 results of nearly $98,000,000 reflecting improvements to operating performance and working capital efficiencies.

Speaker 3

Our liquidity was $665,000,000 at the end of Q3, consisting of cash of $321,000,000 and available borrowings of $344,000,000 The primary use of our cash during the recent quarter Included the repayment of $95,000,000 of short term borrowings on our domestic revolving credit facility as well as $32,000,000 of share repurchases. As we finish 2023, we expect Q4 liquidity levels to remain strong as operating momentum and working capital efficiencies continue to improve. As highlighted during our Investor Day in April, 1 of Greenbrier's strategic initiatives is a balanced approach to capital allocation. An integral part of the strategy is to return capital to our shareholders through dividends and share repurchases. During the Q3, Greenbrier repurchased 1,200,000 shares for $32,000,000 Between the 2nd Q3, Greenbrier repurchased a total of 1,700,000 shares for $49,000,000 of which $3,000,000 was part of the prior authorization program.

Speaker 3

Under the current share repurchase program, we have $54,000,000 remaining of the $100,000,000 that extends through January of 2025. In addition to significant share repurchase activity, The Board increased the dividend by 11% to $0.30 per share, representing our 37th consecutive dividend. Based on yesterday's closing price, our annual dividend represents a yield of approximately 3.7%. Since 2014, Greenbrier has returned over $470,000,000 of capital to shareholders through dividends and share repurchases. Our Board and management team remain committed to a balanced deployment of capital designed to create long term shareholder value.

Speaker 3

Turning to our guidance and business outlook. Based on current trends and production schedules, we are raising Greenbrier's fiscal 2023 guidance, which includes the following. Our fiscal 'twenty three deliveries guidance is increased to 25,000 to 26,000 units, including approximately 1,000 units from Greenbrier Maxeon in Brazil. We are also increasing Our fiscal year 2023 revenue guidance to be between $3,800,000,000 $3,900,000,000 Selling and administrative expenses at approximately $230,000,000 to $235,000,000 And gross capital expenditures of approximately $280,000,000 in Leasing and Management Services, dollars 90,000,000 in Manufacturing and 15,000,000 And maintenance services and proceeds of equipment sales are expected to be approximately 76,000,000 Consolidated gross margin is unchanged and we expect full year consolidated margin percent to be in the low double digits. In closing, I'd like to reiterate a few points.

Speaker 3

We are confident in our long term strategy as highlighted at our Investor Day I believe the best is yet to come. Our management team is incredibly experienced with a demonstrated track record of success. We are supported by a robust backlog, which provides strong visibility and stability over the coming years. Our liquidity and balance sheet strength allow us for opportunistic growth. And as we look to strongly finish our year, we are well positioned to drive shareholder value into in 2024.

Speaker 3

Now we will open it up for questions.

Operator

We will now begin the question and answer Our first question will come from Matt Elkott with TD Cowen. You may now go ahead.

Speaker 5

Good morning. Thank you. Laurie, can you maybe first a quick clarification, what was it specifically that made it possible to achieve those Manufacturing efficiencies ahead of plan.

Speaker 2

Great question, Matt. I would say it's Tremendous hard work and focus by the men and women in our manufacturing operations. As you'll recall, last quarter we talked about 2nd quarter, we talked about the headwinds that we were struggling with supply chain and our focus on how to Reverse that trend, this is one of the areas where we're seeing improvement ahead of what we thought internally we would be able to achieve As not just Greenbrier, but as many companies, have seen over the last several years, supply chain can One of those things that can be a persistent headwind or it can pop up. So I'm just pleased with the focus and attention and execution in our manufacturing group.

Speaker 5

Got it. Thank you for that. And then were there any big orders from a single customer in either the 4,600 in Quarter or the 7,900 after?

Speaker 2

I will let Brian chime in, in a minute if he'd like. But Actually, yes, we have several large orders, but nothing that was really a multi year or something that drove it that was strong diverse demand across A number of customers, car types, commodities, and a nice healthy combination of lease originations as well as direct sales.

Speaker 6

Brian, is there anything you'd like to add?

Speaker 4

No, I think you hit it, Laurie. Matt, basically, it's Kind of the normal blocking and tackling, we had several large orders, not just 1 or 2, but also So we had kind of the diversity of what we see every day. Some of it was pent up from earlier in the quarter, which we thought would Coming in Q3 and is or in the previous quarter is now coming in now. But it's just kind of the run of the mill, no multi year orders, just You're kind of standard fare as far as the order cadence and order diversity.

Speaker 5

That's good to know, Brian. And there was a 10% sequential step up in the ASP. How much of this was mix versus other factors? Because After the for the $7,900 after Q3, I think the ASP goes back down to being 4% below 2Q.

Speaker 4

Yes, I think the mix is it's a better mix. We're starting to see a little bit more automotive product as well as tank cars into the mix. As you know, one of the focuses of I think The industry has been continued to move pricing into a better place as well. And so I think you're seeing a combination of a better mix as well as continued uplift in pricing.

Speaker 5

Okay. And just one last one, if I may. More often than not, your first fiscal half is the lower for Everything basically, deliveries, margins, earnings. Do you expect this to be the case for fiscal 2024 even as this Really is a highly anomalous cycle.

Speaker 2

So I'll jump in and then I can let others join. I'm sorry to kind of have a little bit of a chuckle because you're right, we do tend to spike in the second half and A little bit muted for a variety of reasons in the first half. That has not gone without our own acknowledgment And we are very focused on how can we make certain that quarter after quarter, we continue continuous improvement From orders, deliveries, margins, cash flow, so you are going to see that sort of focus. Again, it's hard to perfectly predict if there's going to be something that pops up, but We're not planning to have the first half of next year be soft. We're planning for fiscal 2024 to be better than 2023 And we're working to make that be continuous improvement quarter after quarter.

Speaker 5

Got it. Thank you very much, Laurie. Thanks, Brian.

Speaker 2

Thanks, Matt.

Operator

Our next question will come from Justin Long with Stephens. You may now go ahead.

Speaker 6

Thanks and good morning. Maybe to follow-up on that last point you made, Laurie. When you look at the industry projections for Railcar production in 2024 on a calendar basis, a lot of those forecasts are down A decent amount. So I'm curious if you could talk about your view on just broader industry production As we move into your fiscal 2024 and based on the backlog you have today, Including the orders you've just received here in June, can you speak to your level of visibility to production in 2024 at this point?

Speaker 2

I would say for 2024, we've got really good visibility. We still do have some pockets where we have open production, but we feel Very comfortable about the ability to fill up that space. Right now what we're seeing in North America is pretty steady production coming out of where we're going to close out the Q4. We don't have any big ramp ups or any big ramp downs. We'll have some adjustments, but Some of the recent orders that we've received really give us great visibility and continuity on a number of our production lines.

Speaker 2

The other interesting thing that if you're just looking at the North American statistics, you also have to look at Europe where we're continuing to focus on how we can serve that market And we're focused on ramping up production in Europe as well. It's not quite the same volume as you would see here in North America, But that will be one of the benefits to our deliveries in our fiscal 2024.

Speaker 6

Okay, great. That's helpful. And I guess shifting to manufacturing gross margins, it was good See the sequential improvement, could you speak to how much of that came in North America versus Europe? And then as we think about manufacturing gross margins going forward, what's your comfort that we'll

Speaker 1

Hey, Justin. This is Justin. I think we saw improvement both in North America and Europe in the quarter. North America has a disproportionate weighting there just from a size perspective, but both operations performed very well and improved Sequentially and then going forward, we would expect that to continue maybe not quite to the same extent, but we do see Improvement in Q4 and into fiscal 2024, which is kind of hard to believe we're talking about already, but such as life.

Speaker 6

Okay. Good to hear. I'll leave it at that. Thanks for the time.

Speaker 2

Thanks, Justin.

Operator

Our next question will come from Bascome Majors with Susquehanna. You may now go ahead.

Speaker 7

Thank you. As we look forward, I realize we're still a ways from next fiscal year, but Do you have a sense of the cadence of when you'll put cars on the balance sheet and off the balance sheet in the manufacturing business?

Speaker 1

I think at this point, it's we're not necessarily ready to get into that much detail. I would say that we will we do see A relatively consistent pattern of that each quarter over the next 4 to 5 quarters based on production schedules and backlog.

Speaker 7

Thank you for that. And now that most of the supply chain issues in Mexico and the U. S. Are behind you, fingers crossed. Is Europe accretive to the overall manufacturing margin?

Speaker 7

Are those pretty even?

Speaker 2

I would say yes, it is accretive. As Justin said, It's accretive even when you take into consideration the fact of the weighting. I mean North America is one of the largest Freight railcar markets in the world. So it's going to be hard to for Europe to upend that, but they're definitely accretive to our margins.

Speaker 7

And lastly speaking, can you talk a little bit about The willingness to risk longer term capital from some of your leasing customers. I know you don't have the same length And duration and size of multi years of some of your competitors, but just what's the appetite for the leasing companies as we look out the next 6, 12, 18 months. How is that sales channel look? And do you expect that to be supportive of a fairly steady production rate for the industry

Speaker 1

That's a great question, Bascome. And I was going to see if Mr. Comstock can handle it.

Speaker 4

Yes. Thanks, Justin, and thanks, Bascome. One of the areas, and I think I report on this maybe last quarter as Well, as we are seeing an increased interest by the operating lessors, they're traditionally in the market, but over the last Couple of years, due to COVID and other reasons, there's been a little bit of a pullback. We're seeing more and more confidence On the operating lessor side, which is driving, as you suggest, more stability in the manufacturing as well as Some of this order pipeline, and we think that's going to continue to build momentum Throughout the rest of this year into next year.

Speaker 7

And from the syndication channel, any comments So on that customer, are they starting to get comfortable with the cost of capital and rising interest rates? Just Do you think that is a growth opportunity or at least an opportunity for stability in your business as we look out 6, 12, 18 months?

Speaker 4

And Justin, I can grab this one as well. Yes, we do. The returns are still very Strong as you know, interest rate pressures have put a lot of really a lot of pressure on And that side of the house, but the deals that are coming in all hurdles have the appropriate internal rate of returns. And so as a result, we're seeing more and more interest. In fact, we're seeing even some new entrants that are inquiring about coming into the space.

Speaker 4

So we feel pretty good from a liquidity standpoint. And long term, we think the Syndication customers are pretty comfortable.

Speaker 7

Thank you for your time.

Operator

Our next question will come from Ken Hoexter with Bank of America. You may now go ahead.

Speaker 8

Great. Good morning. So if I could just kind of follow on a little bit on Bascome's question there. Laurie, Maybe talk a little bit about the balance of the leased fleet versus the build for external sales and manufacturing. It seems like we've got A lot of volatility where maybe it's you'll get the consistency after you get the ramp up.

Speaker 8

So are you getting closer to the full ramp up on that Production for the internal build versus external sales, I just want to understand how we should think about that given the build to revenue kind of take follow through?

Speaker 2

Thanks, Ken. Yes, it's a good question. And what's interesting is you have to step back and look at the strength

Speaker 9

Hello?

Speaker 2

Origination, so same customers, same car type, same commodity. While we are growing our on balance sheet lease fleet, it is still a fairly modest fleet and sometimes the size of those orders are such that it would really

Speaker 8

Hey, Laurie, I don't mean to interrupt, but your line went quiet for like the first third of your answer. I'm sorry to do it, but I'm getting IB that other people, it went quiet too. Do you mind just starting from the beginning there?

Speaker 2

My gosh, it was the most brilliant thing I've ever said, Ken. So It's probably because every one of our field salespeople was hurriedly calling in because I was complimenting Our sales can you still hear me?

Speaker 8

Yes, perfectly.

Speaker 2

Okay. So we often can originate some very large Leases, so a large number of cars, same customer, same car type, same commodity. While We are excited to grow our on balance sheet lease fleet. It is still a relatively modest, and I'm probably being generous, size. Therefore, any of those orders could really skew our concentrations, in any number of those areas.

Speaker 2

So we will continue to work with our syndication partners so that we can diversify and keep that disciplined approach to How we're growing our on balance sheet portfolio. Sometimes our syndication partners are not as keen on our fiscal year Quarter ends or year end as others might be. So we're going to take those opportunities when they arise and we're going to close those transactions as appropriate for the business. So that will continue to cause some lumpiness from quarter to quarter, but You can understand that the basis is we've got strong commercial lease origination capabilities And we're keeping an eye on having a very disciplined approach to how we're growing the fleet on the balance sheet.

Speaker 6

And then I'm going to throw at

Speaker 8

you for my follow-up a quick numbers question, so I'll follow it with a kind of follow on question. But the backlog new orders came in at about 123 Revenue per car down from your printed $141,000 in the Q3. Is there anything more to that than mix? Because that just seems like an extraordinary And then I guess to wrap up, you said you weren't surprised by anything in the quarter, yet you raised your outlook. I just want to understand what changed.

Speaker 8

Was there something in there that did change that led you to raise the outlook?

Speaker 1

So Ken, on the ASP question, our ASP on the June order activity is more in line with Our Q1 and Q2 activity and it really is just mix primarily from that perspective versus the Q3. And I think on the outlook question, obviously, Lori can correct and chime in as needed. But Bear in mind that we as we have been working through and navigating some of the supply chain issues, the 1st 6 months of the year were challenging. And we wanted to make sure that, we were able to perform as we expected and deliver cars on time to our customers and We had some bumpiness in the 1st part of the year. So now as that seems to have sunset and we are Getting our operating momentum and getting our legs under us, we are feeling more confident.

Speaker 8

Wonderful. Thanks for the time guys. Appreciate it.

Operator

Our next question will come from Allison Poliniak with Wells Fargo Securities. You may now go ahead. Good morning.

Speaker 10

This is Ryan Devakis on for Allison. Congrats on the quarter. Most of my questions were taken, but I I want to just pick a little bit, just kind of the smaller market here. So Brazil came in 200 in the quarter. You didn't really raise your delivery there.

Speaker 10

That implies By my calc around 100, is that market kind of just softening? Or is it just a near term headwind that is like winter?

Speaker 4

So this is Brian. I can jump in, Laurie, on that question. Right now in Brazil, you're in a little bit of a and I say a little bit probably over the next 6 months, they're in a bit of a Softer period only due to capital restraints of some of the concessionaires. In 2024, It looks like things begin to right size as well as a lot of the expansion in Brazil continues to build momentum. There is

Operator

Quite a bit of

Speaker 4

infrastructure in Central Brazil and other areas that are being completed. So we anticipate long term that Brazil is going to continue to grow. However, right now, they're more in a level state of play.

Speaker 10

Okay. Thank you. And then I guess one more on the refurbishments side. That backlog has been kind of declining. Are we reaching closer to like an end of like market cycle here where there's not as much activity on that side of the conversions or whatever it's called?

Speaker 10

Just any color there would be great.

Speaker 4

This is Brian. I can dive in again. The conversion side It's always lumpy and it kind of moves up and down. There are a number of cars that have been programmed already and there is Kind of a finite shelf life to the conversions, but I still think there is seems to be at least several years of opportunity on that And then kind of behind the conversions, you've got these requalifications of tank cars that are ramping up. So I think what you'll see is just a shift from some of the large conversions to some of the large

Speaker 10

Thank you very much.

Operator

Our next question will come from Steve Barger with KeyBanc Capital Markets. You may now go ahead.

Speaker 9

Hi, good morning. This is Jacob Moore on for Steve Barger. Thank you for taking the questions. So for my first one, just going back to the cost savings initiatives that you laid out at the Investor Day, could you talk specifically about the actions that you've already got And maybe quantify how much of that $50,000,000 to $55,000,000 you think you've already achieved? And then also maybe just a quick clarification On the $15,000,000 to $20,000,000 in savings from Gunderson exit, is that now fully out of the system moving forward?

Speaker 4

Hey, Jacob. This is Brian. It seems we've lost Lake Oswego. I think they're having some communication Problems. I can address the first part of that question for you, which is on the $50,000,000 to $55,000,000 of cost savings.

Speaker 4

We're probably we're still in the infancy of implementing that Plan, it is ahead of schedule as you see from the as you can see from the from this quarter's earnings. But, we anticipate that that will continue to develop really throughout the next fiscal year.

Speaker 9

Got it. Understood. And then, maybe this one's a little bit better suited for you anyways, And for my second question, just broadly, overall rail traffic is down. Freight seems to be holding in there, but lackluster traffic trends are starting to compound at this point. So my question is really now at the halfway point of the year, could you expand on the earlier landscape comments and maybe provide an updated outlook on rail traffic

Speaker 4

Yes, there's undoubtedly, when you look at the traffic side of the equation, Velocity is improving a bit. There's a number of segments that are down, but there's a number of segments in the rail industry that are still fairly robust. Auto, There's a tremendous amount of pent up demand. There's a number of new facilities coming online. There are several new plastic pellets facilities that come online in late 2024, early 2025.

Speaker 4

Biodiesel continues to be fairly robust And a lot of new facilities coming online in that area as well. And then you still have a tremendous amount of retirements of older cars as well as a small number of cars in storage. So while there are some headwinds in the overall outlook, the build cycle still looks Fairly level, at least we believe so over the next 18 to 36 months, Pending any major change in the economic condition.

Speaker 9

Got it. Understood. Thanks. Oh, yes. Go ahead.

Speaker 2

Can you hear us okay?

Operator

Can you hear us okay? Did you hear us okay? Did you hear us okay?

Speaker 2

Yes. So I just want to check and make sure that we're still broadcasting here. Sorry, we've had a few Technical difficulties. Thank you, Justin, for your phone. Just to touch on your other comment about Gunderson, There will probably be a little bit of we won't have realized all of that permanent savings in our Q4, but As we get into the early part of our fiscal 2024, that will be wrapped up, because we're just working with the new owners for some transition services.

Speaker 9

Got it. Understood. Thank you for taking the questions. Thank

Operator

Our next question will be a follow-up from Matt Elkott with TD Cowen. You may now go ahead.

Speaker 5

Thank you for taking my follow ups. I think this is for Brian. Brian, the leases coming up for Renewal in 2024 that you mentioned, if you are able to get them renewed earlier, the market is pretty hot right now. What kind of rate improvement do you think you can get expiring

Speaker 1

versus

Speaker 5

renewal, sorry?

Speaker 4

Good question, Matt. A lot of the renewals that we're seeing in 2024 are related to the purchase So we did back in 2021, the fleet that we acquired. And A lot of those rates were, I would say submarket rates at the time. And so we believe, we're seeing Quarter over quarter, double digits. But in those cases, we should see much larger double digit increases In the renewals in 2024, at least that's what we're predicting at this stage, Matt.

Speaker 5

And how many cars are those?

Speaker 4

That's a great question. I don't have that at my fingertips, but I'm sure Delfin can get back to you on that.

Speaker 1

Yes, I was going to say it's about 2,000 cars.

Speaker 5

Okay. Thanks, Justin. And then just maybe one more question for Justin or Lori. You're pretty close to the mid teens aggregate gross margin target for 26% this quarter. So first, any updated thoughts on this target?

Speaker 5

And second, Can you remind us what the target is contingent on? Do we have to be in a demand Up cycle, does it work at a replacement level or below replacement level demand because the recurring parts of the business should grow?

Speaker 2

So good question, Matt. And I would say that the targets are based on more stable demand, so not a boom market. And I think while we're excited about the achievements that we've received in this Q3, we'd like to get A quarter or 2 of continuous improvement under our belt before we'll consider adjusting those 5 year targets.

Speaker 5

Okay. Got it. Just one last one. I probably should know this, but have you guys said what's going to happen to Gunderson? What kind of What use is it going to be used for?

Speaker 2

Oh, yeah, if that hasn't come through. So it was purchased by A local operation here run by a couple of local Portland people, Oregon Green Manufacturing, They're going to continue marine activities, but they're going to expand more broadly than we were able to do. And I think they're looking at some other Metal building metal bending activities or possibly some other infrastructure work.

Speaker 5

But no railcars are going to be manufactured there anymore?

Speaker 2

Yes. Sorry, I should have been clear about that. No railcars.

Speaker 5

Got it. Great. Thank you very much.

Speaker 2

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Justin Roberts for any closing remarks.

Speaker 1

Thanks, Anthony. Sorry for the technical Appreciate your patience. I hope everyone has a great day. And if you have any follow-up questions, please reach out to Greenbrier, either

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Earnings Conference Call
Magyar Bancorp Q3 2023
00:00 / 00:00
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