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Edited Transcript of TRN earnings conference call or presentation 25-Oct-18 3:00pm GMT

Q3 2018 Trinity Industries Inc Earnings Call

DALLAS Nov 4, 2018 (Thomson StreetEvents) -- Edited Transcript of Trinity Industries Inc earnings conference call or presentation Thursday, October 25, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Antonio Carrillo

Trinity Industries, Inc. - Former Senior VP, Group President & Director

* Eric Marchetto

Trinity Industries, Inc. - Executive VP & Chief Commercial Officer

* James E. Perry

Trinity Industries, Inc. - Senior VP & CFO

* Jessica L. Greiner

Trinity Industries, Inc. - Executive Director of Corporate Strategic Planning

* Scott C. Beasley

Trinity Industries, Inc. - Former CFO

* Timothy R. Wallace

Trinity Industries, Inc. - Chairman, President & CEO

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Conference Call Participants

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* Allison Ann Marie Poliniak-Cusic

Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst

* Bascome Majors

Susquehanna Financial Group, LLLP, Research Division - Research Analyst

* Gordon Johnson

* Gordon Lee Johnson

Axiom Capital Management Inc., Research Division - Former MD and Analyst

* Justin Trennon Long

Stephens Inc., Research Division - MD

* Matthew Stevenson Brooklier

The Buckingham Research Group Incorporated - Analyst

* Matthew Youssef Elkott

Cowen and Company, LLC, Research Division - VP

* Robert Stephen Barger

KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to today's Trinity Industries Third Quarter Results Conference Call. (Operator Instructions)

Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions, and predictions of future financial performances. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

I'd also like to remind everyone that today's conference may be recorded. (Operator Instructions)

And it's now my pleasure to turn the conference to Jessica Greiner. Please go ahead, ma'am.

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Jessica L. Greiner, Trinity Industries, Inc. - Executive Director of Corporate Strategic Planning [2]

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Thank you, Tony, and good morning, everyone. Welcome to the Trinity Industries Third Quarter 2018 Results Conference Call. I'm Jessica Greiner, Vice President of Investor Relations within Trinity's Corporate Services. As we make final preparations for the spin-off at Trinity's infrastructure related business, we have adjusted the format of today's call to meet our objectives. We will begin our earnings conference call commentary from the leadership team of Trinity Industries, including Tim Wallace, Chairman, Chief Executive Officer and President; Eric Marchetto, Executive Vice President and Chief Commercial Officer of TrinityRail; and James Perry, Senior Vice President and Chief Financial Officer. Following their comments, we will hear from Antonio Carrillo, the President and Chief Executive Officer of the new infrastructure company, Arcosa; and Scott Beasley, future CFO of Arcosa. Antonio and Scott will provide a business update on Arcosa and financial commentary for Trinity's Construction Products, Energy Equipment and Inland Barge Group, which primarily include the group of businesses to be spun with Arcosa on November 1.

Following the prepared remarks from the leadership teams, we will move to the Q&A session. Mary Henderson, current Vice President and the Chief Accounting Officer for Trinity, is also in the room with us today.

I will now turn the call over to Tim Wallace.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [3]

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Thank you, Jessica, and good morning, everyone. Our consolidated third quarter financial results reflect a variety of market conditions as well as activities associated with the separation of Arcosa. I'm pleased with the continued momentum and market demand experienced by a number of our businesses during the third quarter.

Within the rail industry, there's no single catalyst driving the strengthening demand level. There is optimism and positive momentum in many of the railcar markets, creating a rising tide effect for railcar equipment. This is a very dynamic and active point in the railcar market cycle. Eric will provide comments on market conditions. I'm very excited about the long-term growth potential for Trinity and Arcosa as stand-alone public companies. We expect the separation of Arcosa from Trinity to happen a week from today on November 1. Both Trinity and Arcosa have high-quality teams, strong balance sheets, experienced boards and many opportunities for success. Over the last 11 months, a large number of employees have devoted time and resources to the separation of Arcosa from Trinity. Successfully separating companies like Trinity and Arcosa requires a specialized focus as well as strong project management skills.

I'm very pleased with the way our people collaborated and stayed on schedule with our separation plans as well as manage their day-to-day business activities. I'd like to thank everyone for their commitment, long hours they put in and their hard work. Our external advisers also played a very important and active role in the separation process. I'm very grateful for their support and the quality of their guidance and advice. We are all looking forward to focusing our attention and resources on our core businesses. I would also like to thank our Arcosa employees for the years of service and dedication to Trinity. Antonio and his leadership group are highly qualified and capable people, and I have a great deal of admiration and respect for the entire team. I'd also like to thank Trinity -- the Trinity board members for the time and effort and energy they contributed to ensure a successful separation of Arcosa. Their insight and wisdom have been extremely valuable. I'm very pleased with the structure of our new boards.

This year marks the 85th year that Trinity has been in business and its 60 year -- 60th year as a public company. As the years progressed, our dedicated employees worked collaboratively to build a strong portfolio of industry-leading businesses. We're proud of Trinity's history of success and our rich culture, which provides an excellent foundation of Trinity and Arcosa. Last week, Antonio and I hosted a luncheon for a large group of Trinity's former employees. The group refers to themselves as Trinity prime timers. We shared with them how excited we are for the future of our companies, and they shared stories from the past. It was a great event. We all live left the luncheon highly motivated because we know we have opportunity -- opportunities to create new successes that will become future stories. Needless to say, I'm very excited about the new Trinity and especially honored to be the senior leader of such a high-quality company. We have a strong senior leadership and management team that is supported by Trinity's craftsmanship throughout our organization.

I continue to be amazed at how our rail business has evolved from a small manufacturer of railcar bodies in the late 1960s into an industry-leading company. Over the years, we have successfully added a broad portfolio of products and services that continued to provide value to railcar owners and users. We have been in the railcar industry for 50 years and the Railcar Leasing business for 40 years. We have been an industry leader for more than 3 decades. We know railcars and the railcar industry very well.

Today, TrinityRail has an impressive platform of products and services that served the North American railcar industry. We are not going to become complacent or satisfied with the status quo. TrinityRail is built to deliver premier products and services to customers, and I expect this legacy to continue. I look forward to focusing our attention and resources on improvement and growth initiatives in the North American railcar industry. TrinityRail's history of continuously expanding its products and services gives me a great deal of confidence in our ability to continue to improve, expand and grow TrinityRail's footprint. I believe we have an enormous amount of potential. We are skilled at planning simultaneously for both short term and the long term. We have placed a high priority on growing our railcar leasing and service businesses, and we're in the process of modifying our capital structure to support this growth objective. James will provide additional details about our capital structure during his comments. We also see a number of opportunities over the long term to advance further within the railcar value streams and our quest to help customers optimize their ownership and usage of railcars. With a fresh start on November 1, we will hit the ground running. Please stay tuned because the best is yet to come.

I'll now turn it over to Eric.

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Eric Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer [4]

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Thank you, Tim, and good morning, everyone. Trinity's concentration and focus on the rail as a result of the separation is ideally timed. TrinityRail continued to build momentum during the third quarter resulting in an improving outlook going into 2019. TrinityRail's integrated platform is well positioned to create value for the company, our customers and our shareholders.

Commercial inquiries for both new and existing railcars remained elevated during the quarter, reflecting increasing railcar industry loadings. North American rail traffic volumes during the third quarter continued to improve with year-to-date growth of 3.9% compared to 2017. Available equipment continued to tighten, which led to strong interest in railcars during the quarter. Railcar utilization within our lease fleet improved from 97.1% to 97.6%, sequentially. The industry received orders for approximately 25,000 railcars during the quarter, of which Trinity rail received over 7,700 railcar orders. Industry railcar scrapping has kept pace with the industry deliveries, which has helped fleet balance. Inflationary pressures in the supply chain and improving supply and the demand dynamics are resulting in increased pricing for new and existing railcars. Despite improvement in the price environment, current lease rates are still below expiring lease rates, creating unfavorable comparisons. And we are still working through softer pricing of products in our Rail Group backlog going into the next year.

I am very encouraged that while there is no single catalyst creating a peak level of demand today, there is momentum in many of the markets we serve. Year-over-year comparison rates for railcar loadings will prove to be more difficult. However, the pace of growth continues at healthy levels, requiring more railcars to service the increasing commodity loads. These favorable market conditions exist despite uncertainty caused by various geopolitical events. We are monitoring the situations very closely and are ready to respond should the market shift. TrinityRail serves the entire railcar market. We analyze the market in 5 groups: energy, refined products and chemicals, agriculture, construction and metals and consumer products.

We received new railcar orders in each of these groups during the quarter. The underlying fundamentals in these markets are favorable. Our orders for the quarter were split approximately 1/3 direct sale and 2/3 to customers of our lease fleet. Our total owned and managed fleet is approximately 122,000 railcars. Our railcar backlog at the end of the third quarter totaled 28,300 railcars with a value of $3.2 billion. Of this backlog, $1.2 billion is dedicated to the lease fleet. Our backlog measured by units has increased 25% since the beginning of 2018. A strong backlog positions our team to create value throughout our platform of products and services.

In closing, TrinityRail's performance reflects the strength of our integrated rail platform, which provides scale, speed and innovative solutions for our customers. Our broad participation across the leasing, manufacturing, maintenance and secondary markets gives us strategic insight into railcar industry market conditions, position us to respond quickly to changes in market demand, ultimately delivering strong value to the company, our customers and our shareholders. TrinityRail is built to deliver.

I'll now turn it over to James for his remarks.

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [5]

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Thank you, Eric, and good morning, everyone.

In yesterday's earnings release, we announced revenues of $931 million, down 4% year-over-year and diluted earnings per share of $0.19 including spin-off transaction costs of $0.05 per share and a one-time $0.15 per share charge to write down the book value for certain assets held for sale in our Energy Equipment Group. This resulted in adjusted third quarter core EPS of $0.39. This compares to EPS of $0.43 in last year's third quarter, which did not include any transaction costs.

Our results were lower than last year's third quarter primarily due to lower railcar deliveries, lower sales of leased railcars and a higher level of railcar deliveries to our lease fleet which result in revenue and profit eliminations. The margin in our Rail Group is lower in the third quarter than the first half of the year due to the lower deliveries and related production efficiencies, including line changeovers. These factors were somewhat offset by a lower tax rate of 27.4% as compared to 36.9% in the last year's third quarter due to the Tax Cut and Jobs Act. During the third quarter, we continued to utilize our share repurchase program by repurchasing $50 million of stock. We have $350 million of remaining authorization after conducting $150 million of purchases in the first 3 quarters of the year. The new post spin-off Trinity board will discuss return to shareholders, including both the usage of the share repurchase program and our quarterly cash dividend.

As we mentioned in the press release, prior to our Investor Day presentation 3 weeks ago, we will no longer provide financial guidance for 2018 due to the spin-off. The only 2018 guidance we have updated is that we expect railcar deliveries of 20,000 to 21,000 this year. This guidance range implies deliveries in the fourth quarter of approximately 5,180 to 6,180 railcars and incorporates rail service and congestion issues that continue to delay deliveries of certain railcars to customers plus weather impacts on our operations. For 2019, we expect for railcar deliveries to increase to approximately 22,500 to 24,000 deliveries.

In yesterday's press release, we provided post-spin Trinity 2019 EPS guidance of $0.90 to $1.10. A good comparative of this figure is $0.33 for the first half of the year that we provided in our Investor Day in our pro forma financial statement as it relates to the stand-alone Trinity. There are some nuances to this comparison as it relates to corporate cost that will provide some direction. We are not providing further detail at this time, but we plan to provide segment level and other guidance for 2019 with our year-end results in February. At that same time, we will roll out certain new entrants and other information for your better understanding of the new Trinity post spin-off. We're still assessing the most useful metrics and have appreciated the investor feedback we've received to date.

Year-to-date, we have invested a net of $535 million in our lease fleet, including new railcars from our production lines and secondary market purchases, offset by sales of leased railcars from our portfolio. In addition, earlier this month we acquired approximately $360 million of leased railcars from ECN financial. These are railcars that we've built and have managed for them for several years. The portfolio of railcars already have financing in place so the transaction was very efficient. This transaction will be reflected in our fourth quarter financials. We are pleased to have this opportunity for growth of our owned lease fleet. We will continue to add railcars to the lease fleet in 2018 and pursue additional opportunities for growth of the fleet post spin-off with our available capital.

As previously disclosed, we provided a 12-month notice earlier this year that we intend to exercise our option to purchase $224 million of leased railcars in 2 of our off-balance sheet financings. These are attractive assets, and we now intend to complete this purchase in the fourth quarter. We have sold $204 million of leased railcars to our RIV platform or in the secondary market this year and plan to have further sales in the fourth quarter to this channel that will leave us in line with our prior annual expectations for sales of leased railcars.

We ended the third quarter with $427 million of cash and cash equivalents. As a reminder, we will provide Arcosa with $200 million of cash at the time of the spin-off. We plan to operate with a lower cash balance than in the recent past and we'll be more reliant on the leverage available on our wholly owned lease fleet for investment opportunities in addition to our normal cash flow. At the end of the quarter, this leverage was 34%, and we indicated at our Investor Day that we intend for it to reach 60% to 65% in the intermediate term. It also raises the level of interest expenses compared to this year.

This activity will lower our cost of capital and improve our returns. The timing of adding leverage will depend on our investment opportunities, and we are already seeing such opportunities with our concentration of focus on rail. We will provide periodic updates on our investments and associated leverage in future earnings calls. This will be the final financial report that will include all of Trinity's historical business as a part of continuing operations. Following the spin-off of Arcosa, Trinity will report its financial results within the Rail Group, the Railcar Leasing and Management Services Group and an All Other segment, which will primarily be comprised of our highway product and logistics businesses. Our first financial report including segment detail will be in our year-end 10-K.

To touch on Highway Products for a moment, as many of you know, we've been involved in some litigation in this business, much of which is still ongoing. Although we've had many positive developments and feel that we are closer to getting most of this litigation behind us. We determined it was more prudent to minting the Highway Products business within Trinity and then introduce existing matters to a new public company. This business is performing well and is a positive contributor to earnings and cash flow. Once the litigation is fully behind us, we will determine whether we take another course of action with respect to this business, but at this time, it is business as usual for Highway Products.

We will file an 8-K in early November with our consolidated pro forma financials as if Trinity had reported only its retained businesses and continuing operations in the past. This will include full year income statements for the last 3 years and the first 9 months of 2018. The Arcosa businesses will be reported in discontinued operations in Trinity's 2018 Form 10-K. The costs related to the spin-off transaction, which are still tracking at $30 million to $40 million for 2018, will be included in the discontinued operations line item. Following the spin-off, Trinity will continue to be a premier provider of rail transportation products and services in North America with our integrated rail platform. We have economic momentum in our markets, a commitment to investing our available capital by utilizing our cash flows and leverage and a veteran team with a concentration of focus. We're excited about our potential and look forward to updating you on our progress in the future.

I'll now turn the call over to Antonio, Arcosa's CEO, for his remarks.

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Antonio Carrillo, Trinity Industries, Inc. - Former Senior VP, Group President & Director [6]

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Thank you, James, and good morning, everyone. We're quickly approaching November 1, and it has taken an immense team effort to accomplish the successful separation of Trinity into 2 stand-alone public companies. I want to echo Tim's words of appreciation and admiration for our incredible team that has made this possible. I'm confident that both companies are on path for success. Before turning it over to Scott for his commentary on the third quarter financial results, let me provide a few high-level comments about the quarter.

During the quarter, we completed a comprehensive strategic review of potential -- of the potential of each one of our business. This review covers both growth opportunities and areas for margin improvement. I'm very excited about the quality and quantity of ideas for both organic and inorganic growth that we discussed. As previously disclosed, based on the results of the strategic review, we made the decision to exit certain of our smaller businesses in the Energy Equipment segment. We concluded after a careful analysis that the market opportunities would not justify the investment and effort needed to provide a competitive scale for these businesses to ultimately achieve a market leadership position.

The exit from this business is important for a couple of business reasons. First, it is in alignment with our focus on improving margins in Energy Equipment as these businesses were operating at a loss. Second, it demonstrated the disciplined process we undertook in our strategic review. As we move forward, this process for evaluating growth opportunities and operational performance will be one of the foundations for our capital allocation process.

Looking at the quarter, I'm encouraged by a number of items. Despite a record setting rain month in September in Texas that impacted volumes in our natural Aggregates business, our Construction Products business had a very good quarter of continuing strong fundamentals. We continue to work diligently on evaluating our pipeline of organic and inorganic growth opportunities as a stage 1 priority for our construction business.

Market recovery continues to gain traction in our Inland Barge business despite ongoing weakness on the dry cargo side. As Scott will discuss, based on solid order and inquiry levels for liquid barges, we have decided to reopen one of our idle barge facilities. Our barge team is very skilled at cycling up and down as business conditions change, and I expect this reopening will progress smoothly. I continue to believe we have solid demand drivers for our Energy Equipment segment where our immediate focus is on margin improvement. Scott will address some of the unique items impacting the segment's performance during the quarter. As we near the final steps for the distribution of Arcosa to Trinity shareholders, we are just beginning the important work we have in front of us as a separate public company. I want to thank Tim, the Trinity board and our tremendous group of dedicated employees who have made this milestone a possibility for Trinity and Arcosa stakeholders.

I will now turn the call over to Scott.

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Scott C. Beasley, Trinity Industries, Inc. - Former CFO [7]

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Thank you, Antonio, and good morning, everyone. I'll limit my comments today to the third quarter performance at Trinity's Construction Products, Energy Equipment and Inland Barge Groups and reserve commentary on any forward-looking statements about Arcosa including guidance from future stand-alone Arcosa earnings calls.

Starting with Construction Products, the segment had a strong quarter of performance in revenue and operating profit. Construction aggregates revenue performance was essentially flat with the third quarter of 2017 as increased volumes in our lightweight aggregates business roughly offset decreased volumes in our natural aggregates business. A portion of the decline in our natural aggregates business was a result of wet weather conditions in the Dallas-Fort Worth market, and we continue to see pricing pressure in the market as well.

In October, heavy rainfall in DFW has continued to hurt our aggregate production and construction activity in the market. However, the demand fundamentals in our Aggregates business continue to be strong, and we remain pleased with the team's operating performance despite challenging weather conditions. Next, our trench shoring business delivered year-over-year growth, both organically and through the acquisition that we made early in the third quarter of 2017. Finally, the Highway Products business produced improved revenue and operating profit performance during the quarter. This business, which will remain with Trinity after the spin, had higher revenues, lower legal expenses and also benefited from $4.4 million of additional insurance recoveries related to damages previously sustained at 2 manufacturing facilities.

Moving to Energy Equipment. We had a few onetime noncash items in the third quarter to make the underlying market and operating conditions harder to see so I'll walk you through each business with some additional color. Our wind towers business continued to operate well. Revenue was down versus the previous year's third quarter on planned lower volumes, but revenue improved versus the second quarter of this year due to higher volumes.

Similarly, our third quarter revenue in utility structures was below the previous year's level but was sequentially better than the second quarter of 2018. Our plants recovered from the inefficiencies related to an order for a new product type that hampered our throughput in the second quarter and the early part of the third quarter. We believe that we are past that issue evidenced by a stronger operating finish to the quarter in September. However, we still have work to do to improve our operating margins in this business, and we are in the early stages of deploying our continuous improvement program that we have previously discussed.

There are 2 onetime noncash items impacting the segment that I would like to note. First, we had a $6.1 million inventory reserve for finished goods in our utility structures business line in Mexico. A project was canceled, and we believe that near-term usage for this inventory is unlikely, so we recorded this reserve. Second, Antonio referred to the strategic review that we conducted across our businesses. This review resulted in our decision to divest several subscale businesses within our other revenue line of Energy Equipment. As a result of this decision, we have taken an impairment charge of $24.8 million. We are actively engaged with prospective buyers and we'll share additional information on these processes when appropriate. There could be additional cost incurred for these businesses as we divested. As a reminder, the Energy Equipment segment within Trinity does not exactly match Arcosa's Energy Equipment segment as the tank heads business and a portion of the Mexico energy plants will remain with Trinity after the spin.

Before I close with the discussion of the Inland Barge Group, let me remind people that the components business that reports within Trinity's Rail Group will be part of Arcosa's transportation products group. In this business, we are encouraged by improving rail fundamentals, but I want to point out that the long-term supply agreement with TrinityRail, which has lower pricing for the remainder of 2018 and through 2019, goes into effect on November 1.

Finally, I'm pleased to end the call on a positive note with a few comments about our barge business. Our barge revenue was up significantly versus the third quarter of last year and also up sequentially versus the second quarter this year. We received orders for $61 million in the quarter to increase our backlog to $210 million. We also finalized supply agreements with other customers that will become reportable backlog as the specific orders become defined. Almost all of our order and inquiry activity has been for tank barges, and we continue to see healthy inquiry levels for a wide variety of liquid commodity types.

As a result of this new order activity, we've decided to officially reopen our Madisonville Louisiana facility to produce a variety of barge types. This ramp-up will be slow with the first deliveries expected in the middle part of 2019. We believe that our reopening of Madisonville as a positive sign in the recovery of the market but I'll temper expectations a bit by reiterating my comments from Arcosa's Investor Day that margin growth trails revenue growth heading into an up cycle. Reopening an idle facility and restarting production typically results in breakeven operating profit over the first 3 to 4 quarters as we incur startup costs and attain lower production efficiencies. Even with these ramp-up costs, we see enough signs of recovery in the liquids market that we decided to reopen the facility to be able to better serve our customers.

I'll now open up the call for our question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Matt Brooklier with Buckingham Research.

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Matthew Stevenson Brooklier, The Buckingham Research Group Incorporated - Analyst [2]

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So I just had a question around your revenue per car in the backlog that was up pretty significantly on a sequential basis. I'm just trying to get a sense for how much of that was driven by higher ASP cars or mix, and how much of that was potentially driven by just getting stronger pricing as it feels like the cycle's starting to reaccelerate here.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [3]

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Eric, you want to take that?

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Eric Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer [4]

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Sure. Matt, it's Eric Marchetto. So it's a combination of all those things. Certainly, mix does have an impact in the ASP. Also we've seen cost increases over the year from raw material changes. That has increased the cost of railcars, which for the most part has been passed through to customers and results in higher selling prices, and then you do have some margin improvement as well. But in terms of weighting, I'd say it's more related to mix than the other 2.

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [5]

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And Matt, this is James. I would add from a math standpoint, the figures walk, as you pointed out, from a backlog standpoint, but there are certain longer-term orders that when steel prices are up and we see certain cost increase, we adjust the backlog to account for those prices. We do that a couple times a year, and this was a quarter where there were some of that included as well so that inflated the ASP a bit on its own.

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Matthew Stevenson Brooklier, The Buckingham Research Group Incorporated - Analyst [6]

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Okay. That's very helpful. And then maybe some commentary on the thought process here is that we're starting to see maybe a stronger pickup in the tank car market relative to the freight car market, maybe you can give a little bit of color in terms of what you guys are seeing. You could even talk to maybe if you took some tank car orders in the quarter and maybe what inning of maybe this reemerging demand do you think we're in for tanks.

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Eric Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer [7]

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So Matt, this is Eric. I'll take that. As I said in my prepared comments, we have seen demand in all of the segments that we cover, those 5 major segments. But certainly there is demand on the tank car side that is driven by a couple of factors. One, on the crude side, there is certainly a spread especially in the Canadian crude markets that is encouraging crude by rail again, and so we're certainly seeing demand for that. And then on the flammable side, in general and refined products, with the growth in oil production and refining margins and natural gas production, we are seeing a lot of downstream impact in demand for tank cars as well.

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [8]

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And Matt, this is James. I know you saw the industry numbers that came out a couple of days ago, the tank car orders in the quarter about equal to the first half level of tank car order. So there's certainly a pickup in demand for that car -- for this capacity so we're still -- we complete pricing, as Eric mentioned in the backlog, but demand has risen in that area.

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Matthew Stevenson Brooklier, The Buckingham Research Group Incorporated - Analyst [9]

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Okay. And then last question, and you mentioned that you had some line changeovers in the quarter that maybe put some downward pressure on your margins. You're also working to write lower price cars in the backlog kind of the legacy from the downturn network and it feels like we're coming out of. I guess my question is, how should we think about Rail Group margins from here? Do you think we have 1 more quarter of headwind from changeovers and delivering some of these lower ASP cars? Does it bleed into '19? I'm just trying to think about the progression of margins from here as it feels like we're turning a corner.

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [10]

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Matt, it's James again. We're not providing that type of guidance for '19 yet. It's a little early to really dive into that. We have visibility to provide some -- a wide range of earnings guidance as you saw last time, but not diving into the detail. The third quarter, as you pointed out with the changeovers as well as delivering around 4,000 cars, we didn't have as much overhead absorption. Moving back to 5,100 to 6,100 cars in the fourth quarter and then the type of pace we talked about in '19 gives us opportunity for operating leverage, but you got a bit of a pricing headwind and a cost headwind to some degree on the seal that can affect margins the other way. So let us get a little deeper to the quarter and early into next year, and we'll give you some guidance there and really give you a sense of what we're seeing as we fill in the backlog and have a better handle on that.

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Operator [11]

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Next we'll move to Justin Long with Stephens.

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Justin Trennon Long, Stephens Inc., Research Division - MD [12]

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So it's a little challenging to interpret the 2019 outlook for standalone Trinity relative to expectations without knowing some of the key assumptions, and 2 of the big ones that come to mind are railcar sales and also the split of deliveries between what you're delivering externally versus internally to the lease fleet. So on those 2 items, is there even just some directional commentary that you can give to us to help us think about how those line items progress in 2019 relative to what we're seeing in 2018?

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [13]

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Justin, it's James. I wouldn't say there's anything terribly unusual in the guidance we've talked about. We just touched on some of the margin type things that could be out there. You got a sense of deliveries. But I think to your point, there're several things that we'll provide more detail on as we get into 2019. You mentioned how much is going to leasing, and Eric pointed out how much of the backlog is dedicated to leasing. So it gives you a pretty good sense of what the mix looks like. In terms of leased railcar sales, we certainly indicated we plan to continue to feed cars to the RIV channel. It's not providing a level of what that looks like yet or the profit contribution there, but that is the channel as we talked about extensively on Investor Day that we plan to continue to use, it's important to us as we seek larger growth opportunities. You have other things, I mentioned interest rate, interest expense rising as rates come up, but more importantly as we levered the balance sheet up, timing on that's a bit uncertain as well. There is some of that with the investments we've talked about in the fourth quarter with the purchases we're making of some lease fleets as we operate with a much lower level of cash, we're no longer disusing very low interest rate, almost free money with our cash balances. We're going to be levering for our growth and for the opportunistic things that we've talked about from a growth perspective. From a corporate line item, the discontinued and continued operations breakout we did in the pro formas gives you a sense of that. There's some accounting nuances that'll move around a bit. But as Arcosa's mentioned, we also have some corporate costs that will have a bit of a hangover into next year as we continue to rationalize the level of overhead that we need to run the business and as we grow, we'll kind of grow into those numbers and as we look at what we need, there's still some transition services agreements between the company, things like that for support as we go through the spin, and some of that will fade off as we go along. So we understand, there's some -- there's a lot of pieces that are unanswered to the guidance we gave and we'll fill this in as we get more clarity, internally we'll provide that to you as well.

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Justin Trennon Long, Stephens Inc., Research Division - MD [14]

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Okay. And maybe shifting gears to crude tank cars, it's a hot topic right now given the pickup we've seen in the crude by rail market, especially Western Canada. I know the data is hard to get on crude tank cars and storage and crude tank cars in the industry backlog today, but do you have any kind of rough sense for what those numbers look like? I feel like it's the largest manufacturer in the market and one of the largest lessors, you might have a little additional color you could provide as we think about demand for that car type going forward.

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Eric Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer [15]

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Sure, Justin. I would say as all tank car demand and all railcar demand, first, you got to use up existing railcars in order to spur new railcar demand, and we have seen tightness on railcar and tank cars, capable of carrying crude oil as regulations to change. So certainly, all of your new cars and retrofitted cars are in service with the overhang being what's left, it'd be generally legacy cars. We are seeing demand for those cars. We're seeing demand for both modified and new railcars to serve those markets and it's growing. As I said, when there's a spread -- last month, the spread had reached $40 a barrel, so that certainly is going to be -- support more tank car demand. The question is how long will that spread be there and if it supports building new tank cars to serve it.

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Justin Trennon Long, Stephens Inc., Research Division - MD [16]

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Okay. And any thoughts around the number of those crude tank cars that are in the industry backlog today or your backlog as we think about what's already been reflected in order book versus what could come?

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Eric Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer [17]

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So Justin, this is Eric. We don't get in the color on in terms of the individual backlogs by car type, but we have seen demand for that car type and we continue to see inquiries for that car type.

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Operator [18]

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And next, we'll move to Matt Elkott with Cowen.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [19]

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First, maybe a quick follow-up on the last question on tank cars. Do you guys expect the mix of tank cars in 2019 to be higher than 2018, given all the inquiries that have been coming in this year? I understand the lead times have lengthened a bit, but 2018 I think was a pretty low tank car year, from -- especially from an energy perspective.

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [20]

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Matt, it's James. You certainly saw orders in the industry, as we pointed out a minute ago, in the third quarter for tank cars. We don't break out our composition, but we tend to see what the industry sees. It's a little early to say if that mix is really going to shift much into '19 given the visibility that we have, and at least what we know about the industry, but there's certainly been an elevation of orders and we'll see how that flows through. Some of are for longer term. We and others have seen longer-term contracts. You recall, we signed a GATX contract earlier this year that is several years out, but some of that first half ordering was not for '19 but for beyond, but there are certainly elevated level of inquiries, as Eric mentioned, but we'll see how that flows through the years.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [21]

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But it would be hard to see how the tank car mix would be lower in 2019. Or is that possible?

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [22]

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I think -- yes, Matt, this is James. I think that's generally fair, just hard to get real specific at this point in October.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [23]

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So barring a major negative mix shift, I mean it looks there could be actual positive mix shift, I was just looking back at the last several years and, obviously, there's a lot of concern and confusion about the guidance, about margins, it seems like a lot of people are thinking about the 6.5% margin in 3Q as potentially the margin for 2019. So I looked at the last time you did a 6% margin was in 2011. You delivered 14,000 cars, 43% below what you're expecting for 2019. And the last time you delivered as many as you're expecting for 2019 was in 2013, and your margin was 17%. This is the railcar manufacturing margin. Is there any reason why the margin could be down? Is there any reason why the margin shouldn't be up in 2019 on railcar manufacturing?

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [24]

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Matt, it's James again. Without getting into specific guidance, every cycle is going to be different. When you look back in 2013, you were in a rising cycle with a pretty strong demand for a couple of particular car types. We don't have one car type with that excess demand, so to speak. That outsized demand, as Eric said, is pretty broad-based. And Tim mentioned the rising tide, kind of everything has been left at right now, but nothing is jumping out. There's still a lot of capacity in the industry. As Eric mentioned a little bit as well, steel prices are up so pricing is up. So even though you're seeing more tank car orders, which have an inherent higher price anyway, there's still capacity out there. Pricing remains competitive. So not commenting on necessarily the margins wherever they may be and we'll give a little more guidance as we go along, but there are some tailwinds here and there's some headwinds that were sorted through.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [25]

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Got it. Yes, I certainly was not suggesting that 17% will be margin for 2019, but it would just be hard to not imagine it at least staying the same or improving. One quick question about the guidance. Are you guys expecting any onetime items in 2019? Because the guidance you provided is on a non-GAAP basis.

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [26]

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Yes, Matt. It's James. We don't forecast onetime items like that. We certainly have things that we have embedded in the forecast. I mentioned corporate expenses remaining at a somewhat higher level than would have been a percent of revenues in the past necessarily as a combined company. Part of that is due to the separation. There's some duplicative cost. Part of that is the legal expenses. As I mentioned briefly, the highway litigation, reminding of that. Some of that has been relatively quiet this year, so we've awaited the Supreme Court ruling. When we get what we certainly are optimistic about ruling from that and some of these cases will move back up as we work to dispose of them, and that could elevate cost to some degree so we've had a little tailwind there but could be a bit of a headwind, but I wouldn't point at any onetime things necessarily. We don't forecast those type of things unless we know they're very imminent.

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Operator [27]

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And next, we'll move to Steve Barger with KeyBanc Capital Markets.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [28]

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I just want to approach this from a high level. We saw the best industry orders in 4 years this week. One competitor is seeing lease rates improved sequentially. Another just got taken out of the 50% premium. So you're sitting here with what should be an improving business and a ton of capitals to deploy, but the stock is down 14% right now. My question is what do you think investors are not understanding about the guidance or the investment opportunity for the rail and leasing business?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [29]

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Well, this is Tim. One thing that we -- our advisers had told us is during the early stage period that we're going through here approaching the separation and after the separation that we should expect some volatility in our stock prices until both companies are separated and are able to establish their footing to where the analysts and everybody has a good understanding of what's happening and it's awkward for our stakeholders to have to go through something like the separation process. But once we get through it, and the foundation is established, it's my expectation that things will level out, and you'll get a little bit more rational trading behavior. At the same time you've got a lot of external factors right now that are affecting the overall market with a lot of really high-quality companies that are going through something that we're going through or have lost their value in the last several days as well. So I think it's a combination of the external factors as well as the separation process that we're going through.

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [30]

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Yes, Steve, this is James. To address the second part of what you mentioned, as we've mentioned multiple times as you all know in the last few weeks, we got a strong balance sheet with a lot of capital at our disposal to put to work. And it's incumbent on us with a concentration of focus that Tim and I and the team have on rail now to find those opportunities. When we provide forecasts, we don't normally provide a lot of external type opportunities that aren't right in front of us. We pointed out a couple that we're closing and finishing up this quarter. Most of what we talk about when we talk about 2019 at this point is the type of growth that we see in front of us and some potential opportunities, but there's still some things out there. We really believe the spin this will increase a lot of long-term value. We think kit unlocks the balance sheet and we can improve on our returns and we'll provide the types of metrics we think are appropriate to help the understanding, as you asked. We'll provide more detail around the types of opportunities we want to pursue in the leasing space, in the maintenance space, and as Tim mentioned in the other products and services space. So we got some value to unlock here. We've got the capital to do it, and it's incumbent on us to provide that to the shareholders. And I think that applies to both companies. Antonio, do you want to comment?

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Antonio Carrillo, Trinity Industries, Inc. - Former Senior VP, Group President & Director [31]

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Yes. I think, as a company, we are ready for the spin. I think there's been a lot of work related to the spin. There are some uncertainties about things that will -- could happen as we set the foundation, as Tim mentioned. But I think the opportunities for Arcosa are simply very strong. We mentioned going from the strategic review and going through the ideas that our businesses presented, we have a great capital structure. We have -- we're going to have the opportunities to deploy capital, and the new board of Arcosa will be sharing the insights of how we deploy that capital, but the opportunities are there and everything is set up for Arcosa to be successful.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [32]

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I appreciate that. So I -- to be clear, the 2019 guidance for the railcar and leasing side that you provided does not include any M&A or buyback? And given the intentions to increase balance sheet leverage, it's reasonable to think there is inorganic EPS drivers for next year even if they're not in the guidance or we can't build them into a model yet. Is that fair?

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [33]

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Yes, Steve, it's James. Yes, I think that's a good way to say. When we give guidance here this early in October, we include some pretty normal type things like you mentioned but nothing out of the ordinary and certainly not using the full extent of our balance sheet opportunities.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [34]

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And you would certainly expect to deploy capital in 2019?

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [35]

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Absolutely. We definitely will deploy capital in 2019 and beyond. That's part of the purpose of the spin is for both companies to have their own capital and be able to decide where it gets split and instead of trying to split it through 15 or 16 different businesses.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [36]

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And being able to have the capital structure more like a leasing company, which we've had a bit of a challenge to do that in the past, given the balance of credit ratings and external work.

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [37]

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Yes. So we're just extremely optimistic of the value that we're going to be able to create in both companies.

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Operator [38]

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Next, we'll move to Allison Poliniak with Wells Fargo.

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Allison Ann Marie Poliniak-Cusic, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst [39]

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Could you -- first, going back to the margin question in rail, could you help quantify what the impact of the line changeovers were in the quarter?

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [40]

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Yes. Allison, we don't -- we're not given that detail. It was certainly a headwind between the changeovers themselves, which we've had in the past and talked about that in the past and the lower deliveries with the loss of operating leverage. It was a combination of factors, but we're not going to break that out.

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Allison Ann Marie Poliniak-Cusic, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst [41]

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Okay. And then going back to the secondary market activity, could you help us kind of understand where we are in that market today? Obviously, it was very much a seller's market. Is it more balanced, have asset valuations come up? How should we be thinking about that market today for you?

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [42]

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Yes, this is James. I'll let Eric chime in as well. We've certainly been active on both sides of that. We've made some good acquisitions in that market. I mentioned ECN, but even some one-offs, some smaller pieces we've been active this year. And we've had some nice secondary market sales as well, and that's a strategic thing for us, not just a financial piece. It's very strategic. I think the recent transaction we just announced a few days ago continues to indicate value for lease fleets in the market by smart investors. Eric?

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Eric Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer [43]

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Yes. Allison, this is Eric. I'll just say that the buyers and sellers, some of them have changed as people have entered and exited the market. But generally, I'd say the market is very healthy and deep. And there's a still -- when you put a portfolio out, there's -- you got a lot of bids and when you're trying to buy a portfolio, it's competitive. So it's a healthy market, I would say.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [44]

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And this is Tim. And there are some negotiated transactions that take place that -- based on long-term relationships. And when companies are trying to exit or make a strategic move, there's a large number of markets that are involved with railcars, and people make strategic decisions for one reason or another, and then they may make a deal so it's a very -- it's a robust market.

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Allison Ann Marie Poliniak-Cusic, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst [45]

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That's great. And then just one on Arcosa, the Construction-Products business. You cited weather being a factor in the quarter. Any way to help size or quantify that impact this quarter?

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Scott C. Beasley, Trinity Industries, Inc. - Former CFO [46]

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Yes. Allison, this is Scott. So we're not going to quantify the exact part of weather. It was a combination of weather, so natural aggregates gets a bit of a headwind, the combination of pricing pressure in Dallas-Fort Worth and weather. As I pointed out, we were able to offset the volume decreases in natural aggregates with improvement in our lightweight aggregates. It's a nationwide footprint, much better diversity geographically. So that's one of the benefits of that footprint is it offsets weather weaknesses in certain area.

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Operator [47]

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And next we'll move to Matt Elkott with Cowen.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [48]

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Just have a quick follow-up, guys, here. Speaking of the secondary market valuations being high, so that could be -- that's good for you because you have a lease fleet, but it could also hurt you because you're going to be deploying capital to grow the lease fleet. Now demonstrated that you can get things at an attractive valuation. When you did buy back that element fleet for 93% of book. Can you talk about how you will be navigating this issue going forward and whether the fact that the ECM fleet had some DOT-111 cars had something to do with your ability to buy it as discount to book and retrofit those cars maybe to DOT-117Rs at a lower cost than what it would cost the lessor to do it and then put them out on lease at high rates.

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [49]

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Matt, it's James. You brought up a good point. I think we've demonstrated this year our ability to find some good opportunistic purchase. As you may recall early in the early, we bought over 1,000 cars in the market, put those to work and got this at a very nice price, because exactly as you say, with the size of our fleet, with the commercial team that Eric runs, the visibility we have there of what customers need cars, we're able we think to find opportunities that some others may not be able to kind of find as attractive. We do want to put a lot of capital to work. As Tim pointed out, some of these are negotiated transactions that we may be the best strategic buyer for a set of assets. We think there will be opportunities. There may be times at which clearly you're paying a healthy price for that. But we think with the leverage we have and the cost of capital that will continue to come down, we can be opportunistic in that respect and continue to find opportunities. I'll let Eric add on a little bit as well.

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Eric Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer [50]

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Matt, this is Eric. Just I would like to point out that just because there's a DOT-111 does not mean it's a railcar that is not in demand. We still place those cars out on lease, both on a modified and an unmodified basis, there are different services that those cars go in. The fleet that we bought was leased and so the fact that those cars are unleased, and we expect to keep them in service.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [51]

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But Eric, is it -- is this rationale correct that it would cost you less to retrofit the car than it would cost a customer who doesn't have a manufacturing operation because, obviously, you'll be making a profit out of the customer? And the DOT-117Rs are going to be in very high demand over the next few years even if they're not accepted by some of the railroads for crude by rail, we have ethanol cars that are going to be -- to have to be replaced and other petroleum products. So I was just trying to gauge whether this is a unique opportunity for you guys to buy older DOT-111s at a percent of book and then retrofit them to the car that's in very high demand right now and reap high rentals on those cars going forward.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [52]

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I think you said it well. And I'll just add we're seeing demand to modify cars, and we continue to modify cars as well. So the modified cars are accepted in the market for different commodities.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [53]

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Got it. Now just one quick question on the buyback. Is there any change to the share repurchase strategy going forward?

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James E. Perry, Trinity Industries, Inc. - Senior VP & CFO [54]

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Yes. Matt, it's James. As I said, I mentioned the authorization we have under our program. We've got a new board that's constituting on November 1, and we'll have a new group that we're excited to work with. So that board will meet in due course, and we'll talk about our return to shareholder plans with that board and with the shareholders as appropriate.

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Operator [55]

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And next we'll move to Gordon Johnson with Vertical Group.

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Gordon Johnson, [56]

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I guess just thinking about the ramp-out of crude by rail pipelines and the potential to displace crude by rail tank car demand, have you guys looked at that? And what is the potential in your view for that dynamic in 2019 and 2020? And how do you plan to address that?

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Eric Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer [57]

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So Gordon, this is Eric Marchetto. I'll address that. Certainly, we have considered that. We do expect pipelines will get built whether in 2019, 2020 or 2021. We do think some of the pipelines will get built. How we address that is we pick the right asset. If we're going to lease assets into those markets so it's a virtual asset. We also mitigate that with term. We're not putting leases out on short term. We are expecting to lease these cars beyond any planned pipelines, and that does drive away some demand when you require a term, but there are others that are willing to commit to a lease term or they buy the railcars as well.

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Gordon Lee Johnson, Axiom Capital Management Inc., Research Division - Former MD and Analyst [58]

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Okay, that's helpful. And then just, I guess more broadly speaking with respect to the different dynamics around the trade wars that are going on, can you guys just give us some insight into, kind of, maybe some of the positives and/or negatives that you're seeing as a result of some of the trade wars and maybe some of your expectations or what your expectation are on how that will unfold over the next 6 to 12 months.

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Eric Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer [59]

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Sure, Gordon, this is Eric. Let me take that. First I'd say the negatives are mainly it's created a lot of uncertainty for our customers in various markets, especially in the agricultural market where the tariffs or the retaliatory tariffs or the realization of retaliatory tariffs certainly affect the demand for those products. So there certainly is some headwinds, and it's more uncertainty than anything, it just causes people to stop and not make decisions and wait. On the benefit side, certainly, we are seeing an increase in domestic steel production and movement by rail. That has a benefit. I'd say that's probably more of an existing car, existing fleet benefit than it is a new fleet benefit, but nonetheless, it's a benefit.

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Operator [60]

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And next, we'll move to Bascome Majors with Susquehanna Financial Group.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [61]

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Tim, for the TrinityRail business and the RemainCo here, what management behavior and outcome should we expect you to emphasize a bit more significantly after the spin than you have historically? And kind of in line with, how should we expect the incentives that you guys are given to change versus kind of what you had in the past?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [62]

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Well, we have a new board, and so we'll be having discussions with the board on what we think are the motivating factors that would incentivize the troops that we have to perform value enriching activities. And so we're pretty good at that, and it's been worked very successfully for us in the past. I don't really think that you're going to see a different management activity. You're just going to see our resources that we have and our focus of our attention be directed to an industry that we know very well. I've been with the company now, I'm in my 44th year and grew up in the rail side of the business and know that industry very well. I love railcars. I love the customers and the industry. I think you'll see our workforce and the technical support that we have and the whole team all pool together in one strong cohesive group and really generate some pretty spectacular results. So I see it as a very motivating, high-level, exciting opportunity for us. And I think Antonio has somewhat of the same type of approach that he's taking in Arcosa of really good strong group of people to work with. And so the best thing we have here is there's really not an issue with either company that we're trying to avoid. It's really a matter of concentrating our focus and really directing resources and being able to react quicker. And we normally react fast and flexible as a company, but I think you'll see that we'll be doing it at a more intense pace in the future.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [63]

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Understood. And kind of in a related comment, how long after the spin-off is completed do you expect to rebase the employees' equity link comp to the new Trinity price after the spin? And should we expect to see additional long-term awards come out kind of looking to next year and beyond?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [64]

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Well, we have -- we definitely have a long-term component to our incentive compensation program, and we have a short-term component to it. And our HR committee did a really good job, knowing at the beginning of this year that there was going to be a spin and putting together an incentive program that kind of worked through the spin initiative and thought a little bit towards the future. So long term, we already have some programs that are designed to provide incentive for the employees, and I think the programs will be put in place just like they were normally put in place that happens at the first part of the year, the first quarter in the year that sets the stage in both companies. Antonio, you have a different...

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Antonio Carrillo, Trinity Industries, Inc. - Former Senior VP, Group President & Director [65]

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I think it's the same. As Tim mentioned, the same thing with Arcosa, we will have our first board meeting with the new board in the near future, and a lot of those things will be decided. Probably from the Arcosa point of view, one of the questions we got during the road show and Investor Day was that there was going to be some sort of a founder's grant and we don't expect the founder's grant on the Arcosa side. Most of the employees are coming with created grants from the past and so we do not expect any onetime additional thing to happen just because of the separation.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [66]

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And either Antonio or Scott, I know you didn't want to guide really anything in more detail than you already have, but did you reiterate or could you reiterate the $180 million to $195 million in 2019 EBITDA that you gave a few weeks ago?

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Scott C. Beasley, Trinity Industries, Inc. - Former CFO [67]

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So the only thing was that we gave that guidance a few weeks ago, and that's all we're prepared to say on this call.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [68]

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All right. Fair enough. And maybe to tie it all together, I mean, Tim, your stock is trading close to your reported book value of about $29 a share. That itself is understated by several dollars if you adjust for the inter-company accounting and how you do lease fleet. I mean, do you see value in Trinity's stock here? And I realize the board doesn't meet for another few days here, but you're the Chairman. Would you encourage the rest of your board to get more aggressive on the $350 million buyback capacity when they meet in November?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [69]

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I think we -- our board is highly motivated to do whatever they can in the best interest of the company. We've really got great board members that are on both boards, and we have 5 board members from Trinity on each board, and then we supplement it with new board members that are there. And Antonio is on Arcosa's board. I'm on Trinity's board. And there's been a lot of discussion about the best and highest use of our capital at the board level, and that will continue through the spin.

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Operator [70]

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Thank you. At this time, I'll turn the call back over to Jessica.

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Jessica L. Greiner, Trinity Industries, Inc. - Executive Director of Corporate Strategic Planning [71]

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Thank you, Tony. That concludes today's conference call. A replay of today's call will be available after 1:00 Eastern Standard time through midnight on November 1, 2018. The access number is (402) 220-7219. The replay will also be available on our website located at www.trin.net. We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.

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Operator [72]

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Once again, this does conclude today's conference. You may disconnect, and have a great day.