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Edited Transcript of TRN earnings conference call or presentation 21-Feb-19 4:00pm GMT

Q4 2018 Trinity Industries Inc Earnings Call

DALLAS Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Trinity Industries Inc earnings conference call or presentation Thursday, February 21, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian D. Madison

Trinity Industries, Inc. - President of TrinityRail Leasing & Management Services

* Eric R. Marchetto

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

* James E. Perry

Trinity Industries, Inc. - Former Senior VP & CFO

* Jessica L. Greiner

Trinity Industries, Inc. - VP of IR & Communications

* Melendy E. Lovett

Trinity Industries, Inc. - Senior VP & CFO

* Paul M. Mauer

Trinity Marine Products, Inc. - Chief Operations Officer of Trinityrail

* Sarah R. Teachout

Trinity Industries, Inc. - Senior VP & Chief Legal Officer

* 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 Lee Johnson

The Vertical Trading Group, LLC, Research Division - MD & 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. 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 performance. 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.

(Operator Instructions) Please note, today's call may be recorded. (Operator Instructions)

It is now a pleasure to turn the conference over to Ms. Jessica Greiner, Vice President, Investor Relations and Communication. Please go ahead, ma'am.

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Jessica L. Greiner, Trinity Industries, Inc. - VP of IR & Communications [2]

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Thank you, Erica. Good morning, everyone. Welcome to the Trinity Industries Fourth Quarter 2018 Results Conference Call. I'm Jessica Greiner, Vice President of Investor Relations and Communications. Thank you for joining us today.

This is the first quarterly earnings conference call following the spin-off of Trinity's infrastructure-related businesses, which was completed on November 1, 2018. Trinity Industries is now comprised of rail-related businesses that are leading providers of rail transportation products and services in North America as well as our Highway Products business and our Logistics business.

We have adjusted the format of the earnings conference call to include the leadership team of the TrinityRail organization. We will begin our earnings call with a brief legal update from Sarah Teachout, Senior Vice President and Chief Legal Officer for Trinity Industries. Following her comments, Tim Wallace, Chairman, Chief Executive Officer and President of Trinity, will lead off with his prepared remarks.

Our business leaders will provide more commentary on the operational performance of the segments as well as their forward outlook. You will hear from Eric Marchetto, Chief Commercial Officer for TrinityRail; Brian Madison, President at Trinity Industries Leasing Company; and Paul Mauer, President of TrinityRail Products.

Following their remarks, James Perry, Senior Vice President and Chief Financial Officer, will provide a financial review of 2018; and Melendy Lovett, Senior Vice President and Chief Administrative Officer and our incoming Chief Financial Officer, will provide the forward-looking guidance.

Following the prepared remarks from the leadership teams, we will move into the Q&A session.

I will now turn the call over to Sarah Teachout.

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Sarah R. Teachout, Trinity Industries, Inc. - Senior VP & Chief Legal Officer [3]

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Thank you, Jessica, and good morning, everyone.

We've previously reported on the status of the Joshua Harman federal False Claims Act lawsuit regarding the company's ET Plus guardrail end terminal system. We're pleased that last month, on January 7, the United States Supreme Court denied Mr. Harman's request to review the Fifth Circuit Court of Appeals ruling that the company did not violate the False Claims Act.

Since the onset of this case in 2013, the company has steadfastly maintained that it did not violate the False Claims Act. In September of 2017, the Fifth Circuit agreed, ruling as a matter of law in favor of the company. The Supreme Court's denial last month of Mr. Harman's petition ends this case and further confirms the company's long-standing belief that no fraud was committed.

In connection with the spin-off of Arcosa, the company decided that the Highway Products business should remain as part of Trinity at this time. This provides continuity for ongoing litigation management as we work through the docket of remaining cases following the successful conclusion of the federal False Claims Act case.

The company continues to incur legal costs as we defend a number of lawsuits in multiple jurisdictions regarding the ET Plus that were filed in the wake of the original jury verdict in the Harman case. Certain of these cases had been stayed pending the outcome of the Harman appeal. As the previously stated cases now begin moving forward, the company intends to vigorously contest these matters. We believe that the Fifth Circuit's unanimous panel opinion in which the court recognized that the ET Plus end terminal system meets all applicable federal safety standards and that the federal government has never wavered in its approval of the product supports our defense in the merits of these cases.

For additional information regarding the False Claims Act case and the company's other litigation, please see Note 18 to the financial statements in Trinity's Form 10-K for the period ended December 31, 2018, which will be filed later today. Additional information on the ET Plus litigation and a copy of the Fifth Circuit's opinion can also be found at www.etplusfacts.com.

I will now turn the call over to Tim.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [4]

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Thank you, Sarah, and good morning, everyone.

2018 was an exciting and transformative year for Trinity Industries, and we expect 2019 to be a growth year. Last year, we successfully separated our company into 2 strong public companies, Arcosa, Inc. and Trinity Industries, Inc. I would like to thank everyone who contributed to the success of the separation. I'm very appreciative of everyone's hard work, and the completion of the separation is a tribute to all those who played a role.

We were very pleased that the U.S. Supreme Court rejected a request to hear the legal case that Sarah described. The ruling confirms our long-standing belief that no fraud was committed. We stood strong on our convictions, and justice prevailed. Once the litigation is fully behind us, we will evaluate our strategic options for the Highway Products business and determine the best course of action. This business contributes to our earnings and cash flow and is supported by a strong collaborative team of people. The long-term demand drivers for Highway Products in the U.S. are fundamentally positive.

During 2018, the railcar market in North America recovered at a brisk pace. Railcar fundamentals continue to improve as we progress through the year, increasing demand for leased railcars and new railcar equipment and generating positive momentum. Our commercial services team was highly successful in renewing leases on railcars and assigning idle equipment with our owned and managed fleet.

As utilization of railcars across the industry tightened during 2018, orders for new railcars accelerated. By the end of the year, we have received 123% more orders than in 2017. At the beginning of 2019, the value of our backlog of new railcars was 69% greater than it was at the start of the previous year. The recurring revenue associated with our leasing business and the strong backlog in our manufacturing businesses provides a solid foundation for our 2019 operations. Our earning guidance for 2019 reflects a range of improvement year-over-year of between 64% and 93%.

At this point, I'll provide some high-level comments about the TrinityRail businesses. First, I'd like to say I'm very pleased and honored to be Chairman and CEO of Trinity. The railcar business is very special to me. I've been involved with the railcar industry for more than 40 years. Today, we are well positioned to serve the railcar industry through TrinityRail's integrated platform of products and services. Our vision for TrinityRail is to be the premier provider of railcar products and services in North America. TrinityRail serves a wide range of customers, including those with large railcar orders as well as customers with specialized railcar needs. We continuously search for improvement in growth initiatives to add to our platform that will optimize the ownership and usage of railcars. The TrinityRail integrated platform fills an important role in the North America by providing railcar products and services that facilitate the transportation of both commodities and goods throughout the continent.

Railcars are part of the infrastructure that supports the supply chain and our economy. They transport feedstock for companies and generate revenue for shippers by carrying goods from business to business. Railcars have a long lifespan and provide energy-efficient way of delivering bulk products. We value the contribution railcars pride -- provide to the North American business ecosphere. We think and plan, both short term and long term, with the overriding objectives of serving our customers better and improving our shareholder value and returns. We're constantly monitoring the markets in the industries we compete in. We monitor trends and try to conceptualize what could happen in the future as we search for growth opportunities. At the same time, we strive to use the company's resources in ways that make a positive contribution to our stockholders. We keep in mind the environmental and social impacts of our decisions and strive to protect the natural resources and the environment for the benefit of current and future generations.

We have a number of short-term priorities. As an example, we're in the process of adding leverage -- more leverage to our portfolio of railcars. We want to optimize our balance sheet, so it is more aligned with a typical leasing company. We expect to use the cash that's generated to grow our leasing business, expand our integrated platform of railcar products and services, increase our railcar maintenance capacity and provide returns to shareholders through stock buybacks and dividends. We also have a process in place to optimize our post-spin cost structure. We anticipate we'll be able to reduce operating costs during the next few years. We are also assessing various initiatives that will strengthen the positioning of TrinityRail's platform of products and services within the railcar value chain. We will provide updates on our short-term initiatives as we progress through the year.

Over the longer term, we're continuing to focus on growing our Railcar Leasing and Management Services business. As a point of reference, in the early 2000s, the book value of our wholly owned lease fleet fluctuated between $400 million and $600 million. At the beginning of 2019, the book value of our owned and partially owned fleet was approximately $6.8 billion. In addition, we managed fleets of leased railcars for investors with approximate book value of $2.2 billion, bringing the total of our owned and managed lease fleet to approximately $9 billion. By the end of 2019, we anticipate the value of this fleet will exceed $10 billion. As you can tell, we believe railcars with leases are great investments, and we also place value on managing leased railcars for investors. It's a very exciting time to be part of Trinity Industries.

While our portfolio of businesses has recently changed, our culture, strategies and commitment to excellence remain the same. A number of you have followed Trinity for years and know we have a long track record of attracting high-quality, skilled people to our company. We have a rich history of highly collaborative and flexible employees with unwavering integrity. This year, as we began our fresh start, I'm very pleased with the makeup and the quality of our senior executive leadership team and our Board of Directors. We are enthusiastic about focusing our resources on improving and growing TrinityRail's integrated platform of railcar products and services.

We know railcars. Trinity has been in the railcar manufacturing industry for 50 years, the leasing business for 40 years and a market leader for 30 years. We've delivered more than 0.5 million railcars in the last 3 decades. In my opinion, TrinityRail has a premier platform of railcar products and services supported by an incredible group of employees. I'm confident in our organization's ability to improve and grow in ways that will benefit our customers and increase shareholder value on a going-forward basis.

Now I'll turn it over to Eric, and you will be able -- you will have the opportunity to hear firsthand from some of the key members of the new executive team.

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [5]

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Thank you, Tim, and good morning, everyone. The commercial activity across the TrinityRail platform spans the North American railcar market and includes renewals and assignments of railcars in our lease fleet; secondary market transactions, including sales and purchases of leased railcars; and new railcar orders. Our market view developed in these transactional insights positions the company to respond to customers' rail transportation equipment needs with scale, speed and innovative solutions. This differentiates our business, solidifies our market position and creates value.

2018 was a dynamic year for TrinityRail's commercial team. We're active conducting transactions across our entire platform. Our commercial activity, as defined above, included transactions of 65,000 railcars, which we believe demonstrates the strength and capabilities of our integrated platform.

North American rail traffic volumes maintained their positive trend with year-over-year growth of 3.4% in 2018. Thus far in 2019, the severe weather experienced across much of the country has had a seasonal dampening effect in total carload volumes. We view this as a short-term situation as we believe growth in an array of end markets will continue to drive increasing railcar traffic in the near term.

TrinityRail delivered a solid fourth quarter, achieving strong renewal success and assigning a number of idled railcars, improving the lease fleet utilization from 97.6% to 98.5%. TrinityRail also received 8,045 new railcar orders valued at over $1 billion during the quarter, bringing total orders for the year 2018 to approximately 28,800 railcars with a value of approximately $3.4 billion.

Our railcar lease rates and new railcar orders throughout 2018 experienced sequential improvement in pricing and returns. Our fourth quarter orders were evenly distributed between third-party sales and customers of our wholly owned leasing company. We were very pleased with the mix of railcars ordered in the fourth quarter, which included orders in all 5 of our market groups: agriculture, construction and metals, consumer, energy and refined products and chemicals.

As 2018 came to an end, various geopolitical events, macroeconomic concerns and the federal government shutdown clouded the market outlook in the early stages of 2019. As we mentioned in our press release, this uncertainty and the extended backlog in our industry, have created some hesitation on the part of our customers in placing new railcar orders. The recurring revenue for our lease fleet and our railcar backlog of 30,875 railcars provides us with a great deal of visibility in our 2019 plan and the ability to be selective in pursuing additional orders in our production schedule.

We've observed various opinions among our customers regarding railroad performance related to the impact of precision scheduled railroading or PSR. TrinityRail supports any improvements that enhance the attractiveness of rail transportation, so that, longer term, the amount of freight moving by rail will grow and, thus, increase the need for railcar products and services. We've observed that if PSR is being implemented, network congestion increases as the railroads work through the kinks in the process of optimizing their lines. Train speeds begin to improve over time as the efficiency of the network are realized. While railroads usually reduce the number of railcars available or parked in their lines, this does not necessarily or directly translate into increase in railcars in storage. Instead, this exchange places more onus on the shippers to provide their own railcars, a great opportunity for a leasing company to fill this need.

In closing, our platform provides broad participation across manufacturing, leasing, maintenance and secular markets while serving the full spectrum of end markets. This gives us strategic insight into market conditions. This insight positions TrinityRail to respond quickly and effectively to changes in demand, ultimately delivering strong value to the company, our customers and our shareholders.

TrinityRail is Built to Deliver for all of our stakeholders, and we believe we are well positioned for growth as a result of the renewed concentration following the spin.

I will now turn it over to Brian for his remarks.

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Brian D. Madison, Trinity Industries, Inc. - President of TrinityRail Leasing & Management Services [6]

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Thank you, Eric, and good morning, everyone. It's great to be on today's call.

Before beginning, given the new company profile post spinoff and increased focus on leasing, I thought it'd be helpful to share a few of the terms and their meaning that we will use in our discussion today.

Wholly owned references to portfolio of leased railcars that are entirely owned by TrinityRail.

Partially owned references to portfolio of leased railcars we own in participation with an institutional lender.

Managed is the term we use for the portfolio of railcars owned by institutional investors for whom TrinityRail provides turnkey services. Leveraging our operating capabilities enables them to receive the economic benefits of a full-service operating lease while forgoing the significant infrastructure investment that would be required to be a premier service provider. TrinityRail receives fee income in return for providing these services.

Renewals are leases that, upon reaching the end of their term, remain in service with the prior lessee at a newly negotiated lease rate reflective of the prevailing market at the time of the renewal.

Assignments refers to leases that, upon reaching the end of their term, result in the return of the railcars to TrinityRail and placement with another customer on a new lease at the then prevailing market rate.

Originations are newly manufactured Trinity railcars with an attached lease.

And the term secondary market denotes an alternative sourcing channel for assets made available for purchase by other railcar owners. Examples of other railcar owners would be other leasing companies, banks, institutional investors, industrial shippers, railroads and so on.

Hopefully, defining these terms will provide some added clarity to my commentary today.

Jumping in, let me start off by saying that TrinityRail Leasing and Management Services made significant progress during 2018 in our pursuit of transformative growth of our railcar lease fleet. During 2018, we added more than 10,000 railcars to the wholly owned and partially owned fleet, resulting in a growth rate of 12%. Our fleet now totals more than 120,000 leased railcars that are owned, partially owned or managed by TrinityRail. Clearly, the power of sourcing new railcars from our rail products business is a significant factor in the overall value provided by the integrated rail platform.

At the same time, we added the highest number of railcars ever to our wholly owned fleet through secondary market purchases. As a result of these activities, the combined book value of railcar assets on the leasing company's wholly and partially owned balance sheet, net of depreciation, grew from just under $6 billion as of the beginning of 2018 to $6.8 billion as of the beginning of 2019, an increase of $829 million or 14%.

Over the course of 2018, the leasing company implemented a number of strategic initiatives designed to prepare and scale the business for transformative growth. As a leasing organization, it is incumbent upon us to be strong stewards of our capital and the railcar assets we oversee. With our broad market view across the entire railcar equipment industry, TrinityRail is well positioned to be a prudent and opportunistic buyer of railcars in the secondary market. I'm extremely pleased with the high-quality, well-executed integration plans the team implemented to seamlessly onboard the new customers and the railcar assets acquired.

Other leasing strategic initiatives centered around the economics of the business, improving our returns, driving lease rates higher through value-added services and pricing methodologies and our continued focus on the customer experience with the goal of deepening relationships to increase retention rates. I'm extremely pleased with the team's efforts in all of these areas. Most notably, we have implemented a proprietary customer feedback program to help ensure TrinityRail's service levels are best-in-class. And of course, we continue to innovate and make strides in our ability to leverage new technology and drive continuous improvement through numerous projects across every area of our business, from quoting and managing orders on through to railcar maintenance and regulatory compliance. We also made significant advancements in our ability to service our customers by leveraging technology, providing meaningful access to fleet and railcar data to help enable the optimization of their business.

While our team is solidifying its reputation with their customers daily as premier servicers of railcar assets, I'm particularly pleased with the work of our superior portfolio management team to effectively manage risk exposure by commodity, end market, railcar type and customer concentration. The railcars in the wholly owned, partially owned and managed fleets are diversified across the 5 end markets we highlighted at the Investor Day. And we transport over 900 different commodities, carrying 270 different types of railcars. As a next step to adding greater transparency, you'll see new diversification charge across the 5 defined commercial end markets in the 10-K report that the company will file today. We anticipate providing further detail on various fleet statistics in the company's new investor presentation that will be forthcoming.

As we look to projections for 2019, we see about 13% of the wholly owned and partially owned leased railcar portfolio scheduled to be renewed or assigned. This implies approximately 1/7 of our portfolio rolls over each year that is consistent with the average remaining lease term of 3.5 years at the end of 2018. During 2018, our team achieved a renewal success rate of 75%, reflecting the strength of railcar demand and our ability to meet customer needs. Most of the railcars that did not renew were assigned to other customers on new leases, resulting in a 98.5% utilization rate at year-end. Lease rates for most end markets have continued to improve for both new railcar originations and remarketed railcars. As a result, our forecast for 2019 reflects a modest increase in the average lease rate across the owned and partially owned portfolio. While this increase will positively impact the financial forecast for the year, the expected growth in total segment revenue and profit is primarily attributable to additions to the lease fleet.

At the beginning of 2019, leasing held orders with firm lease contract commitments for approximately $1.6 billion of new railcar assets. This has almost doubled the $829 million backlog of firm lease contract commitments at the beginning of 2018. This growth continues on the path the TrinityRail maintained throughout 2018 and aligns with the transformative growth objective that the company has shared with its investors. Trinity owns, partially owns or manages approximately 120,000 of the 1.7 million railcars in North America. This leaves a huge market that we have yet to tap into, whether as an owner or as a servicer of those railcars. Given this opportunity and the initiatives underway, TrinityRail is well positioned to be the integrated platform for new opportunities to significantly grow and scale the leasing business.

Thank you. I will now turn it over to Paul Mauer for his remarks.

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Paul M. Mauer, Trinity Marine Products, Inc. - Chief Operations Officer of Trinityrail [7]

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Thank you, Brian, and good morning, everyone. I am pleased to provide an update this morning on the Rail Products Group, which now consists of TrinityRail products, TrinityRail maintenance services, Trinity heads and Trinity parts.

TrinityRail products delivered slightly more than 20,000 railcars during 2018, an increase of approximately 9% over 2017. As demand for different railcars shifted and accelerated early in 2018, we implemented initiatives in the third quarter to rebalance our production lines with a goal of enhancing our margins in the fourth quarter. As the fourth quarter progressed, we continued to optimize our production lines, generating operating leverage. The result of this activity was a 32% increase in deliveries and a 57% improvement in margin performance during the fourth quarter.

We expect 2019 to be another growth year, with 22% increase year-over-year in our total railcar deliveries, at the midpoint of our guidance. Our railcar backlog at the beginning of 2019 totaled 30,875 railcars with a value of $3.6 billion, an increase of 69% over the backlog at the beginning of 2018. We expect to deliver just shy of 65% of the backlog in 2019. This implies 80% of our production plan is already sold based on the midpoint of the delivery guidance range. This level of backlog visibility provides an opportunity to more effectively manage our production schedules and create operating leverage with incremental orders.

We are projecting an increase in revenues during 2019 of between 35% and 40% as compared to 2018. We expect operating profit to increase between 72% and 75% for the same time period. This represents an increase of approximately $850 million in revenue and approximately $125 million in operating profit, at the midpoint of our range.

TrinityRail products works alongside Eric and his commercial service team to support their sales efforts. This collaboration helps us effectively position our production lines, turn higher margins on railcar deliveries and lengthen our production runs to generate better efficiencies that ultimately improve our returns.

The Rail Products Group, in collaboration with the Leasing Group, benefits from engaging with customers throughout the railcar life cycle. These interactions contribute value to product design and development and lead to additional opportunities for new products and other product-related services that span the entire life cycle of the railcar asset.

I am pleased to say that our product development team has 4 new products included in the 2019 operating plan, contributing over $250 million in revenue.

TrinityRail products is in the middle of additional rebalancing designed to enhance production during 2019. We are investing more than $30 million to improve the flexibility of our production footprint and support our expected growth. As a result of the rebalancing, deliveries will decrease slightly in the first quarter as compared with the fourth quarter of 2018, albeit at slightly better margins. The deliveries will increase as we move through the year. We expect that increased efficiencies resulting from the rebalancing, combined with delivery of higher-margin railcars, will contribute towards the expected improvements in our operating margin.

During 2018, TrinityRail maintenance services made tremendous strides in improving efficiencies within existing facilities to enhance financial performance and lower repair shop turn times, which we believe to be best-in-class within the railcar industry. Today, our maintenance service business handles roughly 1/3 of the leasing company's maintenance and compliance needs. This includes all tank car modifications for our fleet. Our goal for this business is to increase our current capacity to perform maintenance and compliance requirements in the near term on 1/2 of our owned and managed lease railcar portfolio. We have a team of people evaluating opportunities for investments that will prepare this business for further scale later in 2019 and beyond. By bringing more of this work in-house, TrinityRail expects to lower its overall maintenance cost and positively influence the customer experience.

The Rail Products business segment brings value to the integrated platform and to our customers by delivering premier products through our design, manufacturing, modification and maintenance business. The TrinityRail integrated platform is Built to Deliver, and the business is well positioned to execute against our 2019 operating plan.

I will now turn it over to James for his remarks.

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

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Thank you, Paul, and good morning, everyone.

Let me start out by noting that all the figures provided in our press release and in today's comments have been recast to reflect the composition of Trinity Industries after spinning off Arcosa to our shareholders on November 1. The results related to Arcosa for the period before the spin-off and the majority of the transaction costs associated with the spin-off are now part of our discontinued operations. The Form 10-K that we will file later today will provide you with a great deal of information to help you assess the financial performance of the post-spin Trinity.

I want to thank the hard-working team of people whose effort led to the successful spin-off and in putting together the financial reports for our investors.

In yesterday's earnings release, we announced fourth quarter 2018 revenues of $735 million, up 19% year-over-year, and diluted earnings per share from continuing operations of $0.19 per share. This EPS includes a onetime noncash charge of $0.07 per share related to certain assets under our capital lease.

Our effective tax rate was higher during the fourth quarter as adjustments were made to our tax provision related to the spin-off and loss of certain state tax benefits as well as changes to the treatment of foreign taxes as a result of the Tax Act.

For the full year, Trinity reported revenues of $2.5 billion and diluted EPS from continuing operations of $0.70 per share, which includes the $0.07 per share fourth quarter charge for the capital lease item mentioned previously. These figures compare to 2017's totals of $2.4 billion of revenue and adjusted EPS of $0.79 in 2017, which excludes a onetime $3.06 benefit from the tax law change.

Our leasing business revenues declined slightly year-over-year, mainly as growth in the number of railcars in the lease fleet offset lower lease rates for renewals and assigned railcars. These factors, along with lower profit from the sales of leased railcars and the onetime capital lease charge, had an impact on the leasing segment operating profit declining 21% year-over-year.

As compared to 2017, our Rail Products Group's deliveries of new railcars was 9% higher, 20,105 railcars. And our railcar maintenance revenues more than doubled, resulting in total Rail Products Group revenue growth of 15%.

Our operating profit declined compared to 2017, primarily due to lower margins on railcars delivered as many were priced during a challenging market environment.

During the fourth quarter, we have included in the EPS calculation the mid-November delivery of 12.9 million shares, representing approximately 80% of the shares expected to be purchased under the company's $350 million accelerated share repurchase program. We still expect for the program to be completed during the first quarter of this year at which time the balance of the shares, approximately 2.4 million shares at this time based on the recent stock price, will be delivered to us and further reduce the share count for purposes of calculating Trinity's EPS going forward. At the time the shares are delivered to us, we expect the shares outstanding to be approximately 131 million shares.

At the end of the fourth quarter, the loan-to-value on our wholly owned lease fleet increased to 46.6%. This compares to 33.8% at the end of the third quarter and 25.4% at the end of 2017. This was positive progress toward our 60% to 65% leverage ratio target, which reflects a capital structure more in line with Trinity's business composition post-spin, and it lowers our cost of capital.

Melendy Lovett, our incoming CFO, will handle the guidance remarks for the company. But before that, I'd like to take a moment to thank Tim, the entire Trinity team, our former and current Board of Directors and senior business leaders, our investors, research analysts and financial partners for your support in my role as CFO for the last nearly 9 years and as a member of the Trinity team for over 14 years. It's been a true honor to serve all of you during this time. I look forward to the Trinity team building on the firm foundation that's been laid over many decades of hard work by thousands of dedicated people. The transition to Melendy as the new CFO has been very smooth. I've been pleased to work with her for the last 5 years as a colleague, and wish her the very best in her new role.

I'll now turn the call over to Melendy.

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [9]

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Thank you, James, and good morning, everyone. It is a great honor to transition into the role of CFO for Trinity Industries, and I admire and respect the leadership that James has shown during his time in the role. I've had the privilege to speak with many of you over the past couple of months, and I look forward to working with you all more closely in the days and weeks ahead.

As you've heard from Tim and our team, we are excited about the positive fundamentals we see in our end markets and the opportunities that come along with our renewed concentration of focus on resources on our rail businesses. Our financial guidance reflects the priorities that Trinity provided at our Investor Day in October. Investing in value-created business opportunities that grow the lease fleet, build out our fleet services businesses and enhance our manufacturing and maintenance footprint are important elements of our growth and capital allocation plans.

Another important element of our capital allocation approach is to return capital to shareholders. We plan to accomplish these goals through opportunistically leveraging the balance sheet to finance investments while, at the same time, optimizing the capital structure. As we've mentioned, the company's wholly owned lease fleet loan-to-value target for the intermediate term is 60% to 65%. As we work toward this objective, we expect Trinity's overall cost of capital to decline. The timing of adding leverage to the balance sheet will depend on our investment opportunities, and we are seeing numerous opportunities given recent events in the railcar industry.

As we increase leverage, we're mindful of the need to balance our leverage ratios and debt service, which impact our credit ratings. In yesterday's press release, Trinity provided annual earnings per share from continuing operations guidance of $1.15 to $1.35 for 2019. This equates to a 64% to 93% growth year-over-year, primarily attributed to a higher level of railcar deliveries and growth of the lease fleet. We expect quarterly earnings from continuing operations to increase throughout the year as we continue to add railcars to our lease fleet, ramp up railcar unit deliveries and work through some of our rail manufacturing backlog that was priced in a more challenging market environment.

We expect revenues from operations in the Railcar Leasing and Managed Services Group -- Management Services Group between $770 million and $785 million and operating profit between $310 million and $320 million in 2019. The improvement in revenue and profit is mainly attributable to growth in the lease fleet and modestly improving average lease rate. In addition, we expect proceeds from sales of leased railcars from the fleet to RIV partners and the secondary market of $350 million, some of which will be included in segment revenue once the determination of assets is finalized.

Additionally, in our guidance, we have sales-type leases that are required to be accounted for as sales per the lease accounting rules, and this adds an additional $160 million in revenue. The gain on all of these sales transactions will be attributed to the total leasing segment profit, and our EPS guidance range incorporates these assumptions.

The timing of our leased railcar sales transactions to RIVs in the secondary market can be difficult to predict. For now, we anticipate these sales to primarily occur in the second and fourth quarters of the year. These transactions have become a regular part of our ongoing business activity and reflect normal course similar to other equipment leasing companies. They provide for important diversification and portfolio management of our wholly owned lease fleet and also provide the consistent opportunity to expand our commercial market presence through valued long-term partnerships with railcar investors.

Investing in our lease fleet for transformative growth continues to be a strategic priority for the company. We expect capital expenditures for new lease fleet additions from Rail Products to be approximately $1 billion to $1.2 billion in 2019. We also plan to invest in the lease fleet through secondary market purchases, HM-251 modifications and other capitalized betterments of the lease fleet. When combined with the proceeds from secondary market sales, including sales to RIV partners and other financial institutions, we expect total net lease fleet investment of $1.2 billion to $1.4 billion in 2019. As a result, we forecasted Rail Products and leasing revenue and profit eliminations of $1.4 billion and $160 million, respectively, reflecting the market-based transfer pricing for products and leasing intercompany transactions. We understand that the accounting for this business activity is complex, and we are committed to helping investors and analysts understand the valuation and financial impact through our investor materials and conversations with the investment community. As Brian mentioned, you'll begin to see more detail than we've historically provided about the composition of our lease fleet beginning with the 10-K that we will file later today. We'll continue to provide more information through our future filings and investor presentations with the goal of assisting investors in better understanding and valuing our lease fleet.

Moving to the Rail Products Group. Revenue and operating profit are expected to be $3.1 billion to $3.3 billion with a 9% to 9.5% operating margin. This includes railcar delivery units of 23,500 to 25,500 railcars. Our Rail Products Group margin reflects improving manufacturing efficiencies with higher unit deliveries and the broad demand for our products across end markets.

Our corporate expense guidance ranges from $115 million to $125 million, including elevated litigation-related expenses as we work to close out the follow-on lawsuits resulting from the federal qui tam litigation. The guidance for corporate expenses also includes transition and stranded costs related to the spin-off and separation of Arcosa. We are working diligently to ensure that our corporate expenses are aligned with Trinity's go-forward business model, and we are taking steps to further optimize our expenses and to streamline our operations. And we will update you on our cost optimization progress in future earnings calls.

You have heard us say that 2019 is planned as a growth year for Trinity. Earnings per share is expected to grow between 64% and 93%. 2019 consolidated revenue growth is forecasted at roughly 30% at the midpoint of our guidance. In addition to our planned $1.2 billion to $1.4 billion net lease fleet investment, our manufacturing and corporate capital expenditures forecast is $90 million to $110 million, primarily made up of facility expansions and improvements to meet our product delivery commitments.

We ended the fourth quarter with $179 million of cash and cash equivalents. This is in alignment with our stated goal of operating with a cash balance of between $100 million and $200 million following the spin-off, which means we will be more frequently using our corporate revolver and lease warehouse for short-term cash needs.

New investment opportunities will be funded through the leverage available from our wholly-owned lease fleet as well as our normal cash flows. Our capital structure and financial approach are aimed at moving Trinity in the direction to be seen by investors and the capital and debt markets as more of a leasing company. While a number of transitions are occurring as we become a rail-focused company, Trinity maintains a rich history and strong corporate culture of integration and collaboration. This legacy, combined with our valuable integrated platform of railcar products and services creates a firm foundation on which to continue to drive toward the company's vision of being a premier provider of rail transportation products and services.

We are experiencing positive fundamentals in our markets, and we have a commitment to investing our available capital for transformative growth by utilizing our cash flows and leverage. We have a deeply experienced leadership team with a concentration and focus. We are excited about our growth potential and look forward to sharing our progress with you along the way.

Before we begin the Q&A session, Tim would like to provide a brief comment.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [10]

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Thank you, Melendy. I'd like to take a moment for one last comment.

Our long-time CFO, James Perry, is in the process of transitioning from his role as CFO. James has been Chief Financial Officer for the past 9 years and has been with the company 14 years. I'd like to thank James for his dedication and service to Trinity. He's been an incredible asset, and we all wish him well in his new endeavors as he transitions out of the company. Thank you, James. And I'll now turn it over for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll go first to the line of Allison Poliniak from Wells Fargo.

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Allison Ann Marie Poliniak-Cusic, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst [2]

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So on the secondary market, it sounds like there's a lot of opportunities for you guys there with the concerns about the macro and storage and all the noise that's out there today. And can you talk a little bit about valuations that you're seeing, how they pulled back at all from the peaks? Any color on that, that you can provide?

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

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Sure. Allison, this is Eric. Let me -- there's certainly a number of factors going on. As interest rates have gone up, that by itself would cause valuations to be challenged, but the same time, we're seeing lease rates go up, and so that has a positive impact on valuations. As the markets continue to grow, that has a positive impact. As we participate in the markets, whether we're buying or selling cars, I would characterize the market as still very healthy.

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Allison Ann Marie Poliniak-Cusic, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst [5]

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Great. And then within the lease fleet on maintenance, anything unusual that we should be thinking about for '19 or I guess just maintenance events that are coming that we should be mindful of?

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Brian D. Madison, Trinity Industries, Inc. - President of TrinityRail Leasing & Management Services [6]

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Allison, this is Brian Madison. I would say no. It's pretty much business as usual on the maintenance front for us as we look at it. We continue to actively manage the maintenance and ensure we've got a safe and compliant fleet, but nothing unusual to expect.

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Allison Ann Marie Poliniak-Cusic, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst [7]

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Great. And then just one last question for me. I think, Brian, you had mentioned the modest increase in lease rates expected for this year. Could you kind of give us some perspectives like where we are relative to maybe normalized lease rates for the average of your cars, I'm assuming we're still down from the peak. Any color on that?

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Brian D. Madison, Trinity Industries, Inc. - President of TrinityRail Leasing & Management Services [8]

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Allison, this is Brian again. What I would suggest is that as we look at the market, rates have been improving. And as we'd stated, we see a modest increase. In particular, rates are still coming off of market highs, but they are better than they had been in prior periods. So we feel like we're at a more normalized place and optimistic that we'll continue to see improvement.

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [9]

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Allison, this is Eric. I'll just add that as I mentioned in my prepared remarks, we've seen pricing improve. Both lease rate price and then car pricing improve throughout the year, and that certainly has an impact. It's not -- not all the markets are better. There were some that are down. But generally speaking and on average, they are trending upward, and that certainly has an impact. They're not at the levels that they were in 2014 in some of the markets or in many of the markets. But generally speaking, they're at healthier levels.

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Operator [10]

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We'll go next to the line of Justin Long with Stephens.

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Justin Trennon Long, Stephens Inc., Research Division - MD [11]

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James, best of luck. It's been great working with you.

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James E. Perry, Trinity Industries, Inc. - Former Senior VP & CFO [12]

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Thank you.

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Justin Trennon Long, Stephens Inc., Research Division - MD [13]

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So maybe to start with the guidance and the gains on sale commentary you outlined in the release last night, $350 million from gains on railcar sales. Melendy, I think you mentioned another $160 million of sales. Could you just clarify that the all-in number we should be using is $510 million, first of all? And then also as we look at the potential margin on these sales, is it reasonable to use that 20%-or-so that we've seen historically?

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [14]

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Good morning, Justin. It's Melendy. And yes, your $510 million all-in number is on the right track. That would be the $350 million secondary market purchases and the $160 million sales-type leases that I mentioned in my comments. And with regards to margin expectations on those, I think your 20% is in the ballpark with regards to the secondary market purchases. We're not planning to disclose the details around the margin on the sale-type leases.

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Justin Trennon Long, Stephens Inc., Research Division - MD [15]

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Okay. That helps. And then secondly on the Rail Product Group margins, in the fourth quarter, we were just over 6%. The guidance is for 9% to 9.5% in 2019. Can you help us think about the key drivers to that improvement, whether it's price, mix, something else? And any color you could provide on the cadence, quarterly cadence of those margins throughout the year would be helpful, too.

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [16]

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So Justin, I'll give it a start and then I'll turn it over to Paul for more color, if needed. So the main drivers of our margin improvements are, of course, the increase in production volume that gives us efficiencies as well as improved pricing. We do see that margin building through the 2019 year.

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Paul M. Mauer, Trinity Marine Products, Inc. - Chief Operations Officer of Trinityrail [17]

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And Justin, this is Paul. As I mentioned, we've been working very closely with Eric and his commercial team. And we've been able to benefit from some long runs that we have in place now as we look into 2019, and we planned on efficiency gains in our 2019 performance and that's reflected in our numbers. And as Melendy said, that will be building out throughout the year.

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [18]

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And Justin, I want to be sure that I answered your question correctly on the sales. It's $350 million of secondary market sales and then the $160 million sale-type leases is on top of that.

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Justin Trennon Long, Stephens Inc., Research Division - MD [19]

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Okay. Great. That's good to clarify. And then lastly on the share count, I think you mentioned it would be around 131 million pro forma for the ASR. Is that roughly what you're assuming in the 2019 guidance? Or could you comment on additional buybacks getting factored into the outlook?

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [20]

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You do have the 131 million shares outstanding that we forecast based on the completion of the accelerated share repurchase. And at this point in time, we're not providing further commentary around potential share repurchases for the balance of the year. I'll remind you that the accelerated share repurchase uses up the complete share repurchase that we had authorized, and so our board will need to revisit that. And our normal practice would be to put a share repurchase plan in place. And of course, the -- we've got this mapped into -- we've got this planned into the guidance that we provided you.

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Operator [21]

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We'll go next to the line of Bascome Majors with Susquehanna.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [22]

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Yes. Brian, since the lease portfolio returns can be a bit noisy for us to decipher through the intercompany accounting, can you guys share a clean number of what returns on assets and returns on equity TrinityRail are to the wholly-owned lease portfolio in 2018? And maybe extending that to 2019, this $1 billion-plus in railcars you plan to add to the fleet, do you think that's accretive or dilutive to the returns you earned last year?

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [23]

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Bascome, it's Melendy. I appreciate your question and we're not prepared to answer it directly today. But what I will tell you is that, as I mentioned and as Brian mentioned, we're going to be providing further disclosures on the fleet as we move through the year through our investor presentations and our future filings. So again, appreciate the question, and we look forward to discussing it with you further as we move through the year.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [24]

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Understood. Should we expect to see a target range or an optimal range or even kind of a cyclical band of returns that you expect around the fleet at different points in the cycle? Just trying to set investor expectations.

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [25]

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Yes. I really can't comment on it further except to say that we'll be providing you with more return metrics than we do now, and we'll carry you through that as we progress through the year.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [26]

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Understood. And one for Tim here. You've literally spent your entire life involved with Trinity. You just steered the company through one of the biggest changes in its history. I appreciate the prepared remarks discussing to bench strength of the company, but when James officially departs in the coming days here, your 3 top guys from 18 months ago are no longer going to be with Trinity. So can you share your thought and the board's thought on the strategy and time line for transitioning the leadership to the next generation of management? Any other thoughts you'd like to add about the bench and internal, external candidates, kind of how that process should evolve and investor should expect it to over the next few years?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [27]

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Sure. Over my career with being with the company, we've had numerous positions at a variety of executive levels that we've been able to replace with internal candidates, and so we have a fairly rigorous process of people that are moving through the company. And right now, we have multiple levels of generations of people that are playing key roles in the company. And we've been very successful filling jobs with outside candidates as well as filling jobs with internal candidates. We tend to attract people that fit in our culture. And once they're engaged in the culture, they take on projects. As an example, when James first came to the company, he took special projects for about 1 year to 1.5 years, and then James took the role of Treasurer and played in that role -- and participated in that role for 3, 4 years -- 3 or 4 years. And then when we felt like it was time for Bill McWhirter, who was in that role before, to get some business unit experience, Bill went to the business unit experience, and James moved into the CFO role. But that is -- and Bill had joined the company prior to that as originally as an accountant and moved through a variety of roles. So we try to give our people as much exposure as they can to the various businesses. Now that we have a concentration of focus on the businesses that we have in our portfolio, will -- these will be a little bit easier because it's more specialized, what's there. As you see, we've got a broader group of people now participating in the conference call, and that was an attempt to let the investment community know that we have strength and to provide better transparency and let you have a chance to talk to the people who are walking the talk, so to speak. So I don't really have any concerns about succession in our company.

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Bascome Majors, Susquehanna Financial Group, LLLP, Research Division - Research Analyst [28]

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Understood. And we appreciate the exposure to a much broader set of managers at the company and I hope you guys will continue that. Can you speak more specifically to the time line and the board's thought process on succession? I mean, is it -- anything you can add to that so investors can have a little visibility about the management of the company over the next 3 to 5 years would be helpful.

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

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Absolutely. We have a succession planning process, and we have a person in our company who heads that up. She's the Vice President of our organizational development, and we chart all of our key positions and she reviews those with the board on a periodic basis and then the boards give their thoughts and opinions, and we take succession at the -- planning at the board level very important. And there's been quite a bit of conversations with the board members that are our current board members that have been with us for the last several years, and then we've already had conversations and plan on having more conversations with the new board members that we have.

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Operator [30]

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We'll go next to the line of Gordon Johnson with Vertical Group.

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Gordon Lee Johnson, The Vertical Trading Group, LLC, Research Division - MD & Analyst [31]

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I guess some more broad-based question. When we think about this year -- I guess, a 2-part question. To the upside, can you guys talk about what some of the puts and takes are that could potentially push fundamentals for you guys higher? And then when we look at, I guess, the current state of affairs, when I look at, like, the Baltic Dry Index and I look at your stock price and how they've tracked and how the Baltic Dry Index has been weak. And I look at things like the Fed loan officer opinion survey, which is suggesting or indicating we potentially may be headed to recession. Can you talk about maybe some of the potential downside factors that you see out there and how you guys plan to navigate those?

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [32]

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Thanks for your question, Gordon. And I'll get started and then invite Eric to comment further. So certainly, we have opportunity to improve from a top line perspective as we see pricing improve throughout the year, and we're also, as Brian mentioned, we've got 13% of our fleet that's renewing this year. We have an opportunity to improve our forecast based on how those renewals turn out as well. I mentioned in my prepared comments that we're continuing to optimize costs, and that includes Paul's work on utilization and efficiencies in manufacturing. We're also looking to rely more on ourselves for our maintenance services business and reduce our corporate -- better manage -- better optimize our corporate costs as well. So those are kind of the upside opportunities. We feel relatively good about the downside on it because we've got 80% of our manufacturing backlog firm at this time, which Paul mentioned. And then 13% of the lease fleet renewing in 2019. That gives us good visibility to our forecasted plan for 2019. Certainly, the company is a GDP -- North America GDP company. So in the event that -- to the extent that, that changes, we could certainly see impact. Eric, do you have further comments?

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [33]

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Sure, Melendy. Gordon, let me add, the gist of your question is picked up in a lot of our prepared comments that we are seeing different factors in the market. But underlying all of that, we do see economic growth this year albeit at a lower rate of growth than we saw in 2018, and we expect railcar loadings to continue the positive trend, they may not -- albeit at a lower rate than perhaps in 2018 as well. So we're prepared for that. To the upside, obviously, if the economic activity continues, we would expect to see lease rates and pricing on existing and new railcars to continue their positive momentum, and that will -- that would enhance the profitability of what's yet to be sold and on our expirations as they expire. The downside, as Melendy said, there's -- we feel very good about our plans for 2019.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [34]

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This is Tim responding. I'll talk about the downside challenges that we have. Paul and his team have a full plate this year with new products coming out of the production lines as well as the rebalancing in the capital programs that he has, and it's always difficult for us to predict and project the level of operating leverage that we may achieve. And the group has historically surprised me and -- but at the same time, there is a very dynamic environment occurring in our railcar manufacturing environment.

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Operator [35]

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We'll go next to Matt Elkott from Cowen.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [36]

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I want to get back to the manufacturing margin question. So over the last couple of quarters, we've seen an uptick in tank car orders. So I think it would be reasonable to think that tank cars, at least in the back half of this year, the production and deliveries of tank car should go up. And I think, Melendy, you mentioned that overall railcar pricing have improved, and then we have a significant increase in production in 2019, and your margin guidance is 9.5% at the high end. The last time you guys did what you expected to do in production this year was in 2013, and the margin was 17%. So given all these favorable dynamics this year, I -- just -- I'm thinking what is putting a lid on the margin improvement potential?

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [37]

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Yes. Go ahead, Tim.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [38]

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This is Tim. Let me comment one quick thing. When you go back to the last time that we had a surge in tank cars and the profitability that was related to the shipment of oil and crude and pricing on those cars moved rapidly in a positive direction. And the orders, Eric, that you received last year were not to support one particular commodity. Talk about that a little bit.

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [39]

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That's right. Matt, what we've seen is -- as we mentioned, we've seen more broad-based demand across all of our market segments versus in 2014, it was concentrated. Now -- that I think fundamentally in 2014, the value of a railcar with earlier delivery was much greater than it is today, and that's simply because of the spread that people are able to make. They value that early delivery, and we were able to price it in. Today, you have numerous factors including replacement of cars into the -- from the 111 standard to the 117 standard, and it's just not -- there's not the spread in the underlying commodities or the value of earlier delivery and the broad-based nature of it, it's just -- we don't have the pricing power that we did in 2014.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [40]

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I see. I mean, I was referring to 2013 actually. 2013 was when you did 24,335, which is around the midpoint of the guidance range for 2019 and the margin then was 17%. I didn't think 2013 was a big tank car delivery year. I think 2014 and 2015 must have been, no?

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [41]

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It was all -- the years blend together a little bit, in fairness. But yes, in '13, you had -- it started the ramp up into -- it started then...

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [42]

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And we made space available in '13 right at the end of the year that really made a big difference, as I recall.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [43]

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Okay. But you guys wouldn't be shocked if you exceeded the margin targets this year?

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

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I'd love to be shocked.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [45]

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Okay. All right. That's fair enough. I have one more question, more strategic in nature about the lease fleet. So everybody was doing the math when you guys first announced the LTV, the new LTV targets last year. And ballpark, it was $1.5 billion of new debt capital raised. But as you guys start to execute on this strategy and you get the benefit of accretion from the new railcars, there's kind of a multiplier effect. So potentially, you could raise a lot more capital over the longer term. So my question is are you targeting an optimal fleet size? Or do you have any specific goals? Do you want to be the largest lessor in North America, for instance?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [46]

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This is Tim. We don't have a specific goal and target other than we are going to be aggressively growing the leasing business as best we can. And as Brian said, he has put a lot of the systems and the processes in place that gives us the flexibility to be able to respond to opportunities that are out there. And Brian, you've been with the company?

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Brian D. Madison, Trinity Industries, Inc. - President of TrinityRail Leasing & Management Services [47]

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Just under 3 years.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [48]

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Under 3 years. And the first year he arrived, one of the things that we asked him to focus on is making sure that we had the ability to scale the leasing business, and that's why he's giving a report that he's so pleased that that's been a lot of his initiative that he's had in place has positioned us to where we have the confidence that we have the structure to support aggressive growth. And so we love the Railcar Leasing business, and we will continue to place a priority on growing it, as I said in my prepared remarks.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [49]

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Okay. And do you guys have a preference -- if all things equal, do you have a preference on whether to go after existing fleets with leases attached or to grow the lease fleet from your manufacturing operation? I know your profit elimination guidance was pretty sizable, so that implies that you're giving yourself the option to grow from within but would you -- do you have a preference on whether to grow it from the manufacturing business or go after existing fleets through -- in the secondary market?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [50]

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The simple answer is yes. We like both of them and we'll pursue both of them when the opportunities are there. And as Brian said, we've got 120,000 cars in our owned and managed fleet now, and there's 1.7 million cars in the fleet. And so there's a pretty good size space of opportunity there for us.

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [51]

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Matt, this is Eric. Let me just add one further picking on your words a little bit. You mentioned existing railcars on lease. The railcars we purchased in the secondary market don't necessarily have to be on lease. Many of the cars we bought in 2018 did not have a lease attached to them, and that's where we think our platform can create value by buying assets at attractive prices and put it in our system and market them and creating value. So it's any of those we see opportunities, we will -- we're prepared to act on.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [52]

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Okay. And then quickly on just the overall market demand front, you mentioned that lease rates have been trending in the right direction, and inquiries for new railcars are still solid, but they're not translating into orders at the same rate as last year. Have you guys received any orders this year?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [53]

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Eric?

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [54]

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I don't think I'd be on the call if we had no orders. So yes, we have received orders, and it's just coming off of an 8,000-car quarter, and we're halfway through this quarter. So we -- our comments were measured in that regard. But yes, we are still receiving business. Inquiries are still at healthy levels, and we expect more orders to come.

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Matthew Youssef Elkott, Cowen and Company, LLC, Research Division - VP [55]

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Is there any more specificity you can give us on the drop-off in the inquiry to order translation ratio if there is such a thing? I think I just made it up.

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [56]

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If you made it up, I can't answer it. No. No more color on that.

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Operator [57]

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We'll go next to the line of Matt Brooklier from Buckingham Research.

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Matthew Stevenson Brooklier, The Buckingham Research Group Incorporated - Analyst [58]

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Sort of a follow-up question on PSR. I think that there was some commentary shared that, potentially, it could create an opportunity maybe with shippers as cars are put onto the shippers responsibility and therefore, maybe they would look to lease cars and choose not to manage them. So I guess what my question is, I wanted a little bit more detail in terms of kind of how that process works if you do think it is a real potential benefit. And then on the flip side, if there are any challenges that you foresee over the next 12 to 24 months with -- a number of rails going through this PSR initiatives. Maybe you could talk to some of those potential challenges as well.

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

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Sure, Matt. This is Eric. I'll take a shot at that. In terms of the rotation that we talked about, we've seen a number of railroads -- railroad supply equipment for certain markets. And as they implemented PSR, there's -- you certainly hear a lot of the headlines in moving railcars off of their system or reducing the number of railcars on their lines, and that comes in a lot of different forms. One of which is that we've seen and heard from our customers is railroads that used to supply equipment for certain markets now have put that burden on their shippers. And so that may mean an example of a railroad may have existing cars and they may try and sell them to a shipper or sell them to a leasing company and those cars still stay in the service, in the same service, but the ownership changes or the shipper may have to go out and get other cars elsewhere as the railroads decide not to supply that equipment. So that's some of the things we're seeing there. In terms of over the next 2 years or over the next 12 to 24 months, all the railroads are implemented at different paces. There's not one standard implementation on PSR. I think what we said in the prepared remarks is accurate in that this should free up capacity and allow the railroads to grow. And if they grow it makes rail -- the rail mode of transportation more competitive versus other modes of moving bulk goods, then it will be very good for our industry long term. There'll be -- yes, there's going to be a lot of noise between now and then to get there. But PSR should -- who's to argue about a business being -- becoming more efficient?

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Matthew Stevenson Brooklier, The Buckingham Research Group Incorporated - Analyst [60]

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Okay. That's great color. And I'd assume if the rails are looking to sell some cars into the market that Trinity would be potentially interested in vetting those cars for a potential purchase.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [61]

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That's a good assumption, and we have -- we purchased railcars in that manner, as Brian described the secondary market earlier.

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Matthew Stevenson Brooklier, The Buckingham Research Group Incorporated - Analyst [62]

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Okay. Great. And then just one final one, you talked to targeting doing 50% of the maintenance on your lease fleets in-house. I think it's currently at, like, a 33% number. Could you talk to the time frame in terms of getting to that 50% target? And then what's the delta in terms of the potential cost savings if you do, in fact, get there?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [63]

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Paul?

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Paul M. Mauer, Trinity Marine Products, Inc. - Chief Operations Officer of Trinityrail [64]

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Yes, this is Paul. We don't have necessarily a time frame targeted. As I mentioned, we have teams that are looking at the opportunity right now, and -- but we do think that if you try to peg a time, it will be somewhere in the next 1 to 2 years that we'd be looking at to get up to that 50% number.

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [65]

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And as far as the cost savings go, we, of course, would keep that margin internally as opposed to paying an outsourced provider for it. But we also can turn our cars more quickly in our own shops, and that helps us get the car back on lease more quickly instead of it being on abatement.

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Operator [66]

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And we'll go next to the line of Steve Barger from KeyBanc Capital Markets.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [67]

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James, first of all, thanks for all the help over the years and best of luck.

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James E. Perry, Trinity Industries, Inc. - Former Senior VP & CFO [68]

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Thanks, Steve.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [69]

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Just thinking about the comments on the leasing and management market opportunity for the 1.6 million railcars that you don't touch right now. Obviously, really competitive out there. Just any more detail you can give us on how your business model is differentiated versus competitors or how your go-to-market strategy will change to allow for share gains that you haven't gotten in the past?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [70]

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Eric, you want to talk about that, and I'll just fill in?

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [71]

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Steve, this is Eric. When I -- when we talk about our differentiated model, first of all, obviously it's the integrated model, being the large leasing company, the large products company in our growing maintenance business, we think, one, that gives us views of the market that we can respond to quickly. Two, we think, from a differentiation standpoint service, we think we can differentiate on service and ease of doing business being responsive. And whether it's that we just talked about in the previous question, keeping more of that maintenance business in-house improves our service profile, improves our out-of-service times, our customers have their railcars for longer times. And then on the other part of the differentiation is our product differentiation. We're the premier builder of railcar products. We are -- Paul mentioned, the new products that we've brought on line this year, we're going to continue to offer new products, and we're looking to offer products in the marketplace that our rail customers value, and that should allow us to grow.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [72]

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Yes. And this is Tim. The way I look at it, the connection between our leasing business and then all of our manufacturing and service businesses is one that is very unique. There's not many manufacturers of heavy equipment that end up being engaged with their equipment for the life cycle of the equipment. And then can feed all that data back into your system and then improve the next generation of the equipment based on the feedback that you get. And that's what our leasing company does for us is it connects the loop really finely between all of the manufacturing and service businesses right back through the entire life cycle of the railcar. And when a railcar has a 35- to 50-year life cycle, it becomes a long-term relationship, and you achieve better designs and better manufacturing and better maintenance and better parts selections and a lot of that. So the platform we have is very robust, and then you couple that with the integrated aspect that we have with the collaboration that occurs in our company, and there's constantly people talking about positive ways that they can enrich the services and the value propositions that we offer our customers that ultimately will get translated into shareholder value.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [73]

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Understood. That's good detail. And then just maybe a related follow-up on your PSR comments. When a railroad is implementing the program, over what time period does congestion increase typically before train speeds start to increase? And do you think PSR initiatives from the Class Is will actually be a benefit to you in 2019?

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [74]

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I think as far as timing -- this is Tim. As far as timing with PSR, you're going to have to talk to the railroads. They keep that type of data and statistics. It's not something we have a way of really measuring.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [75]

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Okay. Well, I think there was a comment about shippers understanding that the onus will shift to them over time. And I guess, do they fully understand that? And do you think that's actually driven lease fleet orders to you so far in 2018?

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Eric R. Marchetto, Trinity Industries, Inc. - Executive VP & Chief Commercial Officer of TrinityRail [76]

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No, I do not think it's driven additional orders to us yet in a material way. I do think that it will take time for all that to shift -- ship -- work its way through the system. Right now, PSR, as we talk to customers, we get various responses in terms of whether it's good or bad. I think, overall, that creates some uncertainty as customers look to change the size of their fleet or at least add cars to the fleet because there's a wait and see of what -- when train speeds do increase. If I'm not shipping any more product, it will result in lower cars. If the modes of transportation -- and shippers have choices not just from a rail standpoint, they have other modes of transportation, so that all goes into the account. But long term, we view it as a favorable trend for the industry.

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Timothy R. Wallace, Trinity Industries, Inc. - Chairman, President & CEO [77]

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Yes, this is Tim again. I view PSR as kind of a cousin to lean manufacturing, and companies across the globe for years have been implementing lean manufacturing. And ultimately, they become more competitive, and they increase their market share, and it's better for the manufacturing company. And that's the same type of approach that PSR is going in and saying, "How can we eliminate duplication and waste? And let's look at what we're doing and how can we do it better?" So what Eric says is once we achieve something in lean manufacturing and we become -- we reduce our cost and eliminate waste, then that makes us more competitive, and we can go out and obtain more business. And that's the same type of methodology that we think will -- that happens to the railroads.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [78]

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Okay. Got it. And then just one last modeling question for Melendy. If you think about the $225 million in interest expense guidance, how do you expect that to ramp through the year? Or if you get to your hoped-for leverage level what would the quarterly run rate be as you exit 4Q '19?

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [79]

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We aren't prepared at this point to offer any commentary there. That number, the interest rate expense, is indicative of our leverage plans as we work toward getting to our 60% to 65% LTV ratio.

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Robert Stephen Barger, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [80]

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So it does ramp through the year then, but you don't have a point estimate for 4Q?

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Melendy E. Lovett, Trinity Industries, Inc. - Senior VP & CFO [81]

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Correct. It's going -- remember that our borrowing will be dependent on our opportunities. And so the timing of that interest expense actually ramping up will depend on the timing of us getting the debt and allocating it based on the opportunities.

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Operator [82]

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And we have no further questions at this time.

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Jessica L. Greiner, Trinity Industries, Inc. - VP of IR & Communications [83]

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Thank you, Erica. That concludes today's conference call. A replay of today's call will be available after 1:00 Eastern standard time through midnight on March 1, 2019. The access number is (402) 220-0464. The replay will also be available under the Events and Presentations page on our website located at www.trin.net. We look forward to visiting you -- with you again on our next conference call. Thank you for joining us this morning.

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Operator [84]

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We'd like to thank everybody for their participation, please feel free to disconnect your phone line at any time.