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Gatx (GATX) Down 3.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Gatx (GATX). Shares have lost about 3.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Gatx due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

GATX Q2 Earnings Top Estimates

GATX's second-quarter 2021 earnings (excluding $1.20 from non-recurring items) of $1.35 per share surpassed the Zacks Consensus Estimate of $1.01. The bottom line improved 28.6% year over year, primarily on higher profitability in the Rail North America and Rail international segments.

Adding to this positivity, management lifted its earnings per share guidance for 2021. Improvement in the railcar leasing market in North America was the primary reason behind the guidance hike. Management now expects current-year earnings per share in the $4.30-$4.50 range (earlier view: $4-$4.30). The earnings beat and the raised guidance seemed to please investors. 

Coming back to the June-quarter results, revenues of $317.1 million were higher than the year-ago figure of $300.5 million, mainly owing to the 6.8% rise in lease revenues to $287. 6 million. Lease revenues contributed 90.7% to the top line. Marine operating revenues contributed 1.6% to the top line. The balance came from other sources. Total expenses (on a reported basis) inched up 4.6% to $243 million.

Other Details

Profits in the Rail North America segment improved to $77.6 million in the second quarter from the prior-year quarter’s level of $50 million. The upside was primarily led by higher gains on asset dispositions, which indicates a robust secondary market for railcar sales. The renewal lease rate change of the company’s Lease Price Index (LPI) was -6.7% in the reported quarter against the year-ago quarter’s 28%. Average lease renewal term for cars included in the LPI was 29 months compared with 31 months in the year-ago quarter.

In fact, Rail North America’s wholly-owned fleet had approximately 114,800 rail cars at the end of Jun 30, 2021. Fleet utilization was 98.5% compared with 98.7% at the end of second-quarter 2020.

In the Rail International segment, profits rose to $27.3 million in the second quarter from the prior-year quarter’s level of $20 million. Results were driven by more railcars on lease as well as a favorable impact from foreign currency exchange rates.

GATX Rail Europe’s fleet totaled 26,700 rail cars at the end of the quarter. Fleet utilization of 98.4% was flat year over year.

The Portfolio Management unit reported a segmental profit of $12.2 million in the June quarter compared with the segmental profit of $19.3 million in second-quarter 2020. This deterioration was primarily due to lower lease revenues and weak remarketing income at the Rolls-Royce and Partners Finance affiliates.

Liquidity

GATX exited the second quarter with cash and cash equivalents of $417.9 million compared with $292.2 million at the end of 2020.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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