A month has gone by since the last earnings report for Trinity Industries (TRN). Shares have lost about 6.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Trinity Industries 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 catalysts.
Earnings Miss at Trinity in Q2
Trinity Industries’ second-quarter 2019 adjusted earnings of 29 cents per share fell short of the Zacks Consensus Estimate by 2 cents. The bottom line also declined significantly on a year-over-year basis mainly due to loss from discontinued operations. Total revenues came in at $736 million, which surpassed the Zacks Consensus Estimate of $695.2 million.
Until third-quarter 2018, Trinity reported through five segments — Rail Group, Construction Products Group, Inland Barge Group, Energy Equipment Group and Railcar Leasing and Management Services Group. Post the completion of a spin-off transaction with its infrastructure-related businesses — Acrosa — on Nov 1, 2018, the company primarily reports through three segments — Railcar Leasing and Management Services Group, Rail Products Group and All Other Group.
The Railcar Leasing and Management Services Group generated revenues of $277.1 million, up 29.9% year over year. Segmental operating profit came in at $104.8 million, up 14.2% year over year. The upside was driven by lease fleet growth and higher volume of railcars sold. Moreover, the company’s lease fleet came in at 102,140 units as of Jun 30, 2019. The fleet size grew 9% compared with the figure at the end of second-quarter 2018.
Revenues at the Rail Products Group (before eliminations) totaled $712.3 million, up 26% from the prior-year quarter’s tally. Segmental operating profit came in at $68 million, up 40.2% from the year-ago quarter’s figure. Operating profit improved primarily due to favorable railcar pricing and product mix changes. Notably, the group delivered 5,255 railcars and received orders for 2,105 railcars compared with 5,105 and 8,320 in the year-ago quarter, respectively.
Revenues at the All Other Group grossed $88.5 million, down 4% year over year. The decline was due to sluggish demand and lower shipping volumes in Trinity’s highway products operations. Segmental operating profit came in at $6.2 million, down 50% year over year. Profit was halved mainly due to higher selling, engineering, and administrative expenses.
The company exited the second quarter with cash and cash equivalents of $102.8 million compared with $179.2 million at the end of 2018. Meanwhile, debt totaled $4,615.9 million as of Jun 30, 2019, compared with $4,029.2 million at 2018 end. During the second quarter, Trinity repurchased 2.1 million shares for approximately $44 million.
For 2019, Trinity still anticipates earnings per share of $1.15-$1.35. Additionally, Leasing and Management revenues are estimated in the range of $760-$775 million, while operating profit for the segment is projected between $320 million and $330 million.
Meanwhile, Rail Products Group revenues are expected in the band of $3-$3.2 billion. Operating margin for the segment is estimated in the range of 9-9.5%. Railcar deliveries for the year are now envisioned in the 23,000-24,500 range (previous guidance: 23,500-25,500). Further, operating profit at the All Other Group is anticipated in the $15-$20 million range.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted 10% due to these changes.
Currently, Trinity Industries has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Trinity Industries has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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