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Why Shares of Greenbrier Derailed on Tuesday

Lou Whiteman, The Motley Fool

What happened

Shares of the Greenbrier Companies (NYSE: GBX) fell more than 11% on Tuesday morning after the railcar manufacturer reported quarterly results that missed expectations and lowered its outlook for the current quarter.

So what

Before markets opened on Tuesday, Greenbrier reported fiscal third-quarter adjusted earnings of $0.89 per share on revenue of $856.15 million, falling short of the consensus expectation for $0.95 per share in earnings on revenue of $862 million.

The company, in a statement, blamed the miss on issues with its international divisions, saying Greenbrier's Brazil operations "are being right-sized for the current demand environment" ahead of an expected pickup in orders starting in 2020. Europe has also been slower than expected.

Rail tanker cars lined up on the track.

Image source: Getty Images.

Management has a lot on its plate right now as it begins planning for its proposed $400 million acquisition of rival American Railcar Industries. The transaction, which would combine the second- and third-largest North American railcar producers, would give the combination better economies of scale and a more diversified product portfolio and geographic footprint.

The benefits of the deal will take time to materialize. Greenbrier warned it expects fiscal fourth-quarter earnings of between $1.30 and $1.50 per share on revenue of $1 billion, short of current expectations for $1.89 per share in earnings on revenue of $1.1 billion.

Now what

This was not a great quarter, but the reaction seems overdone. Greenbrier recorded orders for 6,500 units in the quarter, one of the better quarters for orders in recent memories. And gross margin in the quarter, at 12.4%, was up from 8.2% from the quarter prior. Greenbrier ended the quarter with a backlog of 26,100 units valued at $2.7 billion.

Management is expecting a turnaround in both Europe and Brazil heading into 2020, which should help boost earnings if it materializes and bridge the gap before North American efficiencies from the American Railcar Industries deal kick in.

Shares of Greenbrier have now lost 48% over the past 12 months. The company appears to be on the right track, but it's going to take more than another quarter to reach its destination.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.