FreightCar America executives were upbeat about the market environment for new rail cars despite macroeconomic uncertainties, based on their comments during Tuesday’s third-quarter 2022 earnings call with transportation analysts.
“The rail car environment is more positive than not,” FreightCar America President and CEO Jim Meyer said. “The more positive aspect comes from both what we are seeing in terms of industry fundamentals and sales and queries. Our caution [is] as it relates to overall macroeconomic uncertainties, including high inflation and persistent supply chain challenges.”
Those positive signals include industry orders in Q3 that were consistent with the industry’s demand cycle to replace rail cars, customer feedback hinting of strong utilization rates for leased rail cars and high scrap prices, according to FreightCar America Chief Commercial Officer Matt Tonn. Even though scrap prices have fallen from their peak in March, rail car scrapping has been outpacing rail car deliveries for nearly three years, Tonn said.
Customers also appear to be focused on replacing their aging rail cars, Tonn said.
“Our sales funnel includes a diverse mix of new and existing customers whose needs for rail cars are well matched to FreightCar America’s product portfolio,” Tonn said.
Meyer noted that the rail car manufacturer’s new fabrication shop is now complete and will come online in the third quarter. The company also wrapped up the expansion of its wheel-and-axle shop, which boasts industry certification that will enable FreightCar America to manufacture axles in-house.
The third production line at FreightCar America’s Castanos facility in Mexico has started up, with a fourth production line slated to begin in the first half of 2023.
“These additions will bring meaningful efficiencies, in addition to the benefits from further scaling and producing more units,” Meyer said.
Q3 2022 financial results
FreightCar America sustained a net loss of $17.8 million, or a loss of 69 cents per diluted share, in Q3 2022, compared with net income of $731 million, or 3 cents per diluted share, in Q3 2021.
On an adjusted basis, the company saw a net loss of $5.4 million, or a loss of 21 cents per diluted share, according to a Monday announcement.
Despite the year-over-year loss, third-quarter revenues were 47.1% to $85.7 million. Deliveries in Q3 were up 55%, totaling 783 rail cars.
Meyer attributed the quarter’s “muted” results to a legacy order that resulted in a lower margin as well as elevated costs.
“These items put downward pressure on our profitability and dampened our gross margin, which had been double digits during the prior two quarters,” Meyer said. “We expect these legacy orders to be completed before year-end and for our margin profile to strengthen beginning in the fourth quarter. … We are actively exploring alternative freight strategies with a goal to reduce these costs.”
Manufacturing operating income was $3.1 million, compared with $163,000 in the third quarter of 2021.
“Looking ahead, we will continue to be prudent and realistic about the potential impacts of a softening market and continued supply chain headwinds,” he said. “However, as our plans continue to come to fruition, we expect to be able to capitalize on the next round of the rail car market upswing more.”