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Why Is Gatx (GATX) Down 2.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Gatx (GATX). Shares have lost about 2.8% 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 catalysts.

Earnings Beat at GATX in Q4

GATX Corporation’s fourth-quarter 2019 earnings per share (excluding 23 cents from non-recurring items) came in at $1.36 per share, surpassing the Zacks Consensus Estimate by 35 cents. Moreover, the bottom line surged 61.9% year over year. Earnings growth was aided by lower marine operating expenses.

Meanwhile, total revenues improved year over year, albeit marginally, to $356.7 million in the final quarter of 2019. Total expenses (on a reported basis) rose 3.6% to $286.7 million in the quarter.

Segmental Results

Profits in the Rail North America segment decreased to $61.1 million from the prior year’s $66.6 million. This downside mainly resulted from the 1.9% decline in segmental lease revenues to $214 million. The renewal lease rate change of the company’s Lease Price Index (LPI) was -9.1% in the reported quarter compared with the previous year’s -0.9%. Additionally, average lease renewal term for cars included in the LPI was 37 months compared with 43 months in the year-ago quarter.

In fact, Rail North America’s wholly-owned fleet had approximately 118,000 rail cars at the end of 2019. Fleet utilization was 99.3% compared with 99.4% at the end of 2018.

In the Rail International segment, profits increased 42.2% year over year to $22.9 million. Segmental profits were boosted by a 9.3% increase in lease revenues to $57.5 million.

Moreover, GATX Rail Europe’s fleet totaled 24,600 rail cars at the end of the year. Fleet utilization was 99.3% compared with 98.8% witnessed at the end of 2018.

In the Portfolio Management unit, profits climbed significantly year over year to $27.5 million, driven by the Rolls-Royce and Partner Finance affiliates’ buoyant performance. In addition, the American Steamship segment's profit jumped 57.7% to $19.4 million in the December-end quarter.

GATX Paints Rosy Picture for Rail International Unit in 2020

With factors like market oversupply of railcars, sluggish carload volumes and higher railroad velocity expected to prevail through 2020, in turn hurting lease rates, GATX anticipates profits at its Rail North America unit to decline. In fact, GATX expects average lease rate on lease renewals to be lower in 2020 than the average expiring lease rate, thereby eroding the segment’s profitability. However, the Rail International unit’s profits are projected to increase backed by robust demand for new and existing railcars in Europe and India.

Additionally, the company’s Portfolio Management unit is expected to generate higher profit in the ongoing year supported by the Rolls-Royce and Partners Finance affiliates. However, the American Steamship segment's profit is likely to decline marginally in the ongoing year thanks to lower tonnage.

Management anticipates 2020 earnings per share in the $5.50-$5.80 range.

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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