GATX Corporation

Hello and welcome to the GATX 2023 second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. I will now turn the conference over to Sherry Hellerman, Head of Investor Relations. Please go ahead.

Thank you, Sarah. Good morning. And thank you for joining GATX's 2023 Second Quarter Earnings Call. I'm joined today by Bob Lyons, President and CEO, Tom Ellman, Executive Vice President and CFO, and Paul Titterton, Executive Vice President and President of Rail North America. Please note that some of the information you'll hear during our discussion today will consist of four looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10-K for 2022 and in our other filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Earlier today, GATX reported 2023 second quarter net income of $63.3 million, or $1.74 per diluted share. This compares to 2022 second quarter net income of $2.6 million, or $0.07 per diluted share. The 2023 second quarter results include a net positive impact of $0.2 million, or $0.01 per diluted share, from tax adjustments and other items. The 2022 second quarter results include a net negative impact of $35.9 million, or $1 per doula share, from tax adjustments and other items. Year-to-date 2023 net income was $140.7 million, or $3.87 per doula share. This compares to $78.4 million, or $2.18 per doula share, for the same period in 2022. The 2023 year-to-date results include a net negative impact of $1.1 million, or $0.03 per diluted share, from tax adjustments and other items. The 2022 year-to-date results include a net negative impact of $44.4 million, or $1.23 per diluted share, from tax adjustments and other items. These items are detailed on page 14 of our earnings release. Now I'll briefly address each segment. Rail North America's fleet utilization remained high at 99.3% at quarter end, and our renewal success rate was 85.3%, which is reflective of the continued strong demand for our existing fleet in North America. The renewal rate change of GATX's lease price index was positive 33.1% for the quarter, with an average renewal term of 61 months. Earlier this month, we announced a modification to the LPI calculation. The announcement and historical LPI data on a comparable basis are available on the GATX Investor Relations website. We continue to successfully place new railcars from our committed supply agreements with a diverse customer base. We've placed all 4,800 railcars from our 2018 Trinity Supply Agreement. and we've placed all 7,650 railcars from our 2018 Greenbrier Supply Agreement. In addition, we've placed nearly 2,000 railcars from our 2022 Trinity Supply Agreement. Our earliest available scheduled delivery under our supply agreements is in the first quarter of 2024. The secondary market for railcars in North America remains active. We generated a remarketing income of $30.8 million in the quarter and $75.6 million year-to-date. Consistent with our expectations, Rail International continues to perform well. Rail Europe's fleet utilization was 96.9% at the end of the second quarter. Despite some weakening in the intermodal sector in Europe, Demand for the majority of rail car types in Europe and India remains strong, and we continue to experience success at pushing up renewal lease rates for many car types. Additionally, we continue to take delivery of new cars in Europe and India, adding a combined total of nearly 1,000 cars during the second quarter. Year-to-date, Rail International's investment volume was over $158 million. Turning to portfolio management, second quarter results were solid, primarily driven by the performance at the World Choice and Partners Finance Affiliates. The operating environment for RRPF continues to improve due to a broad-based recovery in demand for international air travel. In addition, we capitalized on attractive opportunities during the quarter and added nine aircraft spare engines for $239 million. to our wholly owned engine leasing portfolio. Overall, GATX's total investment volume was over $486 million for the second quarter and over $873 million year-to-date. Finally, as we noted in the release, reflecting year-to-date performance and our outlook for the remainder of the year, we expect 2023 full-year earnings to be in the upper end of or modestly exceed the previously announced guidance range of $650 to $690 per diluted share, excluding any impact from tax adjustments and other items. Variability around this guidance will be mostly driven by the timing of remarketing activities. And those are our prepared remarks. I'll hand it back to the operator so we can open it up for questions.

Thank you. If you have a question, please press star one on your telephone keypad. If you have queued up for a question and wish to withdraw, you may press star one again. Your first question comes from the line of Alison Poliniak with Wells Fargo. Please go ahead.