GATX Corporation

Thank you for standing by. My name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to the GATX 2024 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Shari Hellerman, Head of Investor Relations at GATX. Please go ahead.

Thank you, Angela. Good morning, and thank you for joining GATX's 2024 Second Quarter Earnings Call. I'm joined today by Bob Lyons, President and Chief Executive Officer. Tom Ellman, Executive Vice President and Chief Financial Officer. And Paul Titterton, Executive Vice President and President of Rail North America. As a reminder, 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 2023 and 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 2024 second quarter net income of $44.4 million, or $1.21 per doula share. This compares to 2023 second quarter net income of $63.3 million or $1.74 per diluted share. The 2024 second quarter results include a net negative impact of $8 million or $0.22 per diluted share from tax adjustments and other items. 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. Year-to-date 2024 net income was $118.7 million or $3.25 per diluted share. This compares to $140.7 million or $3.87 per diluted share for the same period in 2023. The 2024 year-to-date results include a net negative impact of $7.4 million or $0.20 per diluted share from tax adjustments and other items. The 2023 year-to-date results include a net negative impact of $1.1 million, or $0.03 per doula to share, from tax adjustments and other items. These items are detailed in the supplemental information section of our earnings release. I will provide a quick overview of our second quarter results, and then I'll turn it over to Bob for additional commentary on our year-to-date performance. After that, we'll open the call up for questions. GATX Rail North America continues to experience stable demand for rail cars. Our fleet utilization was 99.3% at quarter end, and our renewal success rate was strong at 84.1%. We continue to achieve strong renewal lease rate increases while successfully extending term. The renewal rate change of GATX's lease price index was positive 29.4% for the quarter. and the average renewal term was 61 months. Additionally, we continue to successfully place new railcars from our committed supply agreement with a diverse customer base. We've placed over 4,300 railcars from our 2022 Trinity supply agreement. Our earliest available scheduled delivery under this supply agreement is in the second quarter of 2025. The secondary market in North America remains robust. We generated approximately $20 million in remarketing income during the quarter, bringing year-to-date remarketing income to approximately $53 million. Rail International is performing well, and Rail Europe continues to experience success in pushing up renewal lease rates for most car types. We continue to grow our lease fleets in Europe and India, In July, Rail India received the delivery of their 10,000 wagons. Within engine leasing, the Rolls-Royce and Partners finance affiliates produced strong operating results due to continuing high demand for aircraft spare engines. As we have mentioned in the past, timing of remarketing events at RAPF can be very lumpy from quarter to quarter. Year to date, Operating income makes up approximately 75% of our PF earnings, while remarketing income makes up approximately 25%. Turning to GATX engine leasing, our wholly owned portfolio, we continue to increase our direct investment in aircraft spare engines. We added three engines during the second quarter, bringing the total engine count in our wholly owned portfolio to 32 engines. with a total netbook value of over $750 million. The investment pipeline for engines is expected to remain robust for the remainder of this year. With that quick overview, I will now turn the call over to Bob.

Thank you, Sherry, and good morning, everybody. Given that we're now past the halfway point of the year, I thought I'd add some comments to compliment Sherry's introduction. And I'll focus on the overall environment versus the expectations we had coming into the year. And the fact is I can keep these comments brief because the first half of the year has largely played out as expected. It doesn't always occur this way. Rarely occurs this way. But the first half of 2024 tracked very much in line with what we thought coming into the year and what we discussed with you when we gave our outlook back in January. At Rail North America, we stated that the recovery was largely a supply-side driven recovery, and we expected very little in the way of growth in carload traffic. That's what we planned for, and that is what has occurred. Demand for existing rail cars is very stable, and we've been able to realize appropriate rate increases and extend term. The commercial organization continues to do an outstanding job. As a result, our financial performance at Rail North America is consistent with where we thought we would be at this point of the year. And that's whether you're talking about revenue growth, which has been very strong, net maintenance or interest expense, both of which are in line with where we thought, remarketing income the same, as well as segment profit. All of these are essentially coming in line with forecasts And the overall market environment from a commercial standpoint is really positive. That's reflected in our LPI, which was 33% in the first quarter, 29% in the second quarter, and again, in line with our full-year outlook of the plus 30% range. Same for our renewal success rate, which is holding up really strong, highlighting the fact that our customers want to hold on to their existing rolling stock. And even a change in sequential lease rates, which were flat this quarter and have been for several quarters, is what we anticipated. So we see no major issues or changes on the horizon, which would lead us to a just full year Rail North America. And that's a positive situation, given that we had such strong expectations coming into the year for our key performance measures. At Rail International, we have a similar story, where in general market demand is really strong. At GATX Rail Europe, I'd only point out one caveat, and that's as it relates to the intermodal sector, where we thought there was a reasonable chance for a recovery in this market in the second half of the year, but that appears to be getting pushed out a bit. Fortunately, intermodal is a small part of our overall fleet, So weakness there should be offset in other areas across GATX rail Europe. And as Sherry mentioned, in India, we have high expectations coming into the year, and those appear to be warranted. We've had excellent growth in fleet count. We crossed the 10,000 wagon mark. The country has completed their nationwide election process. We're seeing strong economic growth. And we continue to expand our customer base and the car type offerings. Within engine leasing, whether it's through our joint venture or in our wholly owned portfolio, we see strong demand for our assets. The recovery in global air travel has occurred much faster than anticipated. It's continuing. And that's leading to very high utilization of our spare engines or those within our pool. And lastly, we continue to find ways to put capital to work at attractive returns. We came into the year expecting full year volume in the $1.6 billion range. And at the halfway mark, we're just over $800 million. So very much on track. And on a positive note, we're seeing these opportunities essentially across business units. So overall, while there have been some twists and turns through the first half of the year, which always occur, our commercial and operational teams have navigated these extremely well, both here in North America and internationally. And the year is largely playing out as planned, and that's a good thing. So with that, we'll go to Q&A.