GATX Corporation

star followed with the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Shari Hellerman, Head of Investor Relations. Please go ahead.

Thank you, Kate. Good morning and thank you for joining GATX's 2025 First Quarter Earnings Call. I'm joined today by Bob Lyons, President and Chief Executive Officer. and Paul Titterton, Executive Vice President and President of Rail North America. Tom Ellman, our Chief Financial Officer, was called away on a family matter and will not be joining our call this morning. As a reminder, some of the information you'll hear during our discussion today will consist of forward-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 2024 and our other filings for the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Before we begin, I'd like to remind everyone that our annual shareholders meeting is scheduled on Friday, April 25th at 9 a.m. Central Time and will be held in a virtual-only meeting format. I will provide a quick overview of our 2025 first quarter results, and then I'll turn it over to Bob for additional commentary on the current market environment. After that, we'll open the call up for questions. Earlier today, GATX reported 2025 first quarter net income of $78.6 million, or $2.15 per diluted share. This compares to 2024 first quarter net income of $74.3 million, or $2.03 per diluted share. The 2024 first quarter results included a net positive impact of $0.6 million, or $0.02 per diluted share from tax adjustments and other items. These items are detailed in the supplemental information section of earnings relief. Our first quarter results were in line with our expectations coming into the year. In North America, supply and demand dynamics for rail cars continue to remain in balance, and demand for our existing fleet was solid. GATX Rail North America's fleet utilization remained high at 99.2% at quarter end. And the renewal success rate was strong at 85.1%. We continue to achieve renewal lease rate increases while extending term. The renewal rate change of GATX's lease price index was 24.5%. And the average renewal term was 61 months. Additionally, we continue to successfully place new rail cars from our committed supply agreement with a diverse customer base. We've placed over 5,700 rail cars from our 2022 Trinity Supply Agreement. Our earliest available scheduled delivery under this supply agreement is in the first quarter of 2026. In addition to those ordered from our Committed Supply Agreement, we also found attractive investment opportunities to acquire rail cars in the secondary market. Total investment volume in North America during the quarter was over $227 million. We also continue to capitalize on a robust secondary market by selectively selling rail cars, thereby optimizing our portfolio and generating over $30 million in asset remarketing income in the quarter. On the maintenance front, first quarter net maintenance expense was higher compared to a year ago. driven by higher tank compliance activity, which we expected and discussed previously. The flow of cars into the shops to meet the required regulatory compliance will continue as the year progresses, consistent with what we outlined at the beginning of the year. Within Rail International, the European rail car leasing market remains stable, evidenced by GATX Rail Europe fleet utilization of 95.1% at quarter end. GATX Rail India's fleet utilization remained very high at 99.6%. We continue to experience success in pushing up renewal lease rates for most car types, reflecting continued demand for Rail International's assets. Investment volume was over $62 million during the first quarter, as we continue to expand and diversify our fleets in Europe and India. Turning to engine leasing. RRPF, our joint venture with Rolls-Royce, and our wholly owned engine portfolio both performed well and produced strong first quarter financial results, reflective of robust demand for aircraft spare engines globally. At this time, we continue to expect full year earnings to be in the range of $8.30 to $8.70 per diluted share, excluding any impacts from tax adjustments or other items. And with that quick overview, I will now turn the call over to Bob.

Thank you, Sherry, and thank you all for joining the call this morning. Appreciate the time. As I talked to Tom Elman last night about his schedule for today, I volunteered to sit in as de facto CFO in his absence. It also occurred to me that while I spent 14 years in that role previously, Uh, Tom is far better at that job than I ever was. And so you're stuck with me today for finance related questions. Uh, but happy to have Paul here with me, uh, to talk about, um, anything you might want to discuss in the North American rail market with the uncertainty around the impact of tariffs in North America and abroad, along with the general uncertainty and economic conditions. I thought I'd open with some brief comments. on those topics and hopefully address a number of your questions upfront. First of all, the impact of the recent tariff announcements has to date had very little impact on our business and financial results. I think reflective of what Sherry already outlined this morning. That's not surprising given that our installed base of assets around the globe is generally on long-term lease with strong customers. And we enter each year with a pretty predictable level of cashflow from our lease portfolio. On a longer term basis, however, we're an economically driven company and a sustained pairback and economic growth as a result of tariffs or global tensions could affect GATX at some point. We certainly aren't seeing that today, but it's not outside the realm of possibility. Talking about each of our markets separately, we'll start with Rail North America. Here our customers continue to need the rail cars that they have in their fleets today, and you see that through the really high renewal success rate that we had and also the LPI at 24.5%. In short, our customers continue to need the cars that they have in their current fleet. Additionally, The supply and demand across the North American rail new car market remains largely imbalanced. We're seeing the rail car builders being very disciplined about their production plans. On a direct basis, as it relates to tariffs, we do source rail cars out of Mexico. However, previously enacted exemptions for cross-border movement of cars remain in place, so there's no direct impact on the cost at this point. General inflationary factors remain in play, and that could continue to drive upward pressure on new car costs. As we've noted before, as the cost of the new car rises, there's a residual benefit to those who own large fleets of existing cars like GATS. That said, on the direct impact, the broader risk of tariffs in North America as it is globally is more indirect. For example, economic conditions. Obviously, we can't dictate economic conditions, but we're prepared for any scenario. Another would be commodity flows. If there are certain commodities that either benefit or are hurt by tariffs, we could see that impact and demand for certain car types. It's really difficult to predict which car types, so I'm not even going to try. But I will remind people that we have an incredibly diverse fleet. We have over 800 customers and we serve and move over 600 different types of commodities in our cars. So that provides a lot of flexibility. Interest rate movements are also hard to predict these days, but we have a really strong balance sheet and an investment grade rating. We have a lot of funding flexibility. So to summarize in North America, the direct impact of the tariffs are limited and not impactful in the near term, while the longer term risks are indirect and certainly more difficult to assess right now. But as many of you know, at GATX we've seen pretty much every environment imaginable through our history, and we're fundamentally wired for and prepared for challenging situations should they occur. To the extent there are changes in market fundamentals, we'll obviously share that with you when we see it, as we always do. Braille North America is a nimble organization, and we will adjust if needed. In fact, in times of uncertainty, we often see some of our most attractive investment opportunities. In Europe, we're seeing stable demand for the largest portions of our fleet, and you saw that in their utilization numbers as well. As for the direct impact of tariffs, we source cars and components largely within Europe, so there are no direct impacts from tariffs today of note. But similar to North America, the longer-term impacts are indirect, and they potentially are meaningful, also very difficult to quantify. The economic environment in Europe was already pretty tepid, and that was before the developments over the course of the last month. Germany is a very important market, the largest market we serve. Not only for the automotive trade, but also Germany serves as EU's base for global chemical trade. And the economy is predicated, predicted to slow as global tensions rise. So we'll have to navigate that. But similar to Rail North America, GTX Rail Europe is a great franchise, very strong, diverse fleet, and high quality customers across a range of end markets. I'm highly confident our experienced team there will adapt and adjust as needed. In India, similar to Europe, there's a closed-loop system with rail cars and most components being sourced in-country, so the direct impacts are muted. We also have the benefit in India of the fact that the overall infrastructure development needs remain so strong that tariffs or global turmoil, even over a medium term, will be unlikely to alter the long-term outlook for infrastructure investment. Turning to engine leasing, Demand for spare engines currently remains very high. And the need for spares is robust. In fact, our investment pipeline at RRPF, that's our joint venture investment with Rolls-Royce, that pipeline is among the strongest across GATX. That said, a slowdown in global air travel, if it occurred over a protracted period, could temper demand for engines. We're always prepared for that scenario and the team at our RPF and at roles is always prepared for that scenario, especially given that past macro shocks to travel like nine 11, a pandemic or the war in Ukraine. They happened really quickly and they had a significant negative impact on travel and engine demand. However, what those situations also showed is that global air travel is extremely resilient. as is the demand for the underlying assets in our engines. They are a great store of value through cycles. At TriFleet, our tank container leasing business, the dynamics are a bit more nuanced. The hard asset itself, the tank container, that asset moves freely across global markets and does not attract any tariff risk as long as the assets continue to move. But the products within the tanks, particularly chemicals, could attract tariffs depending on their origin and destination. For example, chemicals moving between China and the U.S. would be subject to tariffs, and you could see some demand on the impact for our assets. At present, we've not seen that. We have not seen a material impact on demand, but obviously that's something we and others in the industry are watching pretty closely. I'll summarize and close my comments by stating that, once again, our focus, as always, at GATX is on the long term. Our assets hold value through cycles. Our customers are strong, sophisticated, and resilient. And the assets we provide to them serve a critical function. As evidenced by the fact that we reiterated our full-year guidance today, we remain confident in our results for 2025. Like most companies, we'll remain on alert for signs of more direct impacts and demand fundamentals as a result of tariffs. I'd certainly prefer a more stable environment. I think most corporations would. But it's something we are, it appears we're entering a period of greater macroeconomic volatility. Historically, GATX has not only managed well through uncertain times, but we've thrived by finding unique investment opportunities. And we'll strive to do the same as we navigate this market. So with that, we'll open it up for questions.