GATX Corporation

At this time, I would like to welcome everyone to the GATX 2025 second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers 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 one again. I would now like to turn the call over to Sherry Hellerman, head of investor relations. Please go ahead.

Thank you, Eric. Good morning and thank you for joining GATX's 2025 second quarter earnings call. I'm joined today by Bob Lyons, president and chief executive officer. Tom Elman, 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 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 10K 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. Earlier today, GATX reported 2025 second quarter net income of 75.5 million or $2.06 per diluted share. This compares to 2024 second quarter net income of 44.4 million or $1.21 per diluted share. The 2024 second quarter results include a net negative impact of 8 million or 22 cents per diluted share from tax adjustments and other items. -to-date 2025 net income was 154.1 million or $4.21 per diluted share. This compares to 118.7 million or $3.25 per diluted share for the same period in 2024. The 2024 -to-date results include a net negative impact of 7.4 million or 20 cents per diluted share from tax adjustments and other items. These items are detailed in the supplemental information section of earnings release. Now I'll briefly address each of our business segments and after that we'll open the call up for questions. At GATX Rail North America, we continue to experience stable demand for rail cars. Our fleet utilization was .2% at quarter end and our renewal success rate was strong at 84.2%. 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 .2% for the quarter and the average renewal term was 60 months. Additionally, we continue to successfully place new rail cars from our committed supply agreement with a diverse customer base. We have placed over 6,500 rail cars from our 2022 Trinity supply agreements. Our earliest available scheduled delivery under this supply agreement is in the first quarter of 2026. The secondary market in North America remains robust. We generated over $34 million in remarketing income during the quarter, bringing the year to date total to approximately $65 million. Turning to Rail International, GATX Rail Europe utilization was .3% at quarter end. As noted in the release, the business environment in Europe is challenging and uncertain relative to either North America or India. Given macro headwinds and slower GDP in Germany, some customers are delaying their fleet planning decisions, which is impacting fleet utilization. Despite current conditions, we maintain a positive long-term outlook on the European rail car leasing market and will continue to look for attractive investment opportunities there. In India, freight volume continues to benefit from the country's ongoing infrastructure investments. As such, we continue to see strong demand for rail cars in India. GATX Rail India's fleet utilization remained high at .6% at quarter end. Within engine leasing, our joint venture with Rolls Royce and our wholly owned engine portfolio produced excellent second quarter results. A strong global air passenger volume continues to drive robust demand for aircraft spare engines. We're seeing very strong demand across engine types from global air carriers and the secondary market for engine sales is healthy. Regarding the pending Wells Fargo rail transaction announced at the end of May, we're excited about the opportunities it offers. But due to the customary regulatory reviews, all of which are underway, at this stage we're limited in what we can say beyond what we've already disclosed. Finally, reflecting our year to day performance and outlook for the balance of the year, we are increasing our 2025 full year earnings guidance to a range of $8.50 to $8.90 per diluted share. This guidance excludes the impact of tax adjustments or other items and excludes any impacts from the Wells Fargo transaction. And those are our prepared remarks. I'll hand it back to the operators so we can open it up for Q&A.

At this time, I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Andrzej Tomczyk with Goldman Sachs. Please go ahead.

Yeah, hi, good morning. Thanks for taking my question. The first one, just given this morning's deal announcement for potential transcontinental merger, was curious if you could share any initial thoughts and how this could impact the overall leasing business?

Andrzej, this is Bob Lanz. Yeah, I mean, given the fact that the announcement was just made this morning, it's difficult to assess, particularly given the timing uncertainty and conditions that may be put on the parties to the merger. So right now, very difficult to assess. Longer term, greater efficiency on the rails, more product moving by rail, more car load traffic, all of those are long-term good things for a rail car lessorce.

Understood, appreciate the thoughts. Just switching gears a little bit, your lease renewal rate, the change was 24% in the second quarter, which was similar to last quarter. Are you seeing any indications that we could continue to hold the high lease price renewal? And I guess in what type of environment could we see that reaccelerate?

So this is Paul Tidderson speaking, and thanks for the question. Yeah, I mean, broadly speaking, what I would say is the market for existing rail cars remains pretty similar to how it's been in the last few quarters, which is to say that pricing remains relatively strong, and of course, we've got expirations coming off of a weaker pricing environment, and so that has continued to provide a pretty strong LPI result. At this point, I would say, in the absence of any stimulus, positive or negative, we continue to see kind of more of the same from a pricing standpoint. So either up or down, there would have to be some external catalyst to really change that environment, and at this point, we don't really see that catalyst, so I would say the best predictor in terms of absolute lease rates is probably more of the same right now.

Yeah, and I would just add, Andre, too, that all of the elements of the supply-led recovery that we've talked about now for many quarters in a row very much remain intact.

Got it, so we can just assume sort of normally sequentially increasing or flattish overall absolute lease rates. Is that the right way to think about it?

Yeah, I would say flattish is probably pretty reasonable. That's what we've been seeing for quite some time now.

Understood, and then lastly for me, we saw Intercorps, the EU, had set a provisional deadline of August 20th to rule on the year merger, or the JV, sorry, with Wells Fargo and Brookfield. I'm just curious, is there anything to read into there in terms of approval timelines, anything tracking earlier than expected or still on the same sort of runway?

Now, nothing unusual about that particular filing or the response from the EU Commission. So everything is tracking as planned in terms of filing and timeline. So real, no change in our Q1 2026 or earlier estimate from prior.

Got it, thanks for the questions and congrats on the next quarter.

Thank you. Your next question comes from the line of Brendan McCarthy with Sidoti and Company. Please go ahead.

Great, good morning everyone, and thanks for taking my questions here. I wanted to look at the engine leasing business to start off. It looks like results from our PF stepped down a little bit from last quarter. Just curious as to what the profit mix has been there through the first six months of the year, whether it be operating income or remarketing gains, and maybe talk about your expectations for the remainder of the year.

Yeah, thank you for the question, this is Tom. Just for the, to give you the numbers for the second quarter, operating income was about 85% of the total, and remarketing was about 15. So year to date, we're around 70, 30 operating income to remarketing activity. As we mentioned in the press release, the key reason that we're taking up guidance is the performance in the engine leasing business. So we expect that to be strong through the rest of the year. And one of the things that I think you'll see is over time, the remarketing side of that should probably get to be a little bit higher of a total percentage.

Great, that makes sense. Thanks for that insight, Tom. And as you look into the back half of the year, are there any, have you noticed any shifts in demand or changes in the trend as it relates to remarketing income in the engine leasing business?

Yeah, there really isn't a whole lot of trending as far as that goes. It's always very lumpy. And what we can say is that it remains very strong. There's a lot of demand for those engines in the secondary markets. So a lot of remarketing activity available. What really is the question is the timing. When does it occur? And Brendan,

I just add to that too. It's a bit amplified at our RPF or within our own engine leasing business, just given the sheer magnitude of each asset, the net book value. Whereas in rail, we're selling hundreds of cars for nice gains. In the engine leasing business, it's a few engines sold here and there for much more sizable gains. So kind of, the magnitude of the shift from quarter to quarter can be a bit more amplified.

Got it, that makes sense. And when you look at investment volume there, unless I'm reading into this incorrectly, it looks like there hasn't been any investment volume in the wholly owned portfolio through the first six months of the year, down from about 71 million same period last year. But I think at one point you mentioned you target roughly 200 million per year. And I know that a lot of that is dictated by what Rolls-Royce decides. Just curious as to what investment volume might look like for the rest of this year in the GEL portfolio.

Yeah, so I'll start and then I'll let Bob add to it. Kind of repeating our last answer, that side of the business is also pretty lumpy for the same reason, because each engine is such a material investment in of itself. We certainly expect to see some investment volume in the second half of the year. And coming into the year, we had said we thought it would be kind of in that range similar to the last couple of years, but I'll let Bob add to that.

Sure, and kind of take it in two parts. So, the $200 million number you mentioned, certainly still within reason, it may be a little less than that, just based on, as you said, where Rolls-Royce has its needs and where it allocates its engine sales. But we expect a pretty healthy investment level activity in the second half of the year. I'd also add that at the joint venture level at our RPF, we came into the year, I think expecting somewhere in the range of 800 million total investment volume for the year, it will be north of that for sure. So still seeing very good investment activity overall in the engine portfolio, the mix may change a little bit, whether it's directly owned or at our RPF. We participate either way, so that it's all good on that front.

So, that's great. Thanks, Bob. Thanks, Tom. I appreciate the insight. That's all from me, and congrats again on a good quarter.

Thank you.

Your next question comes from the line of Justin Burgener with Gabelli Funds. Please go ahead.

Morning, Tom. Good morning, Sheri. Morning. Good quarter. Thanks for taking my questions. First question, what is the best way And then, the second question, just to verify, is the entire 20 cent guidance increase attributable to engine leasing? And any reason why you might not have considered narrowing the guidance range at this point in the year, with it being halfway over? I realize you don't always do that, but just wondering.

Yeah, Justin, certainly the majority of the increase in guidance is due to what we expect to have happen in the engine leasing business. And really, kind of going back to some of Brendan's questions, the reason for that range is because of the scale of each of those remarketing events, it's difficult to really pinpoint the timing. And the same is true, quite honestly, in Royal North America, where one of the big pieces of uncertainty is the timing of those various gains that we'll get on the remarketing of the rail cars. So that's really why the range is worth that.

Okay, gotcha. In the last few weeks, have you seen any change or kind of stalling in the secondary market ahead of the speculation relating to today's UMP Norfolk Southern announcement, and do you expect this period of regulatory review and potentially uncertainty to change the secondary market dynamic?

Yeah, Justin, this is Paul, and I'll answer that question. And the answer is no, there's been no slowdown at all. And we really don't think, while obviously the announced merger is very significant for the rail industry overall, in terms of the rail car secondary market, we don't see any impact at all. I mean, really what's driving the rail car secondary market is there's still a lot of capital that wants to invest in rail cars. And because new car volume is down and is expected to stay down for some time, that capital really wants to flow into the secondary market. So quite honestly, secondary market is robust and we expect it to remain robust.

Okay, so even though some of the efficiencies perhaps targeted in today's announcement might mean a slightly smaller need for rail cars if the line can move more productively, you just think that that's trumped by the demand for capital flowing into this space.

Yeah, and historically and looking forward, Justin and Bob, rail cars through cycles, through time, over decades have proven to be tremendous stores of value. And capital flows into the market accordingly and it's always been an asset class that people have been interested in investing in continuing to grow their portfolios. We don't see any change in that. The other thing I would mention too is I don't know the stated or unstated period for regulatory approval for that transaction announced this morning, but it's likely to be protracted. So, and then you add integration on top of that, you know, it's pretty extended period. So we're not anticipating any near term impacts on demands in our portfolio or the secondary market.

Okay, thank you. And then lastly, strong international performance from a profitability point of view. Any way you can help me decompose that a little bit further beyond, I guess, what was called out in the press release, I noticed the other revenue kind of ticked up, but just, you know, a strong segment profit there sequentially in year on year.

Yeah, you gotta look a little deeper at some of those rail international numbers. So when we came into the year, Bob indicated that the rail international business would be up between about five and 15 million from a segment profit standpoint. And for the first half of the year, we're kind of tracking with that. We're at the lower end of the range. But some of that is, most of that actually is driven by exchange rates. If you correct for that, the segment profit is roughly equal to what we had for the first six months of last year, which is a little bit below expectations. And the reason for that is some of the challenges that we've seen in the intermodal market in Europe have expanded a little bit to a couple other car types. You probably saw the utilization drop a little bit in the rail international segment. We're still tracking, like I said, similar to last year, but that'll be a little bit down, absent effects from what we expected coming into the year.

Great, thanks for taking all my questions.

Thank you. Your next question comes from the line of Bascom majors with Susquehanna. Please go ahead.

Good morning. It's been two months since you announced the rails, sorry, the Wells deal. I don't know what you've been able to accomplish in due diligence that maybe wasn't allowed during the negotiation process, but can you give us an update on what you've been able to dig into incrementally? And if the synergy expectations for what this can mean on the maintenance or other items are coming into better focus, thank you.

Sure, Bascom, and I'll just go back to a comment I believe I made on the conference call a couple of months ago at the end of May when we announced the transaction, that given the length of time we were structuring the transaction and in dialogue with Wells Fargo and going through the due diligence, by the time we announced the transaction at the end of May, there was very little left for us to do in terms of due diligence. The heavy lifting had been done and Wells Fargo had been very forthcoming in building out an exhaustive data room that had virtually everything, by and large, we would need to complete due diligence. So we didn't anticipate finding any surprises post announcement and we haven't. I won't comment much more beyond that, given that we're still not the rightful owner of the portfolio. We look forward to closing on it. All of the assumptions we had coming into the transaction on the announcement today are holding very firm and we feel really very, very positive about the transaction.

What assumption did you make on synergies when you announced the transaction and when might you update us on what that could look like longer term?

Yeah, we didn't really get into much detail at the time of the announcement. We said it would be a creative, but we hadn't provided much detail on that and won't until we get to closing of the transaction, which we expect Q1, 2026 or sooner. When we get to that point and we're at the closing, we can be much more forthcoming with those synergies and the outlook for the portfolio and for the integration with our business.

Thank

you. Thank you.

There are no further questions at this time. I'd now like to turn the call back over to Sherry Hellerman for closing remarks. Please go ahead.

I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Have a great day. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.