The Greenbrier Companies, Inc.

Hello, and welcome to the Greenbrier Company's fourth quarter 2025 earnings conference call. Following today's presentation, we will conduct a question and answer session. Until that time, all lines will be in a listen-only mode. At the request of the Greenbrier Company, this conference call is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Mr. Justin Roberts, Vice President of Financial Operations, The Americas. Mr. Roberts, you may begin.

Thank you, Megan. Good afternoon and evening, everyone, and welcome to our fourth quarter and fiscal 2025 conference call. Today, I am joined by Lori Decorius, Greenbrier's CEO and President, Brian Comstock, Executive Vice President and President of the Americas, and Michael Donfress, Senior Vice President and CFO. Following our update on Greenbrier's record-setting 2025 performance and our outlook for fiscal 26, we will open up the call for questions. Our earnings release and supplemental slide presentation can be found on the IR section of our website. Matters discussed on today's conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we will describe some of the important factors that could cause Greenbrier's actual results in 2026 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier. We will refer to recurring revenue throughout our comments today. Recurring revenue is defined as leasing and fleet management revenue excluding the impact of syndication activity. Finally, Greenbrier will be participating in the following conferences over the next few months. The Stevens Annual Investment Conference on November 19th, the Goldman Sachs Industrials and Materials Conference on December 4th, and the Susquehanna Virtual Freight Forum on December 10th. And with that, I hand the call over to Lori.

Thank you, Justin, and good afternoon, everyone. I appreciate you joining us today. A strong finish in the fourth quarter made fiscal 2025 Greenberg's best year yet. We achieved record full-year diluted earnings per share and delivered record core EBITDA supported by disciplined execution across our business. Our aggregate gross margin was nearly 19%, and Greenberg generated more than $265 million in operating cash flow. We also achieved a return on invested capital of nearly 11%, within our long-term target range. These results reflect our team's resilience and the strength of disciplined execution paired with efficient operations. We're seeing the tangible results of the transformation we set in motion nearly three years ago with key long-term performance goals being realized. Greenberg today is a stronger, more agile organization A business better positioned to deliver performance across market conditions has proven by our record financial results for 2025 on 2,000 fewer deliveries than in fiscal 2024. Strong operating performance in manufacturing led to healthy margins, and our network is operating with greater efficiency, precision, and alignment than ever before. Process improvements, balanced production lines, and disciplined cost control have driven sustained expansion in manufacturing margins. Our flexible manufacturing capacity allows us to rapidly respond to changes in demand and maximize operating efficiency. Our insourcing capacity expansion in Mexico is effectively complete, and the full value of the initiative will be realized as production scales through fiscal 2026 and beyond. Likewise, we continue to drive overhead efficiencies throughout our global manufacturing network. This agility and responsiveness are a competitive advantage for Greenbrier. In Europe, we continue to unlock efficiencies through ongoing footprint rationalization, driving cost savings, and developing a more competitive and responsive platform for the region. As we announced today, we're proceeding with the closure of two additional facilities Combined with our previously announced actions, we expect annualized savings of $20 million from this footprint rationalization. I should note that these actions and savings will not impact our European production capacity. Rather, they position Greenberg to sustain higher margins in varying demand environments. The steady growth of our leasing and fleet management business has been an important contributor to our performance. Our lease lead continues to perform exceptionally well with high utilization rates and strong renewals. We've maintained a disciplined approach to growth and are on track to meet our goals of doubling recurring revenues by fiscal 2028. Our capital allocation framework remains focused and disciplined. We deploy capital where returns are strongest while maintaining balance sheet strength and liquidity. This prudent approach and a strong liquidity position support our ability to fund strategic priorities while delivering attractive returns to shareholders. The growth of our recurring earnings combined with our strong manufacturing provide a durable through cycle foundation for Greenbrier. Integration is a defining feature of our model. Manufacturing generates efficiencies and scale and leasing provides stability. And together, they create an earning space that differentiates Greenbrier. The operational progress and recurring earnings we've built into our business means that Greenbrier now operates at a structurally higher level of resilience. Our results this year clearly demonstrate that our efficiency and least fleet growth initiatives have raised the baseline of our performance and positioned us to achieve what I describe as higher lows. Today, we're well positioned to continue generating cash flow, financial performance, and shareholder value for years to come. Our fiscal 2026 guidance reflects this improved foundation. Our model is designed to perform with durable returns and the flexibility to respond to market demand. Looking ahead, we remain committed to operational excellence, innovation, and responsible growth. In closing, I want to recognize our employees, customers, and shareholders for their trust and partnership. Fiscal 2025 was a milestone year for Greenbrier, setting the stage for continued momentum into the year ahead and beyond. And with that, I'll turn the call over to Brian.

Thanks, Lori, and good afternoon, everyone. Greenbrier delivered exceptional performance in fiscal 2025. In addition to the record financial results already mentioned, we maintained consistent execution during the year, and our gross margin improved from the actions we've taken over the last two years to enhance our production efficiency. Many of these improvements are structural and are continuing to deliver benefits. We view the near-term market conditions as an opportunity to intensify our focus on production layouts, process improvements, cost reduction initiatives, and optimization projects ahead of a production ramp-up anticipated later this year. While demand is an external factor, we remain relentlessly focused on improving operating efficiencies and reducing costs. In Q4, Greenbar received approximately 2,400 new railcar orders. valued at more than 300 million, bringing full-year orders to more than 13,000 units. We close the year with a backlog of 16,600 units, valued at 2.2 billion. This backlog reflects a healthy mix of product types and customers, demonstrating our market leadership. As a reminder, programmatic railcar restoration work is excluded from these figures. This work bolsters manufacturing margin and has performed on approximately 2,000 to 3,000 units annually. We continue to focus on order quality with activity that supports efficient production scheduling and sustains attractive margins. Our commercial team has done an excellent job navigating a complex operating environment. In North America, freight trends and tariff dynamics are moderating new railcar demand, leading many fleet owners to extend acquisition timelines. I think it's worth reiterating what Lori mentioned earlier. We achieved record earnings despite operating in a modest market for new railcar demand. In my 27 years at Greenbrier, earning more than $6 per share in a 30,000-car build year seemed unlikely until now. This is a clear reflection on how this leadership team has evolved and what it's capable of achieving. Across our global businesses, we are focused on optimizing our manufacturing footprint and driving additional cost efficiencies. In Europe, ongoing footprint actions are expected to yield about $20 million in annualized savings. Leasing and fleet management delivered another solid year. Recurring revenue reached nearly $170 million over the last four quarters, representing almost 50% growth from our starting point of $113 million just over two years ago. Our lease fleet grew by about 10% in fiscal 25 to just over 17,000 units, with high fleet utilization at 98%. The fleet remains diversified by car type, lease term, and customer. In fiscal 26, 10% of our leased rail cars are up for renewal, and we've already renewed one-third of those units at substantially higher rates. We're building a balanced rail car portfolio through discipline and selectivity, and we see opportunities to accelerate fleet investments in the medium to long term. Our leased fleet debt facilities, including the warehouse credit facility, Senior term debt and asset back term notes are structured as non-recourse obligations. They are prudently aligned with current needs and support growth at an average interest rate in the mid 4% range, well below prevailing market rates. These facilities provide stability, flexibility, and efficient access to capital. Greenbar enters fiscal 26 with backlog visibility, a disciplined commercial pipeline, and an operating platform designed for consistency. Our teams remain focused on sustaining execution, optimizing mix, and maintaining the balance between manufacturing and leasing, which has proven so effective. As Lori noted, the transformation of our business has positioned GreenBar to deliver more stable outcomes through the cycles. The commercial organization is fully aligned with that goal, pursuing opportunities that enhance the through cycle of earnings, strengthen relationships, and extend our competitive advantage. We are confident in our near-term performance and long-term outlook. Our experienced leadership team has consistently demonstrated the ability to successfully manage through market cycles. We remain focused on steady execution and sustained performance as we advance our strategic plan. The progress we've achieved, meaning we're surpassing every target we have put forward, reflects the expertise, commitment, and teamwork of Greenbrier employees worldwide. I'm deeply appreciative of their efforts and proud of what we continue to accomplish together. And with that, I'll hand the call over to Michael.

Thank you, Brian. Greenbrier's momentum carried through the fourth quarter, driven by strong operational performance and meaningful progress on our strategic priorities. We delivered record profitability through effective cost management and disciplined execution. These results position us well entering fiscal 2026. Fourth quarter revenue was nearly $760 million, in line with expectations, enabling us to meet our full year revenue guidance. Aggregate gross margin for the fourth quarter was 19%, an improvement of 90 basis points sequentially. This was driven by stronger operating performance at our Mexico facilities, favorable foreign exchange from a stronger Mexican peso, and disciplined manufacturing executions. These gains were partially offset by a $3 million impact related to our European footprint rationalization. Notably, this marks the eighth consecutive quarter in which we've met or exceeded our mid-teens gross margin target. Operating income was $72 million, nearly 10% of revenue, and this was partially impacted by $6 million in our European footprint rationalizations. Our effective tax rate of 36.4% was above both our prior quarter and our full-year structural rate of about 28% to 30%. This was primarily due to jurisdictional income mix. Core diluted earnings per share was $1.26, and core EBITDA for the quarter was $115 million, or 15% of revenues. For the 12 months ending August 31st, 2025, our return on invested capital was nearly 11% and continues to be within our 2026 target of 10% to 14%. Shifting our focus to the balance sheet, Greenbrier's Q4 liquidity level was the highest in 10 quarters at over $800 million, consisting of more than $305 million in cash and almost $500 million in available borrowing capacity. We generated nearly $98 million in operating cash flow for the quarter and delivered positive free cash flow for the year, driven by strong operating performance and working capital efficiencies. Liquidity remains robust, supported by solid operations, continued improvements in working capital, and expanded borrowing capacity. On debt specifically, We updated our financial statements and disclosures to clearly distinguish between our leasing debt, which is non-recourse, and the rest of our business. This additional disclosure should help us clarify metrics and performance as we grow our lease fleet and non-recourse debt. Now, switching to capital allocation, we are committed to responsibly returning capital to our shareholders through a combination of dividends and stock buybacks. Greenbrier's Board of Directors declared a dividend of 32 cents per share. This is our 46th consecutive quarterly dividend and reflects our confidence in our business. Additionally, during fiscal 2025, we repurchased about $22 million in shares, leaving $78 million remaining in our share repurchase authorization. We will access the capacity opportunistically during the fiscal year and within the framework of a broader capital allocation strategy. With a resilient business model and strong balance sheet, we're positioned for continued performance and long-term value creation. Our guidance for fiscal 2026 is as follows. New railcar deliveries of 17,500 to 20,500 units, including approximately 1,500 units from Greenbrier Max in Brazil. Revenue is expected to be between 2.7 billion to 3.2 billion. We expect aggregate gross margin between 16% and 16.5%. Operating margin is expected to be between 9% and 9.5%. I will point out that included within our guidance is a reduction in SG&A of about 30 million versus fiscal 2025. Earnings per share will be between $375 and $475. For capital expenditures, we expect investment in manufacturing to be approximately $80 million and gross investment in leasing and fleet management of roughly $240 million. Proceeds from equipment sales are expected to be around $115 million, resulting in net capital investment around $205 million. With our strategic goal of investing up to $300 million to grow our lease fleet each year, we plan to continue to look for opportunities to increase this investment. This year, our team delivered record earnings and the highest liquidity in 10 quarters, while continuing to execute our long-term strategy to strengthen the business ahead of the next growth phase. We remain focused on consistent execution and disciplined capital deployment With strong financials and operating excellence, we're well positioned to navigate near-term market conditions and drive long-term shareholder value.

And now, we'll open it up for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.

At this time, we will pause momentarily to assemble our roster. Our first question comes from Ken Hoekstra with Bank of America.

Please go ahead.

Hey, great. Good afternoon. So just looking at the outlook, right, so you're starting off at 17,500 to 20,500 cars down from 21,500 this year. You know, at earlier in the industry conference at the start of this year, the expectation was car bills are going to be lower for the next few years. Maybe just your insight on the backdrop and the market, your anticipation of if Europe can help offset that and You know, is this, you know, where, you know, we just heard from another company, I guess, a locomotive manufacturer last week that the expectations are down, you know, 30, 40% for car builds into next year based on industry stats. Can you just talk about what's going on in the backdrop and how you can kind of make up for that?

Yeah, Ken, it's Brian. I'll take a stab and maybe Lori can color in around the edges. At the end of the day, if you look at the cycle, we think we're at the low point of the cycle right now, and our inquiries are getting substantially more robust. We are forecasting bringing back some production in the back half of the year. And keep in mind that we made a material shift in the way that we think about this business a couple of years ago when we pivoted to utilizing some of our manufacturing space for programmatic rail car restorations. These are large programs that were typically done at repair shops in a very inefficient manner. And they have offset a lot of the degradation that we've seen over the last couple of years and backlogged. And we continue to see that building as a partial offset. But we also think the market is a bit stronger than what a lot of people are predicting, particularly when you think about the tank car side of the world and the market and what we're seeing with some resurgence in oil demand, as well as just upstream and downstream chemicals and replacements.

I would just say, I think you said it really well, Brian. While we see green shoots coming in our markets, the interesting thing, I think, about what we have done here at Greenbrier is deliveries and backlog is an important metric, but it's not the only metric that's driving our financial results and our cash flow. So I'm really proud of how the team is putting up great performance and results, even in a more modest background.

Great. Thanks for that. And then you noted at the beginning of the call something was done in Mexico. I just didn't hear what you said. Can you explain what's going on? And I just want to understand within that, given the tariffs, what has been the impact on whether it's cost of inputs, pass-through of costs, maybe just take a minute on what's going on. But if you could start with what you had noted you had done or changed or improved in Mexico. I missed that.

Sure, Ken. So this is actually I think we announced it at our investor day a couple years ago where we embarked on a journey to invest in our facilities in central Mexico for insourcing because as we ramped up demand, we realized that we were having to go further and further to source significant components. So we've wrapped up that insourcing project this year, and it has been providing resources benefits to our financial results, our manufacturing and aggregate gross margin over the last couple of years. And we expect that to continue for many years to come.

Yeah, I just add on to what Lori said is our charter has been taking costs out of the business for the last couple of years. So along with the insourcing investment, we've really been focused on taking hours out of our units and reducing cost overall. which provides us a bit of lift in softer markets.

Any thoughts on the tariff implications?

No, on the tariff side, I just want to remind everybody that we take pride in the way that we construct our contracts. We feel like we're pretty well protected in our contracts, just depending on which way they go. The U.S. footprint is also an important strategic part of what we've always maintained, and so we have some ability to pivot in the event that there are some substantial changes. And then again, you know, we continue to work with our colleagues on the Hill to really find balance in these negotiations as they seem to ebb and flow every day.

Okay. And if Baskin can indulge me for one or two more, just You mentioned after closing two facilities. How many did you have in Europe and what are you down to?

We had three facilities in Romania and three in Poland, so now we will be down to a total of three facilities, two in Romania and one in Poland.

Okay. Are you done with the rationalizations at this point, do you think, or is that just consolidating production? Is it reduced activity?

Actually, Ken, what is really great about this, and if you are ever over in Europe, we'd be more than happy to host you into one of our facilities, but the properties that we acquire, particularly in Romania, have fairly significant acreage. And what we've been on a journey over the last few years is to really bring more modern infrastructure a more modernization to how we produce wagons. Now, wagons in Europe are a lot more specialized than they are in the North American market because we share the rails more frequently with passenger transportation. But what we realized as we modernized some of our processes is that we had more footprint than we really needed, which meant that we had more overhead than we really needed. We embarked on the closure of the Iraq facility, which was the largest facility in Romania, in our second quarter. And then with economic uncertainty in Europe, we accelerated the pace of rationalizing to other of our smaller locations in Poland. I think that, yes, this wraps up what we think we need to do, but I think that this leadership team has shown that – You know, as opportunities present themselves or as we need to make adjustments in whatever market we are in, we will make that adjustment.

Yeah, and again, it's Brian. Maybe just a little exclamation point on what Lori said is we really are consolidating production into fewer facilities.

Maintaining the same amount of capacity.

Exactly. Just consolidation because we have a lot of capacity at those facilities. And as far as the journey goes, we continue to look at North America as well and what we can do to continue to wring costs out. So I'd say while it's kind of 80-20 rule we're done, there's still always opportunity to continue to improve and rationalize further.

All right, last one for me. As you gave the full year, anything you want to comment on first quarter outlook? I guess you ended with 4,900 deliveries. How should we think about first quarter? And with that, I thank you for your time.

Hats off to you, Ken. You don't ever know if you don't ask, but no, we're not inclined to give quarterly guidance, unless Justin or Michael, you guys have something you want to share.

No, I think that's fine, Laurie.

Is there a normal seasonal move from how you end in fourth quarter to first quarter, or does that not play just given your move to balance production?

Yeah, and I'll take that one. You know, I do think we'll see a stronger back half of the year than the beginning of the year. You know, we're still working through our backlog, and we're still really excited about, as Brian mentioned in his prepared remarks, that, you know, we're expecting the back half of the year to pick up as well. So, you know, it's probably stronger in the back half than the first half.

And I would say we've also been reminding workforce that – Just because we moved from August 31 to September 1, it's not like we reset the clock. We focus on just moving forward each day, doing the best that we can, and looking to create long-term value for our shareholders.

Thanks for the time, Mo. Appreciate it. Thanks, Ken.

The next question comes from Bascom Majors with Susquehanna. Please go ahead.

Thanks for taking my questions. start out where Ken left off. I know you don't want to give quarterly guidance, nor probably should you, but can we talk about maybe the build pace? I mean, I think there were some prepared remarks talking about we hope they get better in the second half of the year. I would assume that suggests some back-end loadedness, but it doesn't necessarily flow through the bottom line. So can we just walk through kind of maybe frame it as like where we were in 4Q, is that the run rate into 1Q just from a pure production standpoint? And, you know, what sort of recovery are we embedding in the second half? And is that order driven? Thank you.

Yeah, so, Bascom, great. Good to hear from you, by the way. And I would say that we kind of, if you think about the last, four quarters, and then what we see in the next four quarters ahead. You'll see kind of the first two quarters of fiscal 25 were higher production, but we kind of stair-stepped down throughout the year. And we expect the Q1 and Q2 of fiscal 26 to be at similar rates as what we actually did fiscal 25. And then we'll be ramping up in Q3 and into Q4 to kind of ideally have more state stability in fiscal 27. But it's a little more of our normal seasonal back half loading. And some of that is explicitly order driven at this point, just driven by when customers need cars. And some of it is driven by expectations. It's just kind of, you think about longer lead time items and things that we've talked about in the past. You just have to allow a little extra time. You don't turn on light switches or reactivate or ramp up lines overnight, unfortunately. And we could probably, if there's any additional kind of detailed questions, we can handle that in our call-downs as well.

Yeah, and just to maybe frame it up qualitatively, though, is The production plan based on the current backlog, back half loaded, or is there an assumption that orders could improve to drive that back in loadedness primarily?

It's based on backlog orders that we're in discussions with that we expect to finalize, and then a fair amount, not a fair amount, but some improvement as we turn the year into calendar 26, just based on what customers are telling us they need.

And I would say that we go into every single fiscal year with some open production because we actually, that's beneficial for us to be able to be quickly responsive to customers' needs.

Yeah, and just, this is Brian, just chiming in a little bit as well on the order side. So when we think about the previous question, when it was related to locomotives, keep in mind that there's a real large number of cars that continue to attrit out of the North American fleet. And we're at the lowest levels that we've been in probably four or five years from a national fleet perspective. So there still is a lot of replacement-driven demand versus growth demand, which may be different than what the locomotive people and some others are seeing in our space.

All right. Thanks for that. can we talk a little bit about the balance sheet and funding for the leasing business? I mean, you talked about hitting your recurring revenue or being on pace for your recurring revenue target. And do you expect your investment in the lease fleet to be similar? And, um, you know, uh, over the longterm, I know you have a CapEx guide for this year, but over the longterm, do you think that's pretty similar year to year or is there some cyclical gyrations to that? And, and, and, Maybe lastly, as part of that, has the secondary market maintained its stability, and do you have product to continue to support a P&L impact from that net revenue, or sorry, or net sales piece of the net capex? Thank you.

And so maybe I'll just say something right quick, and then I know... Michael and Brian will fill in behind me, but we are looking at all opportunities. We do see secondary market opportunities as well as new lease originations that can go into our lease fleet. So we have got a focused and agile leadership team that is going to be Velcro to our customers to understand their needs and figure out how we can drive value.

Yeah, it's Brian. I just would add that our strategy remains consistent. We have talked about adding about $300 million net each year. That continues to be our plan, good, steady growth. However, to Lori's point, the secondary market is still very robust. There's a number of books in the market today that we're looking at as well as others, and we have assets that we continue to trade as we rebalance portfolios and we think strategically about how we align our lease fleet long term.

So we're very active in the secondary market. And from a shaping perspective,

you talked a little bit about the production plan and, and reasons why you think it can be a stronger in the second half of seasonality and some of the conversations you're having with your customers that you think will convert in the calendar 26 is, I mean, you've talked about your cost takeout program in Europe and, and, and, and frame that as maybe one driver to margins. Uh, But beyond that, is it really just production rates and absorption that are going to be the biggest, you know, directional driver of margins? Or are there some other things going on between pricing or other inputs that we should think about on the margin cadence for the year?

As we think about Bascom from a cost takeout perspective, this is actually an interesting time period from an operational perspective because we This is giving the manufacturing teams an opportunity to take a little bit of a deep breath and look at not just our overhead costs, as we've talked about in the past, with an eye for reduction, an eye for reducing inefficiencies, but also take a look at overall our production processes and take unnecessary moves out and basically take hours out, take costs out. And it's kind of a soup to nuts approach of how can we reimagine some of our production processes and manufacturing. And so what we're seeing is as we started this journey, as Lori and Brian and Michael mentioned over the last few years, but this is an opportunity this year as we've got a little bit of a slower cadence in the first half to focus on some of that activity versus just trying to get cars out the door as effectively as possible. And so this is an opportunity where we're able to redeploy some of our plant engineers, our industrial mechatronic engineers, and move them around to different facilities and cross-pollinate to make sure that we're sharing best practices, make sure we've got uniform designs. And all of these are really adding up to improved margins It's not just about overhead absorption, although that always plays a key role as well.

Which I'll then throw in a plug for why we keep thinking differently about how do we serve our markets. And if it means doing, what do you call it, programmatic?

Yeah, rail car restorations.

Programmatic rail car restorations in what would be traditionally a new car facility. That's fantastic. And it's utilizing capacity where we've made an investment. It absorbs overheads. And it generates good returns.

Thank you for that.

And maybe lastly for me, can you talk really high level about the competitive landscape in new car builds and order taking? I mean, has price become more difficult as the production rate of the industry has gone down to this level? Has it been pretty stable? I mean, you've been pretty clear on focused on doing the right things for your shareholders and returns on your business. But if you just kind of talk about the back and forth between you and the remaining competitors in the space and whether that's stable or getting more competitive into this downturn. Thank you.

Yeah, it's a good question, Bassam. It's Brian. And at the end of the day, it's a little of both. When you look at the more commoditized markets, some of your covered hopper cars and what have you, you're seeing a lot more pricing pressure on cars. I'd say that everybody can build versus tank cars and some of the more niche cars that we're building today. So it's a mixed bag. You're seeing good discipline on the tank side. You're seeing good discipline on other specialty type cars, which is quite a bit of the market today. But where you do see the pricing pressure is on those cars that I deem more commoditized, you know, grain cars and things like that.

All right. Thank you for the time this evening. Thank you, Bascom. Have a good rest of your evening.

And with that, we'll go ahead and end the call. Thank you very much for your time and attention. Oh, sorry, Lori wants to say something.

And I was just going to say, for all of our employees that are listening to the earnings call today, I want to, again, appreciate all of the work that each of you bring every day, staying safe and executing to take care of our customers and each other to generate record year of financial performance. Thank you very much.

Thank you very much, everyone. If you have questions, please reach out to InvestorRelations at JBRX.com. Have a great evening.

Thank you for attending today's presentation.