News Column

GATX Reports 2013 Fourth Quarter and Full-Year Results

February 2, 2014

GATX Corp. reported 2013 fourth quarter net income of $53.3 million or $1.14 per diluted share, compared to net income of $29.7 million or $.62 per diluted share in the fourth quarter of 2012. The 2012 fourth quarter results include a benefit from Tax Adjustments and Other Items of $2.8 million or $.06 per diluted share. In a release on January 23 , the Company noted that net income for the full-year 2013 was $169.3 million or $3.59 per diluted share, compared to net income of $137.3 million or $2.88 per diluted share in the prior year. The 2013 and 2012 results include benefits from Tax Adjustments and Other Items of $4.5 million or $.09 per diluted share and $3.5 million or $.07 per diluted share, respectively. Brian A. Kenney , president and chief executive officer of GATX , said, "During 2013, we capitalized on the exceptionally strong demand for tank cars in North America by locking in historically high lease rates for very long terms. This strategy caused a positive 34.5 percent renewal rate change in GATX's Lease Price Index ("LPI") for full-year 2013, while the average renewal term for cars in the LPI was 62 months. We achieved these results despite the challenging freight car market, as weakness in demand persisted for certain freight car types such as coal. "Fleet utilization was approximately 98 percent throughout the year, and our renewal success rate was just over 80 percent. We grew the North American fleet with railcar investment of over $500 million through select opportunities to purchase railcars in addition to investments made under our existing supply agreement. We also optimized our fleet by selling targeted car types, and in the process generated more than $50 million in asset remarketing income. As we expected entering 2013, compliance-related maintenance activity increased in North America , driving maintenance expense higher by 13 percent from 2012. "GATX Rail Europe ("GRE") performed well in 2013's weaker European railcar leasing market by scrapping older, less efficient tank cars and replacing them with newly built cars, which resulted in reduced maintenance expense as well as increased utilization of 96.8 percent at year end. GRE's 2013 investment volume exceeded $160 million . " American Steamship Company's ("ASC's") 2013 results were in line with our expectations, though operations were hampered by low water levels on the Great Lakes early in the shipping season and adverse winter weather conditions in the fourth quarter. Within the Portfolio Management segment, the Rolls-Royce and Partners Finance affiliates had another year of strong performance. "As we enter 2014, we expect an increase in segment profit in Rail North America as lease revenue continues to increase. Lease rates on most tank car types are at record highs and the environment currently appears stable. We plan to capitalize on the continued high demand by placing railcars on very long-term leases. The growing lease revenues should more than offset a modest decline in remarketing income and increased maintenance expense as we work through the tank car compliance cycle. "We expect a slight increase in GRE's segment profit in 2014 due to slowly improving market conditions. Investment volume at GRE in the past two years was at the highest level since we made our initial investment in Europe nearly twenty years ago, and we anticipate another strong investment year in 2014. This reflects our commitment to assist our customers with the fleet replacement that must occur in the European tank car market. "ASC's shipping volume should improve in 2014 due to recapturing some of the tonnage lost during the very challenging weather conditions in the fourth quarter of 2013. This should positively impact their segment profit. At Portfolio Management, we expect continued strong performance at the Rolls-Royce affiliates but slightly lower remarketing income in our owned portfolio, resulting in a modestly lower year-to-year profit comparison within this segment. "Overall, we are optimistic about the year ahead. Our North American and European rail platforms are well situated to benefit from positive trends in their respective markets. Importantly, the steps we took during the recession to be able to capitalize on this stronger market will pay benefits for years to come. We currently expect 2014 earnings per diluted share to be in the range of $3.85 - $4.05 , which would mark another record EPS level for GATX . "Another factor to consider is the recent, serious accidents in crude by rail transportation, which have created uncertainty around how new and existing tank cars must be outfitted for this type of service. As a result, it is likely that tank car regulations will change and we may incur costs to ensure that our fleet continues to operate safely. It is not possible at this time to estimate the extent or timing of any regulatory changes, or what impact they might have on GATX , therefore we have not incorporated any related regulatory compliance costs into our earnings estimate." Commenting on the dividend and share repurchase authorization, Kenney added, "The board of directors declared a quarterly dividend of $0.33 per common share, payable March 31 , to shareholders of record on February 28 . This represents a 6.5 percent increase from the prior year's dividend on an annualized basis. The increase is reflective of the board's favorable expectations for GATX's long- term performance and demonstrates a continued commitment to our shareholders. "Additionally, the board approved a $250 million share repurchase authorization. Having fully exhausted the prior $200 million authorization, the new authorization provides an avenue for returning capital to shareholders. Given our lease rate and lease term achievements in North America in recent years, we have embedded a high level of quality, committed cash flow into the business for an extended term. This cash flow will enable us to continue to invest aggressively in our markets, return capital to shareholders both through our dividend and share repurchase activity, and maintain a strong capital structure." RAIL NORTH AMERICA Rail North America reported segment profit of $75.2 million in the fourth quarter of 2013, compared to $59.8 million in the fourth quarter of 2012. Full-year segment profit was $231.6 million in 2013, compared to $209.3 million in 2012. The improvement in quarterly and annual segment profit was driven by higher lease rates and increased asset remarketing income, partially offset by higher maintenance costs due to increased compliance work, and higher depreciation expense as new cars were added to the fleet. At December 31, 2013 , Rail North America's fleet totaled approximately 109,000 cars. Fleet utilization was 98.5 percent, comparable to the end of the third quarter, and 97.9 percent at 2012 year end. During the fourth quarter of 2013 the GATX Lease Price Index ("LPI"), a weighted average lease renewal rate for a group of railcars representative of Rail North America's fleet, increased 37.1 percent over the weighted average expiring lease rate. This compares to a 34.3 percent increase in the prior quarter and a 32.3 percent increase in the fourth quarter 2012. The average lease renewal term for cars included in the LPI during the fourth quarter was 60 months, compared to 63 months in the third quarter and 65 months in the fourth quarter of 2012. For the full-year 2013 the LPI increased 34.5 percent and railcars in the LPI had an average renewal term of 62 months, compared to an increase of 25.6 percent and average renewal term of 60 months in 2012. Rail North America's investment volume in 2013 was more than $500 million . RAIL INTERNATIONAL Rail International's segment profit was $19.6 million in the fourth quarter of 2013, compared to $10.5 million in the fourth quarter of 2012. The 2012 fourth quarter results include the negative pre-tax impact from Other Items of $2.0 million . Rail International reported segment profit of $97.4 million in 2013, compared to $32.7 million in 2012. The 2013 and 2012 results include the pre-tax benefit from Other Items of $17.0 million and the negative pre-tax impact from Other Items of $22.9 million , respectively. The increase in full-year and quarterly segment profit was primarily driven by activities in Europe , including increased lease revenue due to more railcars on lease and higher lease rates and lower maintenance expense, partially offset by increased depreciation due to investment activity. At the end of 2013, Rail International's fleet totaled approximately 22,000 cars and utilization was 96.6 percent, compared to 96.2 percent at the end of the third quarter and 95.1 percent at 2012 year end. Investment volume in 2013 at Rail International was nearly $170 million , primarily for new tank cars in Europe . Additional current and historical fleet and operating data as well as macroeconomic data related to Rail North America's and Rail International's business can be found on the last page of this press release. AMERICAN STEAMSHIP COMPANY American Steamship Company ("ASC") reported segment profit of $5.1 million in the fourth quarter 2013 compared to $8.2 million in the fourth quarter 2012. The decline in segment profit was due to significant weather delays. Segment profit for 2013 was $28.9 million compared to $37.5 million in 2012. The decreased segment profit was primarily due to the lower volume of iron ore carried. ASC operated 13 of its 18 vessels during the year and transported 28.8 million net tons of cargo compared to operating 14 vessels which carried 29.7 million net tons in 2012. The Company also noted, Portfolio Management reported segment profit of $26.9 million in the fourth quarter of 2013 compared to a segment loss of $1.4 million in the fourth quarter of 2012. For full- year 2013, Portfolio Management reported segment profit of $74.4 million compared to $50.2 million in 2012. The increase in quarterly and annual segment profit was primarily due to the absence of a $14.8 million loss recognized in the fourth quarter of 2012 associated with the disposition of an affiliate investment, and improved results from the Rolls-Royce Partners Finance affiliates. The Portfolio Management segment's owned assets have a net book value of approximately $857 million and third-party managed portfolios have a net book value of approximately $125 million . GATX Corp. strives to be recognized as the finest railcar leasing company in the world by its customers, its shareholders, its employees and the communities where it operates. More information: gatx.com ((Comments on this story may be sent to newsdesk@closeupmedia.com ))


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