According to their comments on Tuesday’s third-quarter 2022 earnings call with transportation analysts, FreightCar America executives were optimistic about the market environment for new rail cars despite macroeconomic uncertainties.
“The rail car environment is more positive than not,” said Jim Meyer, President, and CEO of FreightCar America. “The more positive aspect stems from what we’re seeing in terms of industry fundamentals and sales and inquiries.” Our concern is about overall macroeconomic uncertainties, such as high inflation and persistent supply chain challenges.”
According to FreightCar America Chief Commercial Officer Matt Tonn, these positive signals include industry orders in Q3 that were consistent with the industry’s demand cycle to replace rail cars, customer feedback indicating high utilization rates for leased rail cars, and high scrap prices. Even though scrap prices have fallen since their peak in March, rail car scrapping has been outpacing rail car deliveries for nearly three years, according to Tonn.
Customers also appear to be concerned with replacing their aging rail cars, according to Tonn.
“Our sales funnel includes a diverse mix of new and existing customers with rail car needs that are well matched to FreightCar America’s product portfolio,” Tonn explained.
Meyer stated that the new fabrication shop for the rail car manufacturer is now complete and will be operational in the third quarter. In addition, the company expanded its wheel-and-axle shop, which now has industry certification and will allow FreightCar America to manufacture axles in-house.
The third production line has begun at FreightCar America’s Castano facility in Mexico, with a fourth set to begin in the first half of 2023.
“These additions will result in significant efficiencies, in addition to the benefits of further scaling and producing more units,” Meyer explained.
Financial results for Q3 2022
In Q3 2022, FreightCar America lost $17.8 million, or 69 cents per diluted share, compared to a profit of $731 million, or 3 cents per diluted share, in Q3 2021.
According to a Monday announcement, the company had a net loss of $5.4 million, or 21 cents per diluted share, on an adjusted basis.
Despite the year-over-year loss, revenue increased 47.1% to $85.7 million in the third quarter. Deliveries increased by 55% in the third quarter, totaling 783 rail cars.
Meyer attributed the “muted” quarter results to a legacy order that resulted in a lower margin and higher costs.
“These items weighed on our profitability and dampened our gross margin, which had been in the double digits for the previous two quarters,” Meyer explained. “We anticipate that these legacy orders will be completed before the end of the year, and that our margin profile will improve beginning in the fourth quarter.” We are actively investigating alternative freight strategies to lower these costs.”
Manufacturing operating income was $3.1 million in the third quarter of 2021, compared to $163,000 in the previous quarter.
“Looking ahead, we will remain cautious and realistic about the potential consequences of a softening market and ongoing supply chain headwinds,” he said. “However, as our plans progress, we expect to be able to capitalize on the next round of rail car market upswing more.”
