Scrapping railcar levels are expected to remain elevated in 2022, which should benefit railcar manufacturer FreightCar America this year, according to company executives during the company’s fourth-quarter 2021 earnings call.
“Since 2020, annual railcar scrapping figures have outpaced deliveries and historical replacement demand as customers retire older and less efficient railcar assets,” Matthew Tonn, a chief commercial officer of FreightCar America (NASDAQ: RAIL), told investors on Tuesday. “With scrap rates remaining historically high, we anticipate that this trend will continue into 2022.”
The North American railcar fleet is also improving, with “some customers reporting near 100% of fleets in use or under the lease,” according to Tonn.
Railcar orders totaled 1,032 in the fourth quarter of 2021, with inquiries coming in for a variety of railcar types.
“We’re seeing activity on all fronts,” Tonn said, “but we’re also seeing demand that’s spreading into the out years on a longer-term basis.” “I can show you that we are already booking orders for next year, and we expect that to continue.”
The company reiterated previously announced plans to finish building additional production lines in 2022, doubling annual capacity to between 4,000 and 5,000 railcars by early 2023. FreightCar America also plans to finish a 162,000-square-foot fabrication shop and expand the wheel and axle shop by mid-2022.
FreightCar America increased its 2022 delivery forecast from 2,350 to 2,650 railcars to 2,600 to 2,900 railcars.
The total number of railcars delivered in 2021 was 1,731, with 604 delivered in the fourth quarter and 505 delivered in the third quarter.
The company has a backlog of 2,323 railcars worth approximately $240 million in the fourth quarter.
According to FreightCar America President and CEO Jim Meyer, the overall year-over-year increase in railcar deliveries was a direct result of an improved cost structure, operating capabilities at the Castaos factory, and an “overall ability to compete.”
In recent years, FreightCar America has closed its manufacturing operations in the United States, consolidating operations and relocating them to Mexico.
“The transition of manufacturing footprint to Castaos translated into approximately $20 million in annual fixed cost savings and 2021 versus the prior U.S. base footprint,” Meyer said. “We expect annual fixed cost savings versus the prior U.S. base footprint to remain above $17 million going forward.”
FreightCar America’s net income in the fourth quarter of 2021 was nearly $1.17 million, or 6 cents per diluted share, compared to a net loss of $14.4 million, or 87 cents per diluted share, in the fourth quarter of 2020.
Revenue in the fourth quarter of 2021 was $75 million, up nearly 24 percent year on year.
Operating income in the fourth quarter of 2021 was $63,000, owing to higher manufacturing operating income, compared to a loss of $9.2 million in the fourth quarter of 2020.
According to executives, the company manufactures all of its railcars in Castaos, and higher railcar volumes have allowed FreightCar America to leverage the business’s operations, directly impacting manufacturing operating income.
