Re: Trinity Industries Inc. (TRN)
I have finished reading the conference call transcripts and believe their business lines remain solid and they should continue to see double digit growth out through 2016. The company's Rail car Division is operating almost at capacity and is even having some part shortages at their Mexico facility. Also, management stated that new orders (usually those out over a year) are sporadic and depend on many variables: AG commodity harvest, replacement cycles, new expanding markets due to lower oil prices from specialty chemical & refined products etc.
From the conference call:
we typically don't provide breakout of our backlog into 2015 and 2016. But I'm very pleased with the visibility we have into our production plans to go well into 2016, and some of our lines actually go into 2017 as well. Their current backlog includes some order out to 2017.
From the CEO:
I think it's hard to talk too much about 2016. Now, as you said, it is April. Well, we certainly have portions of our $7.8 billion backlog that extended into 2016 as Steve and others have mentioned. That gives us some visibility, but it's hard to get too detailed about that. As Steve and I both talked about, we do have ongoing conversations with institutional investors to maintain sales of leased railcars contributing to earnings as a normal part of our business model. We have a lot of capital investment opportunities, and our goal is to have sustained earnings growth as the focus of the company ------------------------------------------------------
Management looks at also expanding their leasing business, selling older railcars while upgrading their fleet (especially oil tank cars to meet the new proposed standards). The key is to keep their factories running at/near capacity and using any free capacity to add new railcars to their lease fleet.
Also, I found that some of their other lines of business are growing and those division typically have higher margins too. The two areas that caught my attention were (1) wind tower business and (2) specialty barges. They have growing backlogs here too but still relatively small when you compare it to their rail business. Their Trinity Division (specialty tank cars and wind towers) shows good growth and margins.
Finally, the company is paying down debt and will have more capital to invest as orders are completed. They mentioned the possibility of an acquisition if the synergies made sense. GE's railcar fleet is on the block (part of GE capital exiting the rail car lease market) and those assets if bought could increase their FCF and provide a good return on their investment.
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2015 annual EPS is $4.10 to $4.45 at $28.70/share stock price has a PE of 6.83. BV is at $19.25/share and growing and they will pay down 10% of their long term debt (... we expect to prepay in full approximately $340 million of leasing debt that we issued in 2008 ) by the end of 2015.
So, their back order book can be a bit misleading as far as the potential for new order growth. Their historical back order goes out as far as 3 years and I expect that new orders will be added to that amount in 12-18 months.
It seems like the company has most everything working. Other companies I have looked at in Europe/Germany and India look attractive w/ great growth prospects (especially India). But why take on that extra global risk when TRN is in the sweet spot w/ their U.S. businesses and can benefit from the U.S. shale expansion even when oil prices are low (specialty tank cars to move processed chemicals).
I would like a higher dividend and maybe the company would consider that once they see their FCF stabilize from their leasing division and/or they make an accretive acquisition. They have $193.6 mln authorized for stock buy back which represents 2.65% of their outstanding shares if purchased at $30.00/share.
EKS |
