Johnstown America Sees Strong Earnings For 4Q
Dow Jones Newswires -- October 28, 1998
(This company sells for a PE of 4! and just totally
blew away analyst estimates for the quarter of about
.56 with earnings of .82, and the stock went DOWN
yesterday. And they say earnings are going to be
strong again next quarter. Go figure.)
By Ann Keeton
CHICAGO (Dow Jones)--Johnstown America Industries Inc.
(JAII), whose third-quarter earnings were nearly five times
those of a year earlier, expects to continue on the same
track through the end of the year, Chief Financial Officer
Andrew Weller told Dow Jones.
The Chicago maker of freight-hauling trucks and railroad
cars Wednesday posted earnings of 82 cents a share for the
quarter, up from 17 cents a year earlier. Figures for both
periods exclude one-time items.
A surge in domestic demand for freight-hauling railroad
cars has fueled Johnstown's revenue growth for the past
four quarters. In the third quarter, revenue from those
products came in at $137.1 million, up from $84.1 million
a year earlier.
"We expect to maintain current levels of production and
shipping in the fourth quarter," Weller said, although he
declined to comment on earnings projections. The company
posted net income of 18 cents in fourth quarter 1997.
While the entire industry has an order backlog of 75,000
units for rail cars, he said, production for the full year
will only reach 70,000. Backlog at Johnstown has grown to
25,000 units from 5,000 at the end of March.
One reason demand for railroad cars has grown is that
"the age of the fleet in the U.S. is about 20 years" so
many of the cars need to be replaced, Weller said.
Also, he said, customers would prefer to own newer cars
as soon as possible. "The new cars are much more efficient,"
he explained. "New aluminum cars can haul 20% more than
the old steel cars."
Johnstown America Financial Chief Weller said an economic
slowdown would eventually hurt business. although today's
manufacturing practices may insulate the company somewhat.
"Manufacturers fill orders on a just-in-time basis now,"
he explained. "They want a truck to show up every day, so
whether a company is making 100 widgets a day or 80 widgets
a day, they still want to see the truck pull up."
Much more freight is moving in and out of ports on a
daily basis than in the past, he added.
Some of Johnstown's competitors are courting a new wave
of global customers, but Weller said such business is an
interesting but relatively small opportunity for the
company. "Sales outside the U.S. now represent about
5% of our total business," he said. "That's significant
because it's up from nothing a few years ago, but domestic
business will continue to be much more important."
In the third quarter, the company sold 180 kits to
construct aluminum rail cars in Brazil, and another
order will be going out before the end of the year.
In addition, Weller said, Johnstown has sold freight
cars to Columbia. South America will be a good market
in the future, he added.
Weller characterized the company's truck business as
"good," generating third quarter revenue of $73.9 million,
compared with $72.9 million a year ago.
Recently Johnstown's stock was trading at 14 9/16.
Compared with many stocks this year, it has traded rather
consistently, hitting a 52-week low of 8 11/16 in December
and a high of 19 15/16 in July. Following an 8% jump
Tuesday, it closed Wednesday at 14 1/2, down 3/4, or 4.9%.
Piper Jaffray Inc. analyst Greg Kanezny said the backlog
of rail car orders should keep Johnstown going strong through
1999, "but after that it's hard to say. It is a cyclical
business and they are dependent on external factors in
the economy."
Kanezny sees a lot of value in the stock right now.
"Investors have shied away from this company because it
had been carrying a lot of debt," he said, "but you really
have to give them credit for good management."
The company is in the process of paying down that debt,
originally incurred from a 1995 acquisition.
Its debt-to-equity ratio will soon reach 60%
from a high of 80%.
Kanezny suggested Johnstown still needs to refinance
some expensive junk bonds, and in the coming year,
another acquisition would make sense.
"There aren't really any opportunities in the rail car
side of the business," he said, "but in heavy tracks,
there is some consolidation going on, and they could
add to that business."
- Ann Keeton; 312-750-4120
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