Operator
Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the GATX 2025 second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Sherry Hellerman, Head of Investor Relations. Please go ahead.
Sherry Hellerman Thank you, Eric. Good morning and thank you for joining GATX's 2025 Second Quarter Earnings Call. I'm joined today by Bob Lyons, President and Chief Executive Officer. Tom Ellman, Executive Vice President and Chief Financial Officer. Dan Paul Titterton, Executive Vice President and President of Rail North America. As a reminder, some of the information you'll hear during our discussion today will consist of our forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10 for 2024 and our other filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Earlier today, GATX reported 2025 second quarter net income of $75.5 million, or $2.06 per diluted share. This compares to 2024 second quarter net income of $44.4 million, or $1.21 per diluted The 2024 second quarter results include a net negative impact of $8 million or $0.22 per diluted share from tax adjustments and other items. Year to date 2025 net income was $154.1 million or $4.21 per diluted share. This compares to $118.7 million or $3.25 per diluted share for the same period in 2024. The 2024 year-to-date results include a net negative impact of $7.4 million, or $0.20 per dealer share from tax adjustments and other items. These items are detailed in the supplemental information section of our earnings release. Now I'll briefly address each of our business segments, and after that we'll open the call up for questions. At GATX Rail North America, we continue to experience stable demand for rail cars. Our fleet utilization was 99.2% at quarter end and our renewal success rate was strong at 84.2%. We continue to achieve strong renewal lease rate increases while successfully extending The renewal rate change of GATX's lease price index was positive 24.2% for the quarter and the average renewal term was 60 months. Additionally, we continue to successfully place new railcars from our committed supply agreement with a diverse customer base. We have placed over 6,500 railcars from our 2022 Trinity supply agreement. Our earliest available scheduled delivery under this supply agreement is in the first quarter of 2026. The secondary market in North America remains robust. We generated over $34 million in remarketing income during the quarter, bringing the year-to-date total to approximately $65 million. Turning to Rail International, GATX Rail Europe utilization was 93.3% at quarter end. As noted in the release, the business environment in Europe is challenging and uncertain relative to either North America or India. Given macro headwinds and slower GDP in Germany, some customers are delaying their fleet planning decisions, which is impacting fleet utilization. Despite current conditions, we maintain a positive long-term outlook on the European rail car leasing market and will continue to look for attractive investment opportunities there. In India, freight volume continues to benefit from the country's ongoing infrastructure investments. As such, we continue to see strong demand for rail cars in India. GATX Rail India's fleet utilization remained high at 99.6% at quarter end. Within engine leasing, our joint venture with Rolls-Royce and our wholly owned engine portfolio produce excellent second quarter results. A strong global air passenger volume continues to drive robust demand for aircraft spare engines. We're seeing very strong demand across engine types from global air carriers, and the secondary market for engine sales is healthy. Regarding the pending Wells Fargo rail transaction announced at the end of May, we're excited about the opportunities it offers, but due to the customary regulatory reviews, all of which are underway, at this stage we're limited in what we can say beyond what we've already disclosed. Finally, reflecting our year-to-date performance and outlook for the balance of the year, we are increasing our 2025 full-year earnings guidance to a range of $8.50 to $8.90 per diluted share.
Operator
This guidance excludes the impact of tax adjustments or other items and excludes any impacts from the wells fargo transactions and those are our prepared remarks i'll hand it back to the operator so we can open it up for q a at this time i would like to remind everyone in order to ask a question please press star followed by the number one on your telephone keypad your first question comes from the line of andres tomzik with goldman sachs please go ahead yeah hi good morning um thanks for taking my question the first one just given
the this morning deal announcement for a potential transcontinental merger was curious if you could share any initial thoughts and how this could impact the overall leasing business andre this is uh bob lyons um yeah i mean given the fact that the announcement was just made this morning it's difficult to assess particularly given the timing uncertainty and you know conditions that may be put on the parties to the merger so right now very difficult to assess you know longer term greater efficiency on the rails more product moving by rail more carload traffic all of those are long-term good things for rail car lessors.
Understood. Appreciate the thoughts. Just switching gears a little bit, your lease renewal rate, the change was 24% in the second quarter, which was similar to last quarter. Are you seeing any indications that we could continue to hold the high lease price renewal? And I guess in what type of environment could we see that re-accelerate?
So this is Paul Titterton speaking, and thanks for the question. Yeah, I mean, broadly speaking, what I would say is the market for existing railcars remains pretty similar to how it's been the last few quarters, which is to say that pricing remains relatively strong. And of course, we've got expirations coming off of a weaker pricing environment. And so that has continued to provide a pretty strong LPI result. You know, at this point, I would say in the absence of any stimulus, positive or negative, we continue to see kind of more of the same from a pricing standpoint. So, you know, either up or down, there would have to be some external catalyst to really change that environment and the best predictor in terms of absolutely.
Yeah, and I would just add, Andre, too, that, you know, all of the elements of the supply-led recovery that we've talked about now for many quarters in a row very much remain intact.
Got it. so we can just assume sort of normally sequentially increasing or flattish overall absolute lease rates. Is that the right way to think about it?
Yeah, I would say flattish is probably pretty reasonable. That's what we've been seeing for quite some time now.
Understood. And then lastly for me, we saw intra-quarter the EU had set a provisional deadline of August 20th to rule on your merger, or the JV, sorry, with Wells Fargo and Brookfield. I'm just curious, is there anything to read into there in terms of approval timelines, anything tracking earlier than expected, or are we still on the same sort of runway?
No, nothing unusual about that particular filing or the response from the EU Commission. So, everything is tracking as planned in terms of filing and timeline. So no change in our Q1 2026 or earlier estimate from prior.
Got it. Thanks for the questions and congrats on the next quarter. Thank you.
Operator
Your next question comes from the line of Brendan McCarthy with Sidoti and Company. Please go ahead.
Great. Good morning, everyone. Thanks for taking my questions here. I wanted to look at the engine leasing business to start off. It looks like results from RRPF step down a little bit from last quarter. I'm just curious as to what the profit mix has been there through the first six months of the year, whether it be operating income or remarketing gains, and maybe talk about your expectations for the remainder of the year.
Yeah, thank you for the question. This is Tom. Just to give you the numbers for the second quarter, operating income was about 85% of the total and remarketing was about 15 so year to date were around 70 30 operating income to remarketing activity as we mentioned in the press release the key reason that we're taking up guidance is the performance at in the engine leasing business so we expect that to be strong through the rest of the year and one of the things that I think you'll see is over time, the remarketing side of that.
Great. That makes sense. Thanks for that insight, Tom. And as you look into the back half of the year, are there any, have you noticed any, you know, shifts in demand or changes in the trend as it relates to remarketing income in the engine leasing business?
Yeah, there really isn't a whole lot of trending as far as that goes. it's always very lumpy and and we what we can say is that it remains very strong there's a lot of demand for those those engines in the secondary market so a lot of a lot of remarketing activity available what what really is the question is the timing when does it occur and Brandon I just add to that too it's a bit amplified at RRPF or within our own engine leasing business just given the sheer magnitude of each asset, the net book value, whereas in rail, we're selling hundreds of cars for nice gains.
In the engine leasing business, it's a few engines sold here and there for much more sizable gains. So the magnitude of the shift from quarter to quarter can be a bit more amplified.
Got it. Got it. That makes sense. And when you look at investment volume there. Unless I'm reading into this incorrectly, it looks like there hasn't been any investment volume in the wholly owned portfolio through the first six months of the year, down from about $71 million the same period last year. But I think at one point you mentioned you target roughly $200 million per year. And I know that a lot of that is dictated by what Rolls-Royce decides.
Just curious as to what investment volume might look like for the rest of this year in the in the GEL portfolio yeah so I'll start and I'll let Bob add to it kind of repeating our last answer that that side of the business is also pretty lumpy for the same reason because you know each engine is such a material investment in of itself we certainly expect to see some investment volume in the second half of the year and in coming into the year you know we we had said we thought it would be kind of in that arranged similar to the last couple years but I'll let Bob add to that sure and kind of take it in two parts so you
know the two hundred million dollar number you mentioned certainly still within reason it may be a little less than that just based on as you said where Rolls-Royce has its needs and where it allocates its engine sales but you know we expect a pretty healthy investment level activity in the second half of the year I'd also add that at the joint venture level at our RPF we came into the year I think expecting somewhere in the range of 800 million total investment volume for the year it will be north of that for sure so still seeing very good investment activity overall in the engine portfolio the mix may change a little bit whether it's directly owned or at rrpf uh we participate either way uh so that's uh it's all good on that front that's great thanks bob thanks tom i appreciate the insight that's all from me and congrats again on on a good quarter thank you your next question comes from the line of justin bergner with gabelli funds please go ahead morning tom good morning Good morning, Sherry.
Morning. Good quarter. Thanks for taking my questions. First question, just to verify, is the entire 20-cent guidance increase attributable to engine leasing? And any reason why you might not have considered narrowing the guidance range at this point in the year with it being halfway over? I realize you don't always do that, but just wondering.
Yeah, Justin, certainly the majority of the increase in guidance is due to what we expect to have happen in the engine leasing business. And really, kind of going back to some of Brendan's questions, the reason for that range is because of the scale of each of those remarketing events, it's difficult to really pinpoint the timing. And the same is true, quite honestly, in rail North America, where one of the big pieces of uncertainty is the timing of those various gains that we'll get on the remarketing of the rail cars. So that's really why the range is worth that.
Okay, gotcha. In the last few weeks, have you seen any change or kind of stalling in the secondary market ahead of the speculation relating to today's UMP Norfolk Southern announcement? And do you expect this period of regulatory review and potentially uncertainty to change the secondary market dynamic?
Yeah, Justin, this is Paul, and I'll answer that question. And the answer is no. There's been no slowdown at all. And we really don't think, while obviously the announced merger is very significant for the rail industry overall, in terms of the rail car secondary market, we don't see any impact at all. I mean, really what's driving the rail car secondary market is there's still a lot of capital that wants to invest in rail cars. And because new car volume is down and is expected to stay down for some time, once the flow into the secondary market is robust, and we expect it.
Okay, so even though some of the efficiencies perhaps targeted in today's announcement might mean a slightly smaller need for rail cars if the line can move more productively, you just think that that's trumped by the demand for capital flowing into this space. yeah and historically and looking forward Justin it's Bob you know rail cars through cycles through time over decades have proven to be be tremendous stores of value and and capital you know flows into the market accordingly and it's always been an asset class that people have been interested in investing in and continuing to grow their portfolios we don't see any change in that the other thing I would mention too is like I don't know the stated or unstated period for regulatory approval for that transaction announced this morning but it's likely to be protracted so and then you add integration on top of that you know it's pretty extended period so we're not we're not anticipating any near-term impacts on demands in our portfolio or the secondary market.
Okay. Thank you. And then lastly, strong international performance from a profitability point of view. Any way you can help me decompose that a little bit further beyond, I guess, what was called out in the press release? I noticed the other revenue kind of ticked up, but just, you know, a strong segment profit there sequentially in year-on-year.
Yeah, you've got to look a little deeper at some of those Rail International numbers. So when we came into the year, Bob indicated that the Rail International business would be up between about $5 and $15 million from a segment profit standpoint. And for the first half of the year, we're kind of tracking with that. We're at the lower end of the range. But some of that, most of that actually is driven by, if you correct for that, the segment profit is roughly equal to what we had for the first six months of last year, which is a little bit below expectations. And the reason for that is some of the challenges that we've seen in the intermodal market in Europe have expanded a little bit to a couple other, drop a little bit in the rail international but that'll be a little bit down.
Great. Thanks for taking all my questions.
Operator
Your next question comes from the line of Bascom Majors with Susquehanna. Please go ahead.
Good morning. It's been two months since you announced the Wells deal. I don't know what you've been able to accomplish in due diligence that maybe wasn't allowed during the negotiation process, But can you give us an update on what you've been able to dig into incrementally and if, you know, the synergy expectations for what this can mean on, be it maintenance or other items, are coming into better focus? Thank you.
Sure, Baskin, and I'll just go back to a comment I believe I made on the conference call a couple of months ago at the NMA when we announced the transaction. that given the the length of time we were we were structuring the transaction and in dialogue with Wells Fargo and going through the due diligence by the time we announced the transaction at the end of May there was very little left for us to do in terms of due diligence the heavy listing had been done and Wells Fargo had been very forthcoming and building out an exhaustive data room that had virtually everything you know by and large we would need to complete due diligence so we didn't anticipate finding any surprises post announcement and we haven't I won't comment much more beyond that given that we're we're still not the rightful owner of the portfolio we look forward to closing on it all of the assumptions we had coming into the transaction on the announcement today, they are holding very firm and we feel really very, very positive about the transaction.
What assumption did you make on Synergies when you announced the transaction and when might you update us on what that could look like longer term?
Yeah, we didn't really get into much detail at the time of the announcement. We said it would be accretive, but we hadn't provided much detail on that and won't until we get to closing of the transaction, which we expect Q1 2026 or sooner. When we get to that point and we're at the closing, we can be much more forthcoming with those synergies and the outlook for the portfolio and for the integration with our business.
Operator
There are no further questions at this time. I'd now like to turn the call back over to Shari Hellerman for closing remarks. Please go ahead.
I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Have a great day. Thank you.
Operator
Ladies and gentlemen, this concludes today's call. Thank you all for joining.
