Earnings Call Transcript
GREENBRIER COMPANIES INC (GBX)
Earnings Call Transcript - GBX Q4 2021
Operator, Operator
Hello and welcome to The Greenbrier Companies Fourth Quarter of Fiscal 2021 Earnings Conference Call. Following today’s presentation, we will conduct a question-and-answer session. Each analyst should limit themselves to only two questions. Until that time all lines will be in a listen-only mode. At the request of the Greenbrier Companies, this conference call is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts, you may begin.
Justin Roberts, Vice President and Treasurer
Thank you, Ailie. Good morning, everyone, and welcome to our fourth quarter and fiscal 2021 conference call. Today Greenbrier announced that effective March 1, our founder Bill Furman will transition to the role of Executive Chairman and the appointment of Lorie Tekorius as Greenbrier’s next CEO and President. In addition to Bill and Lorie, Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer and Adrian Downes, Senior Vice President and CFO are participating in today's call. Following our update on Greenbrier’s performance and our outlook for fiscal 2022, we will open up the call for questions. In addition to the press release issued this morning, additional financial information and key metrics can be found in a slide presentation posted today on the IR section of our website. Matters discussed on today's conference calls include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we will describe some of the important factors that could cause Greenbrier’s actual results in 2022 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier. And now I'll turn the call over to Bill.
Bill Furman, Executive Chairman
Thank you, Justin, and good morning, everyone. As Justin indicated earlier today, we announced our Board of Directors has elected Lorie Tekorius, Greenbrier’s current President and Chief Operating Officer, to be the company's next Chief Executive Officer, a position she will assume on March 1, 2022. Lorie and I, along with the board, have been working towards this goal for several years. Together, we built a very strong talent bench. I'm very pleased with the teams we have in place for the future. And I'm also pleased with the strategy that Lorie has evolved, which I believe will take the company to greater heights. I would like to take this opportunity to congratulate Lorie. Lorie, I know you will do an outstanding job as Greenbrier’s next CEO, and I look forward to working with you through the transition. I'm very proud of you. Everyone joining us today should understand our joint commitment to ensure the smoothest possible transition. When Lorie becomes CEO, I will concurrently assume the newly created role of Executive Chair until September 2022, when I'll retire from an executive position. In this role, my focus is on continuing to work with our Board of Directors as well as support Lorie in her transition to CEO. I will remain as a board member until 2024. This transaction transition is coming at an important and exciting time for the company. As we've discussed over the past several quarters, the recovery in our end-markets is gaining momentum. Our fiscal fourth quarter is Greenbrier’s strongest quarter of the year. Greenbrier’s fiscal fourth quarter was, in fact, our fifth consecutive quarter with increased new railcar order activity. It was also Greenbrier’s third consecutive quarter with a book-to-bill ratio over 1, leading to a book-to-bill of 1.33 for fiscal 2021. The spread of the Delta Variant has created challenges worldwide for business and society. And it has made the pace of the recovery partly unpredictable. It continues to impact Greenbrier on a personal level. Both vaccinated and unvaccinated individuals across our workforce have experienced isolated COVID-19 infections during the fourth quarter. I was one of them, along with my wife Jane, despite being both double vaccinated. Fortunately, our symptoms were mild and we have fully recovered. Thanks to our COVID-19 safety practices, we have avoided widespread outbreaks at all facilities. Sadly, however, we’ve recently lost another colleague, Pedro Gonzalez. Pedro is an 18-year veteran of the GRS, Kansas City Wheel Shop. He is the 10th member of the Greenbrier family we have lost to COVID-19. We are supporting his family during this difficult time. We're urging people to get vaccinated and to keep social distancing. The health and safety of our employees is paramount. We continue to maintain a vigilant posture, particularly as we integrate new manufacturing employees in response to expanding production capacity. Of course, the virus is not the only issue to be faced. Global markets have been impacted by labor shortages, supply chain disruptions, volatile commodity markets, and other disruptive headwinds. These factors persist as we look to Greenbrier’s fiscal 2022. And this is all in addition to what I would term the regular challenges for a manufacturing, maintenance, and leasing business as we transition from low production after a rapid downturn and then a rapid spike in employment rates to higher employment and greater levels of production activity. So this is an environment that demands the disciplined strategy we've adhered to since the outset of the pandemic. It also demands our best efforts. Specifically, our strategy has been to first maintain a strong liquidity base and balance sheet. Next, to survive the COVID-19 and economic crisis by safely operating our factories while generating cash flow. Everyone knows that in an upturn, cash is required to replenish working capital and for growth. Finally, we needed to prepare for and manage well during the economic recovery and the forward momentum in our markets, which is now well underway. Our actions have been purposeful and successful, and they are the result of a strong team effort. A flexible approach and scalable manufacturing capacity are both central to Greenbrier’s response to an improving market outlook. The demand outlook is strong across all of our markets globally. Notwithstanding the impact of elevated steel and other input prices on our customer’s decision-making processes, I'm proud of how seamlessly our teams are ramping up production lines by the end of November from just nine lines of operation at lower rates of production only nine months ago. This pace of our strategy has presented notable challenges and operational risks as we add a large number of new production lines, many involving product changeovers and adding new people. Safety, availability of labor, and supply chain constraints are key priorities for Greenbrier to manage as production increases. Importantly, our liquidity position remains strong; maintaining it remains a top priority. We are balancing efficient management of working capital with protecting our supply chain and ensuring production continuity. Before I conclude today and hand the call over to Lorie, I'd like to remind our listeners that we do not expect the market recovery to follow a smooth, straight line. Our industry is still recovering from the shock caused by the pandemic. Uncertainties and obstacles do remain. It is clear, however, that our strategy has produced and is producing results. I believe we are well on the other side of where we have been. We're also pleased to have recently increased the scale of our leasing fleet through our GBX leasing joint venture. Our lease investment provides Greenbrier tax-advantaged cash flows, which reduces and, in the future, will continue to reduce exposure to the inherent cyclicality of freight transportation equipment manufacturing and other sources. At GBX leasing, we are building a long-term annuity stream with solid credits, longer and balanced maturity ladders, and product diversity. While doing so, we are foregoing some immediate revenue recognition in the short term to build for the future. All factors considered, Greenbrier is extremely well positioned to navigate the months ahead and deliver further value to our shareholders. Before electing Lorie as CEO, we thought it was important that she sketched out her strategy for the future. She spent four or five months thoughtfully putting together that strategy. In the future, we'll be happy to share the changes that this will bring. But as I headline, we look to technology, diversification, services, and other ways to take the cycle out of the inherent manufacturing business cycle and grow for the future. With that, I'm pleased to turn the call over and with my further congratulations to our next CEO, Lorie Tekorius. Lorie?
Lorie Tekorius, CEO
Thank you, Bill, and good morning, everyone. I want to express my appreciation to Bill and the Greenbrier Board for appointing me Greenbrier’s next CEO. I'm honored and humbled to follow Bill as only the second CEO in Greenbrier’s history. Bill and I have worked together towards this goal for some time, and I feel well prepared. I look forward to continuing to work with Bill on this transition and to build on the strong established foundation he created with our Senior Management team. Today, I will report results from operations that continued the momentum from Q3. Volatility seems to be the new norm, and Greenbrier’s employees rose to the challenge. The resiliency, flexibility, and focus allowed Greenbrier to produce great results in addition to providing excellent levels of service and the production of quality railcars. Supply chain and labor force shortages in the United States are two of the most notable and unfortunately common challenges we are managing today. In the quarter, Greenbrier delivered 4,500 railcars, including 400 units in Brazil. Q4 deliveries increased 36% from Q3, reflecting our successful ramping up production over the last six months. This is our highest level of production and deliveries since fiscal 2020, and we're pleased to see another quarter of double-digit growth. Our Global Purchasing Group continues to do an outstanding job even as disruptions spread from basic raw materials and components to resins, paints, and industrial gases. Our Global Sourcing Team has rapidly responded to changing supply dynamics and continues to take measures to ensure we avoid significant production delays or line interruptions. And while hiring is currently challenging in the U.S., we're fortunate to have a strong, intelligent labor pool in Mexico, allowing us to add over 500 employees during the quarter. Over the last nine months, we've added nearly 2,000 employees in our manufacturing business. Safety continues to be a priority as we bring back our workforce in a measured manner. In our North American network of maintenance and parts operations, or Greenbrier rail services, we continue to make improvements in how we manage our operations and interface with our customers. The continued focus on safety resulted in a record-setting Q4 and full-year safety performance. These positive strides were somewhat offset by labor shortages, impacting operating efficiencies and an obsolete inventory adjustment in Q4. Excluding the inventory adjustment, gross margins would have been similar to Q3. I'm confident we'll be able to leverage the improvements made in GRS for 2022 and beyond. Our Leasing and Services Group, which includes our GBX Leasing operations, had another busy quarter. Nearly 70 million railcars were contributed into GBX Leasing in Q4, bringing the total market value of assets in fiscal 2021 to almost 200 million. Subsequent to year-end, we acquired a portfolio of 3,600 railcars, a portion of which will also be held in GBX Leasing. This purchase provides commodity, age, and credit diversity. Our GBX Leasing fleet is valued at 350 million at the end of September and continues to gain momentum. As a reminder, GBX Leasing is currently utilizing a non-recourse warehouse credit facility, a portion of which we expect to turn out in the next few quarters with more traditional long-term railcar financing. Our enhanced leasing strategy will provide revenue and tax-advantaged cash flow, offsetting the cyclicality of railcar production. Our capital markets team syndicated 1,000 units in the quarter and continues to generate liquidity and profitability. In fiscal 2022, we expect syndication activity to increase meaningfully as overall demand and production levels rise. In the next few weeks, Greenbrier will be publishing its third Annual ESG report. I'm excited about the progress shown in the report on a variety of areas and congratulate our internal ESG team for providing a valuable summary of how Greenbrier is serving its stakeholders. Looking ahead, we continue to see positive momentum in fiscal 2022. Emerging from an economic recession and cyclical trough can be challenging in the best of times. But with the ongoing impact of the pandemic, labor shortages, and supply chain disruptions this year, it is going to be a completely different type of challenge. I'm pleased that we have talented employees and a strong management team with significant industry experience to guide Greenbrier through the next few quarters. I remain excited about the long-term opportunities for Greenbrier and proud to be leading into the next part of our journey as a company. And now Brian Comstock will provide commentary on the railcar demand environment.
Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer
Thanks, Lorie, and good morning, everyone. It feels like much has occurred over the last three months. Overall, the economy continues to be trending in a positive direction, and economic indicators point to a sustained recovery in rail. While this recovery seems to be more unpredictable, we continue to think about it as a sharper V-shaped recovery with a sustainable crest. Now instead of discussing industry statistics, I'm going to focus on a few important things from 2021 and how we're approaching 2022. In Greenbrier's fourth quarter, we had a book-to-bill of 1.5, reflecting deliveries of 4,500 units in orders of 6,700 units. This is the third consecutive quarter of growth in our book-to-bill ratio. For fiscal ‘21, Greenbrier generated orders of 17,200 units and deliveries of 13,000 units, which equates to a book-to-bill of 1.3. International order activity accounted for approximately 30% of this new railcar order activity. New railcar backlog grew by 2,000 units or nearly 400 million of value to 26,600 units with an estimated market value of $2.8 billion. Operations in each continent we operate in are carrying backlog that supports production well into fiscal 2022. Notably, we ended the fiscal year with a record backlog for Europe, where we have many production lines booked into fiscal 2023. Greenbrier’s lease fleet utilization ended August 21 at roughly 94% and has grown to over 96% year-to-date. Additionally, we are seeing improved lease pricing and terms on all new lease originations and lease renewals. We have seen recovery in all of our markets. We have also seen significant increases in raw materials, components, and shortages of basic supplies. We have seen traffic congestion throughout the network, especially at the ports, where a record-setting number of ships are waiting to be offloaded, underlining the fact that when you shutdown large portions of a global economy, turning it back on is not as easy as just flipping a switch; there will be disruptions and unintended consequences. However, we continue to see growth opportunities in our global markets. Europe is beginning to see the benefits of broad scale economic reforms to address climate change. We are in the early days of a modal shift to freight from polluting and congested road travel to efficient higher-speed rail service. We believe this modal shift will drive significant growth in railcar demand in the years to come. This growth is in addition to replacement demand, as fleets in EU countries are aging, with many cars already well past the time for replacement. Equally exciting is the future of the North American market. Right now we are seeing a return to replacement demand levels. But imagine what will happen when the United States follows a similar path as Europe. Freight rail is one of the more sustainable solutions because of its environmental friendliness. Similar to Europe, we see an extended period of substantially higher demand, except it involves one of the largest freight rail fleets and systems in the world. With that being said, Greenbrier's global commercial team is focused on not only the basic blocking and tackling of new railcar orders, leasing, and service solutions but also on continuing to develop a more comprehensive and integrated approach for our customers globally. Now over to Adrian for more about our Q4 and full financial performance.
Adrian Downes, Senior Vice President and CFO
Thank you, Brian, and good morning, everyone. As a reminder, quarterly and full year financial information is available in the press release and supplemental slides on our website. Greenbrier's Q4 performance represents the strongest quarter of our fiscal 2021 year as a result of the continuing momentum we've been seeing in our end markets. I will speak to a few highlights from the quarter and general overview of fiscal 2022 guidance. Highlights for the fourth quarter include revenue of $599.2 million, an increase of over 33% from Q3. Aggregate gross margins of 16.4% driven by stronger operating performance as a result of increased production rates, syndication activity, and lease modification fees. Selling and administrative expenses increased $55.4 million sequentially as a result of higher employee-related costs. Adjusted net earnings attributable to Greenbrier of $32.9 million or $0.98 per share, excludes $1.2 million or $0.03 per share of debt extinguishment losses. EBITDA of $70.4 million or 11.8% of revenue. The effective tax rate in the quarter was a benefit of 14.5%. This reflects the tax benefits from accelerated depreciation associated with capital investments into our lease fleet. These deductions will be carried back to earlier high tax years under the CARES Act, resulting in a tax benefit in the quarter and cash tax refunds to be received in fiscal 2022. I'm very proud of the close collaboration between our leasing and tax teams that maximized this benefit for Greenbrier over the course of fiscal 2021. In the quarter, we’ve recognized $1.6 million of gross costs specifically related to COVID-19 employee and facility safety. In 2021, we spent nearly $10 million ensuring our employees and facilities could operate safely. The quarter also included an unfavorable adjustment for labor and materials in our lease business as well as unfavorable access and obsolete inventory adjustments in parts. Adjusted net earnings for the year attributable to Greenbrier was $37.2 million or $1.10 per share on revenue of $1.7 billion and excludes $4.7 million net of tax or $0.14 per share of debt extinguishment losses. EBITDA for the year was $145.2 million or 8.3% of revenue. Greenbrier has a strong balance sheet and with liquidity of $835 million comprising cash of $647 million and available borrowings of $188 million, we are well positioned to navigate the market disruptions we expect to persist into calendar 2022. You may have noticed the tax receivable has grown to $112 million as of August 31. We expect to receive most of these refunds in the second quarter of fiscal 2022. This is in addition to Greenbrier’s available cash and borrowing capacity I just mentioned. In the fourth quarter, Greenbrier completed almost $1.1 billion of debt refinancing, extending maturities of our domestic revolving facility and two term loans into entering 2026 and 2027. In addition to that, GBX Leasing's railcar warehouse credit facility waiver is legacy lease fleet partially covered with a $200 million six-year term loan, while the remaining fleet assets serve as collateral and reimburse $600 million U.S. revolving facility. Also in the quarter, we’ve repurchased an additional $20 million of senior convertible notes due in 2024 and may from time to time retire additional outstanding 2024 notes in privately negotiated transactions within the limitations of applicable securities regulations. Overall in fiscal 2021, Greenbrier completed $1.8 billion of financing activity, including $1.5 billion of debt refinancing and the creation of the $300 million GBX Leasing warehouse credit facility. We have effectively doubled the maturity profile of our existing debt at favorable interest rates and removed the 2023 refinancing risks. Greenbrier’s Board of Directors remains committed to a balanced deployment of capital designed to protect the business and simultaneously create long-term shareholder value. Our board believes that our dividend program enhances shareholder value and attracts investors. Today we announced a dividend of $0.27 per share, which is our 30th consecutive dividend. Based on current business trends and production schedules, we expect Greenbrier’s fiscal 2022 to reflect deliveries of 16,000 units to 18,000 units, which includes approximately 1,500 units from Greenbrier Maxion in Brazil. Selling and administrative expenses are expected to be approximately $200 million to $210 million. Capital expenditures of approximately $275 million in leasing and services, $55 million in manufacturing, and $10 million in wheels repair and parts. Gross margins are expected to be lower in the first half of the year, reflecting a few primary factors. Production reflects more competitive pricing taken during the pandemic 9 to 12 months ago. Early in the year we will have some operating inefficiencies due to product line changeovers and continued production ramping. As production rates stabilize, operating efficiencies will increase, benefiting margins. More production is scheduled for syndication; our leasing fleet activity will be reflected on the balance sheet until final disposition is decided. We expect margins to improve over the course of the year as we work through the less profitable mix, achieve production efficiencies, and other factors. We expect deliveries to be back half weighted with a 40% front half, 60% back half. As Bill mentioned earlier on the call, the introduction of GBX Leasing and our shift in leasing strategy has an impact on our production and delivery activity. Historically, we would build a railcar with a lease and syndicated a few quarters later. Now, in addition to direct sales and syndication activity, a portion of production will be capitalized into our lease fleet. While this activity reduces revenue and margin in the near term, it creates a long-term stable platform of repeating cash flows and income and is part of our strategic shift to smooth the impact of the new railcar demand cycle on our results. In fiscal 2022, approximately 1,400 units are expected to be built and capitalized into our lease fleet. These units are not reflected in the delivery guidance provided. We consider a railcar delivered when it leaves Greenbrier’s balance sheet and is owned by an external third party. We have an experienced management team that has a track record of success in identifying and taking advantage of opportunities, as well as managing through the challenges and factors we described earlier. As a result, we are optimistic that our operating momentum will continue into fiscal 2022, albeit in a non-linear fashion. And now operator, we will open it up for questions.
Operator, Operator
We will now begin the question-and-answer session. Please limit yourself to only two questions. Our first question today will come from Justin Long with Stephens.
Justin Long, Analyst
Thanks, good morning. Bill, it's been a great run, Lorie, a well-deserved promotion. So I'll start by saying congrats to you both on the transition.
Lorie Tekorius, CEO
Thank you, Justin.
Bill Furman, Executive Chairman
Thank you, Justin.
Justin Long, Analyst
Maybe to start with one on the delivery guidance for 16,000 units to 18,000 units this year, how much of that is secured in the backlog today? And I know you called out the 1,500 units for Brazil, but could you also speak to the number of deliveries you're expecting in Europe?
Justin Roberts, Vice President and Treasurer
So in our delivery guidance, between 80% to 90% of that is already included in our backlog. And then our European expectations are kind of in that 4,000 to 4,500 range. So that's kind of the current expectation, although I think if you talk to our European management team, they would be looking to figure out ways to increase production because demand is strong over there.
Justin Long, Analyst
Okay, that's helpful. And then secondly, I wanted to ask about the leasing and services segment. We saw a spike this quarter; any color that you can provide around the tailwinds that you called out, I think it was higher interim rent and lease modification fees, anything that was kind of one time in the quarter, and maybe you can help us think about modeling this segment in fiscal 2022, just because of all the moving pieces with GBX Leasing and syndication activity?
Justin Roberts, Vice President and Treasurer
That's a great question. I wouldn't describe anything that happened in Q4 as one-off or non-recurring; it's simply part of our business where timing can play a significant role at times. Looking ahead, as we develop a lease fleet, the revenue build may be slower and take some time to gain momentum. We're very pleased with our progress this year, and we anticipate seeing some improvement and modest growth in top-line revenue. At the same time, our margin profitability should remain in the 50% to 60% range, similar to past years. Ultimately, we believe we will strive for a stronger year than what we are currently guiding. We will see what we have to say in a year.
Lorie Tekorius, CEO
I would just like to add that we are taking a cautious approach to increasing the number of railcars on our balance sheet. As Justin mentioned, it will take time to balance out the one-time boost we might receive from external sales. However, we believe that for Greenbrier's long-term success, having a steady stream of revenue and cash flow will be beneficial as our fleet expands. Additionally, regarding deliveries, we have been in this industry for a while and prioritize the safety of our workforce. We want to avoid pressuring ourselves to increase production rates unsafely while adding more lines. Our commercial and manufacturing teams have many opportunities, but for now, we are opting for a more cautious strategy. We can provide updates as the year progresses and we gauge our progress.
Adrian Downes, Senior Vice President and CFO
At Lorie, regarding the modeling question on leasing, we anticipate that leasing will have a significant three-year impact on EBITDA, and it is already experiencing rapid growth. It is starting to compete with some of our smaller business units. We are currently 75% above the target of $200 million when considering the portfolio purchase. Therefore, we believe this will become an important segment of our business. As we have done in the past couple of quarters, we will provide more detailed information about the leasing business to enhance transparency regarding leverage and earnings.
Justin Long, Analyst
Great. Thanks, everyone. I appreciate the time.
Justin Roberts, Vice President and Treasurer
Thank you, Justin.
Operator, Operator
Our next question comes from Matthew Elkott with Cowen.
Matthew Elkott, Analyst
Good morning and Lorie and Bill. Congratulations on the upcoming transition. Justin, I think you said 80% to 90% of the expected production for fiscal ‘22 was already in the backlog. But the demand environment is pretty strong and improving. Are you guys factoring in very modest orders throughout the year for ‘22 delivery because you're hitting close to maximum production capacity after the right sizing you have done in the last couple of years?
Justin Roberts, Vice President and Treasurer
I'm going to hand it over to Mr. Comstock, who is managing his daily responsibilities.
Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer
Thanks, Justin, and thanks for the question, Matt. Right now, I think yes, as Justin said, that currently we're looking at probably 80% to 85% of the orders are in the queue. But we continue to look at flexibility in our manufacturing lines, and how we ramp those lines up to accommodate customers and customer’s needs. And I think one of the important factors, if you think about the future, is we're seeing customers willing to push out orders into 2023 and even talking in 2024. So from our perspective, we're getting good long-term synergies on some core lines that will take us well into the future. So it's really kind of a combination of continuing to field orders which continually are very robust and diverse and accommodating as we can. But also, you've got a lot of people that are looking for long-term sustainable production, which is a positive trend for us.
Matthew Elkott, Analyst
Can you discuss pricing and lease rates? Just while you're on that topic? And by queue, you don't mean the quarter? You mean the pipeline business here?
Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer
Correct, correct, correct. Yes, I think, as I said, my opening remarks, on the leasing side, and I think others have reported this as well, we continue to see positive momentum in lease pricing and probably more importantly in lease term, which is a good opportunity for the industry and pricing in general. There has been good discipline in the industry recently, and we're seeing margin enhancement as orders progress through the quarter.
Matthew Elkott, Analyst
That's very helpful, Brian, because you addressed part of my follow-up question. So your production guidance implies, at the midpoint, about 31% growth, which is pretty solid. But do you guys have a sense of how much high steel prices as well as supply chain disruptions are limiting the growth production potential?
Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer
Yes, this is Brian; good, Matt? Great question. Today, we haven't seen any negative impact due to the high steel prices. In theory, if you listen to all the great forecasters out there, we'll probably near peak at least we hope we're near the peak cycle of the high steel prices. And so far, we really haven't seen any pullback at this stage.
Matthew Elkott, Analyst
Okay, great. Thank you very much.
Operator, Operator
Our next question comes from Allison Poliniak with Wells Fargo.
Allison Poliniak, Analyst
Hi, good morning, and again congrats Bill; you certainly built a strong foundation of both business and talent. And certainly leading Greenbrier in great hands. So best of luck to you both on that. With that, Lorie, I know Bill had mentioned you have your own strategy that you're coming forward with; any high-level thoughts just as you kind of look at the portfolio today, any businesses that maybe you think need a little bit more attention here that you want to focus on in the earlier stages, any color in terms of your strategic direction here?
Lorie Tekorius, CEO
Thanks, Allison, and thanks for the vote of confidence. At this time, I don't think I really want to start unpacking what might be our strategy going forward. I want to make certain that we do that in a more deliberate fashion a little bit further down the line. We have grown an amazing company over the last 40 years, and we've done some really great things. There's always opportunities to look at things through a different lens and think about how we might enhance things. I think Brian mentioned also focusing on how we integrate better, maybe some of our operations and how we go to market to be a better solutions provider for our customers.
Allison Poliniak, Analyst
Got it. That's helpful. And then I just wanted to get back to Justin's questions on the leasing and services side benefit of lease modification fees, can you guys give us any color and I guess how impactful were those fees anyway to help quantify that to some extent kind of what they were and what the impact was?
Justin Roberts, Vice President and Treasurer
I think, as we've discussed for years, Greenbrier collaborates with our customers to address their challenges. We have worked with customers who needed to adjust lease terms and existing contracts. Sometimes this requires us to be made whole if there's a change in contract terms. Ultimately, it provides a benefit with minimal associated costs, flowing through the margin entirely. However, this is not a non-recurring event; it's just a standard part of business. It was beneficial in the fourth quarter and contributed to our leasing and services margin being slightly higher than in the past.
Allison Poliniak, Analyst
Got it. Thank you. I’ll pass the line.
Operator, Operator
Our next question comes from Bascome Majors with Susquehanna.
Bascome Majors, Analyst
Yes, thanks for taking my questions. I just wanted to clarify with the new accounting and elimination and capitalizations of cars, when you say 16,000 to 18,000 deliveries globally and the 1.4 capitalization, you're implying your production rate is 17,500 to 19,500?
Justin Roberts, Vice President and Treasurer
Yes, Bascome.
Bascome Majors, Analyst
Okay. Just want to make sure that was added. Thank you. And maybe bigger picture, I mean, there's been so many changes over the last five, six years both in the market and in your portfolio with acquisitions and this lease vehicle and that becoming a core part of the story. Can we take a cut at some of the key inputs if we're the mid-cycle earnings power of new Greenbrier? I understand that you probably don't want to throw an EPS number range out there, but things that we should consider on how the business should be doing when the markets humming at a steady state? Thank you.
Justin Roberts, Vice President and Treasurer
Yes, Bascome, I'll address that and then Lorie and possibly Brian may want to add their thoughts. I appreciate your comment regarding the changes over the past five years; our company has experienced significant growth and transformation. Looking at our strategic direction, it has now expanded across multiple continents. In North America, we've progressed from a single factory with two production lines to several facilities across the United States. Additionally, we hold a strong market position in Mexico with every type of freight car we aim to be involved in. Our market share in North America is robust, which opens up numerous opportunities for us. We have a seat at the table for every transaction that arises, extending beyond manufacturing to services as well. Lorie talked about integration, service design, and leasing—all of which contribute to a go-to-market strategy that enhances our leverage. This should lead to improved margins, increased volumes, and higher profitability. Achieving scale has been key over the last five years, and we will continue our efforts in that direction. Lorie is currently outlining the strategy with our team, but I believe it's too early for her to share detailed insights since some attendees haven't had the chance to review it thoroughly yet. We’ll delve into this in the coming months and provide more information. Overall, we have a larger, stronger platform that positions us well to seize opportunities and create value.
Operator, Operator
Our next question comes from Steve Barger with KeyBanc Capital Markets.
Steve Barger, Analyst
Hey, good morning, everyone. And yes, congratulations to everyone who's facing a change. Just to level set expectations, if I work through your initial guidance that normally SPEs and your SG&A guide and I don't make big changes to dispositions or minority interests, it looks like initially EPS will be around $2, maybe a little bit less? Am I thinking correctly about that or am I missing something?
Adrian Downes, Senior Vice President and CFO
I don't think we're ready to get into that level of guidance or that granularity at this point. I think, bearing in mind the continued shifting in the landscape, we wanted to provide a little more color on our fiscal 2022. But at the end of the day, there's a tremendous number of moving pieces both positively. And some things that we aren't aware of. So at the end of the day, from Mr. Comstock's perspective, he's getting regular feedback and conversations about how can we increase throughput. On the flip side, we continue to have supply chain issues, labor shortages in the U.S. So it's trying to find a balance of how can we provide some additional clarity for you guys who are having to build models and but also put out something that is reasonable.
Lorie Tekorius, CEO
And I would just say, I mean, we are empathetic to the fact that you guys are trying to build a model. But I would expect that you appreciate that we're running a business that isn't just about the quarter or the year. And we're focused on all the different things. The last 18 months have certainly shown us that it’s hard to be confident about what's going to happen; there have been too many things that have gone on. I would hope that you would have some appreciation for the fact that this team has been at this for quite some time; we've got a great network of shops, whether it's for maintenance or building new cars, we've got a great commercial team, and we are focused on driving more value to the bottom line. And we'll be doing that as quickly as we can. But we also want to make certain that we take care of our workforce and our customers.
Bill Furman, Executive Chairman
Let me just add something; this business is really interesting and very resilient. The mirror volume of orders can drive momentum overhead absorption. If you can increase production on a single line from 2 per day to 10 per day. As you see the order pipeline filling up, one has to be really optimistic about the ability to build on operating momentum. The amount of that momentum is in the environment we're in. Perhaps we're being a little too cautionary about talking about this environment. I think we're on the downhill slope of the pandemic if we keep hearing and seeing many things that disturb us. But we haven't really been touched by the supply chain difficulties; we managed to dodge all those bullets. The kind of thing that can happen in a year like this is really not reflective of what the last 12 months might have done. We were very happy with the start we had with leasing; it made a big difference. I think this will be the year of margin enhancements, revenue enhancement, and operating efficiency. I know that Brian Comstock and Lorie and I and Justin and others have been talking about that a lot. It's just really hard to lay it out and anticipate it all.
Steve Barger, Analyst
Totally understand. I appreciate all that qualitative detail. And really that's the motivation for my question. You call out the inflationary environment and labor and supply chain issues, which we are certainly seeing across a lot of different companies. That's what I was really trying to get to in terms of 40% of deliveries in the front half. And then the inherent operating leverage with increasing production offset by some of these issues. I guess I'll just ask, a follow-up. Do manufacturing gross margins stay double-digit in the first half given the headwinds we're facing, or should we be more conservative in our models, just as you work through the near-term challenges?
Justin Roberts, Vice President and Treasurer
I'll jump out on that. I expect to be double-digit in the first half of the year and stronger in the back half of the year.
Bill Furman, Executive Chairman
And Brian Comstock is vigorously shaking his head yes.
Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer
Yes, absolutely does, Steve. When we look at pricing, there's no reason to think that pricing is going to recede at all. We'll see improvements throughout the year.
Steve Barger, Analyst
Since we're later in the call, can I ask a big picture question or I can get back in the queue if there's someone waiting?
Bill Furman, Executive Chairman
Go ahead.
Steve Barger, Analyst
Thank you. So Bill, I wrote this for you, but Brian, you brought it up. If you just pull up 10 years of railroad traffic, the trend line is flat at best, maybe slightly down. Coal has obviously been a big part of that. But regardless, there just hasn't been a lot of traffic growth outside of their modal. What are your thoughts on what and when will cause this low or no growth trend to reverse? You brought it up in your slides, but I'm wondering if you could just address that more directly?
Bill Furman, Executive Chairman
Well, that's a tough question. We have our public policy guide just on here today. If you have been paying close attention to everything going on in the government, which is almost impossible to do, the SPB has gotten a lot more active; it could be that SPB oversight of the rail industry will be a stimulus to a more responsive customer-driven, as opposed to profit for the short-term driven thing. Everybody has a hard time understanding a simple fact about our industry. The traffic loadings are an amalgamation of ton miles from 20 to 30 different commodity types and sources. We've had booms in coal, we've had booms in center beam cars for lumber transportation, we've had booms in small cube covered hoppers for the transport of sand and oil by rail. All of those things flush through and they produce the statistics to which you refer. But in fact, if you look at what Brian mentioned in Europe and you extrapolate it to the United States, and you look at ESG environmental impact, carbon footprints, rail is the place that growth should take place; it should occur. It’s three times more efficient in terms of carbon use and pollution; it uses a lot less fuel to produce and ship a ton mile. It could be that a different regulatory environment would give a lot of stimulus to rail traffic. But the traffic and demographics that we see with all of the negative things that people talk about for our industry for railcar builders has been positive. The velocity has declined. The traffic has been stronger year-over-year; it is really a great environment, particularly as you look out in the future and see what might occur and what almost has to occur in rail over the next decade.
Steve Barger, Analyst
Appreciate that color. Thank you.
Justin Roberts, Vice President and Treasurer
Thanks, Steve.
Operator, Operator
Our next question comes from Ken Hoexter with Bank of America.
Ken Hoexter, Analyst
Hi, everyone, good afternoon. Congratulations to Bill on an outstanding career in founding and growing Greenbrier; it has been a pleasure working with you over the last decade. Best wishes to Lorie for the future. I want to touch on yields. You mentioned much about the build side, but regarding the $665 million backlog of 6,700 units, the average stands just under $100,000, down from $105,000 last quarter and $115,000 two quarters ago. I recognize that there's always a mix involved, as you mentioned, but it seems you were about to discuss pricing and the underlying factors. Could you provide any additional insights on the mix or what is influencing it to help us understand the core pricing trends?
Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer
Yes, this is Brian. I can give you a little bit of flavor on that. So when you're looking at higher ASP, a lot of times you're looking at higher delivery especially tank cars and things of that nature. In this particular cycle, what we're seeing is a very diverse order book. It's really every car type that you can imagine. But in essence, you've got a lot more intermodal that is coming into play; you have a lot more covered hopper cars, and you'd have a lot more ordinary freight cars, and those typically have an ASP of somewhere under $100,000. So that gives you a little bit of a blend; we're still seeing strong tanker demand and we're still seeing some automotive demand despite chip shortages. But at the end of the day, what's really driving ASP is the large volumes of what I would call more general freight cars.
Ken Hoexter, Analyst
Great, I appreciate that. It sounds like there is a solid mix across the board. If we're discussing scaling from 16,000 to 18,000 or really around 17,000 to 19,500, where do you believe your utilization level stands right now? Lorie, I know you mentioned some numbers about the number of lines or facilities you're operating at now. But how do you see capacity compared to that utilization? Is it still in the low 20s or mid 20s when you're fully operational? Also, Lorie, it seemed like you were explaining why the backlog prevents quicker rentals; it sounded like you were alluding to safety issues or supply chain factors. Can you share your thoughts on why you can't rent more quickly?
Lorie Tekorius, CEO
Sure. So from a utilization perspective, I'd say we're probably somewhere in the 70% to 75% utilized. I would say, our production folks do an amazing job of at times even getting beyond what we think might be capacity there. And they can be quite creative at times; I guess I was just a little bit as trying to give some color as to where there might be upside. We do want to be mindful as we're bringing people back. Even if there are people that have worked in our facilities before, it takes a little bit of time to get back in the groove of working in a safe manner and making certain that we're building quality railcars. We don't want to be pushing so hard that we push something until it breaks. I think, again, we're not the only company out there that is in the midst of ramping up to respond to improving demand. But also be mindful that we're doing that on the backs of our workforce that we need to be mindful of that workforce and making certain we don't push too hard. That being said, they're incredible men and women, and they do a great job every day. So that's part of why we're not giving explicit guidance, because we think that as things move through the year, as more people get vaccinated, as the supply chain starts loosening up and improving, there could be a number of factors that will allow this to be more positive than the guidance that we've given, which is positive growth off of where we have been. So that's kind of where we're going with. And why we're giving the guidance that we've talked about.
Bill Furman, Executive Chairman
Yes, I think every company that's talking about things that is has to have some cautionary remarks to be responsible. We have done this for a long time. It's hard to bring people back very quickly. It's a shorter-term issue; we've got a lot of capacity. We've got a lot of design capability around the world. We're especially fortunate to have in North America a strong footprint in the United States and labor availability in Mexico. Personally, I'm very optimistic; we can bring on cars, expand our lines, and continue to keep our safety statistics. Let me just give you a couple of notes on safety. One of the reasons Lorie is focused on this is safety improves the welfare of our workforce. That is not only good as a thing to do, but it improves the workforce’s productivity. Our safety statistics over the past five years have been excellent. We're way below industry standards, and we've been improving year after year. It is a core value of the company, and it creates shareholder return through productivity. So what you're hearing from us is simply a little cautionary note that we don't want to push the throttle so far ahead that we hurt people and we bump into supply chain issues. We have the capacity, and if the ordered pipeline continues to be filled by the men and women who are doing that and leasing in commercial working with their brothers and sisters in manufacturing, I think we can achieve overhead absorption and other efficiencies, economies of utilization. This company can really do very well as we've proven in earlier cycles.
Ken Hoexter, Analyst
Thanks, Bill. Thanks, Lorie. Appreciate it.
Operator, Operator
Our next question is a follow-up from Justin Long with Stephens.
Justin Long, Analyst
Thanks for taking the follow-up. I wanted to ask about quarter-to-date order activity, just given we're two months into the quarter now. Have you seen any change in the level of orders and increase relative to what you saw on the fiscal fourth quarter? And then last one for me is just on the tax rate. Adrian, I don't know if there's any color you want to provide on 2022 just given how much that's been moving around?
Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer
Hey, Justin, this is Brian. I'll address the first part of your question and then hand it off to Adrian. Regarding the order rate, I can say that we are experiencing similar rates to the fourth quarter, and I haven't noticed any slowdown at this point. The activity appears to be very much in line with what we saw in Q4.
Justin Long, Analyst
Great. Thanks. And Adrian on the tax rate?
Adrian Downes, Senior Vice President and CFO
Yes, we should say return to a more normalized tax rate for fiscal 2022. So 27ish percent in that range.
Lorie Tekorius, CEO
Depending on what happens next.
Justin Long, Analyst
Understood. Appreciate it. That's very helpful. Thanks again for the time.
Bill Furman, Executive Chairman
Thank you.
Justin Roberts, Vice President and Treasurer
Thank you very much, everyone, for your time and attention today. If you have any follow-up questions, please reach out to myself or investor relations at gbrx.com. Have a great Tuesday.
Operator, Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.