Trinity Industries Inc Q1 FY2022 Earnings Call

Good morning, everyone, and welcome to the Trinity Industries' First Quarter Results Conference Call. All participants are currently in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. Please also note, today’s event is being recorded. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements, estimates, expectations, intentions, and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks. A change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. At this time, I'd like to hand the call over to Leigh Anne Mann, Vice President of Investor Relations. Ma'am, please go ahead.

Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's first quarter 2022 financial results conference call. Our prepared remarks will include comments from Jean Savage, Trinity's Chief Executive Officer and President; and Eric Marchetto, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference slides highlighting key points of discussion as well as certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP metrics are provided in the appendix of the supplemental slides, which are accessible on our Investor Relations website at www.trin.net. These slides can be found under the Events and Presentations portion of the website, along with the first quarter earnings conference call event link. A replay of today's call will be available after 10:30 a.m. Eastern Time through midnight on May 4, 2022. The replay number is (877) 344-7529 with an access code of 7333684. A replay of the webcast will also be available under the Events and Presentations page on our Investor Relations website. It is now my pleasure to turn the call over to Jean.

Thank you, Leigh Anne. Good morning, everyone. Before we begin, I’d like to mention that both our 2021 annual report and interim CSR update are available on our website. I’m particularly proud that our CSR report includes a summary of our first formal materiality assessment, which is guiding our ESG strategy with a focus on employee health and safety, diversity, equity and inclusion, human rights, energy consumption, and reducing greenhouse gas emissions. I'll start my comments on slide three. With some pandemic concerns easing, it was great to participate in industry events again in the first quarter. We continue to see positive market trends, as we discussed in our last call. However, new challenges are emerging, such as persistent inflation, rising interest rates, and the ongoing impacts of the war in Ukraine. In the U.S., we face challenges in select labor markets and supply chains. I want to emphasize my optimism about the second half of this year. While we will tackle some of the challenges from the first quarter, we anticipate improvements in leasing margins due to increasing rates and stronger fleet utilization driven by high railcar demand. Our rail manufacturing backlog remains robust, and we’ll begin delivering railcars from sales made in more favorable market conditions as the year advances. Our book-to-bill ratio for the quarter was over two times. We expect our future lease rate difference to improve to 2.4%, with positivity for three consecutive quarters. Our fleet utilization is also improving and has returned to pre-pandemic levels at 96.5%. Although there will be challenges in the second quarter, our forward-looking metrics bolster our optimism for a strong second half of 2022, and we’re maintaining our EPS guidance accordingly. Now, let’s move to slide four for a rail market update and commercial overview. In the first quarter, we noticed continued demand growth, which is promising, but the rail industry is struggling to meet this demand. Railroads have been candid about their challenges in retaining and hiring labor to match the increase in freight demand. These challenges have created a gap between the weekly carload measures and actual freight rail transportation demand. We believe the demand for freight rail transportation is stronger than current rail traffic numbers indicate. This gap is particularly clear as year-to-date North American rail volumes show a decline year-over-year while the number of railcars in storage continues to diminish steadily since summer 2020. This decrease in railcar storage is driven by heightened demand from shippers, increased scrapping, and slower train speeds. Railroads are making efforts to improve efficiency and expect to resolve these issues later this year, which is beneficial for long-term traffic growth. As previously mentioned, our TrinityRail fleet utilization rose to 96.5% this quarter as we utilized more railcars. This was further supported by our sustainable railcar conversion program, under which we have converted 1,095 railcars, which would have otherwise been underutilized or scrapped. Instead, they have been upgraded to better meet changing market demand and enhance our returns on invested capital. In terms of lease fleet demand, our FLRD reached 2.4% in the quarter, marking the third consecutive positive quarter and providing momentum for revenue growth in renewing railcar lease rates. Railcar orders and deliveries also saw year-over-year increases. In this quarter, our Rail Products Group received orders for 5,055 railcars and delivered 2,470 railcars, led by demand for freight cars including replacements for boxcars, particularly for the paper and food markets. As our order book for 2022 deliveries approaches capacity, we are now accepting orders for 2023. While deliveries have been impacted by supply chain disruptions, we observed improvements in on-time deliveries through the first quarter due to a reduction in pandemic-related absenteeism and better internal management of inventory and supply chain. By the end of 2022, we anticipate that our daily railcar production will nearly double from the beginning of the year, reflecting strong market demand. Turning to slide five, Eric will elaborate on our financial highlights, but I want to share some key figures. Our Q1 2022 revenue reached $473 million, a 43% increase from Q1 2021 due to strong external deliveries during the quarter. Our GAAP EPS was $0.09, which includes an insurance gain related to the Cartersville tornado that positively affected the Rail Products segment. Excluding that gain, our adjusted EPS from continuing operations was $0.03. Our cash flow from continuing operations was $29 million for the quarter, while free cash flow was $48 million, both affected by growth in working capital due to increased manufacturing volumes and ongoing supply chain inefficiencies. We believe our business is well-equipped to address the current challenges of supply chain disruption, high input costs, and freight surcharges, but we are not immune to their impacts. We are actively managing these challenges, particularly in relation to our working capital growth. Our mitigation strategies include intentionally increasing inventory levels to help minimize the effect of supply chain reliability issues. Moving to slide six, let's discuss our business segments. In our leasing business, revenues saw a slight quarter-over-quarter increase and have remained stable over the past year, as our utilization is improving despite a slight decrease in the overall size of the lease fleet. Average rates are slightly down due to fleet mix and the timing of renewals. Keep in mind, our average remaining lease term is about three years. While renewals and renewal rates are promising, visibility into the results takes time. Our operating margins in the leasing segment faced challenges this quarter due to increased maintenance costs and volume. Additionally, as previously mentioned, the sustainable railcar conversion demands accelerated depreciation on donor railcars; the best candidates for conversion are younger railcars, leading to a notable reduction in operating margins in the short term. Despite this, we believe this initiative is a valuable investment that will enhance profitability for the fleet going forward. In Rail Products, quarterly revenue showed a sequential decline due to delivery timing, but still indicates significant growth and improving fundamentals year-over-year. Looking ahead, our order volume in the first quarter was strong, signifying growth from both revenue and margin perspectives. Operating margin for this segment was 0.2%, which included a $6.4 million gain from insurance proceeds related to the Cartersville tornado; we have excluded this gain from our adjusted EPS calculation. Without this gain, Rail Products margin would have been a negative 1.4%. Operating margins in this segment remain under pressure. As mentioned earlier, we are delivering railcars ordered during a downturn in the cycle, including fixed-price contracts that have suffered from high steel and raw material costs. The orders we are currently taking and the orders we will deliver in the latter half of 2022 show stronger pricing prospects, and we expect to realize a significant improvement in margins when these orders are fulfilled. Beyond input cost inflation, margins were additionally affected by a higher frequency of production line changeovers. Our maintenance services business also faced challenges this quarter, primarily due to significant absenteeism in January resulting from the Omicron variant, which affected operational efficiency. As with many other companies, Omicron was a notable disruption for us in Q1, but its impact quickly diminished. We have previously highlighted hiring and retention difficulties, particularly in the United States. We are adjusting our compensation and benefits to remain competitive in the labor market, and although it is early, we are seeing signs of improvement. Moving to slide seven, I want to highlight several advancements in our strategic initiatives. Our LTV ratio this quarter is 63.8%, which falls within our target range of 60% to 65%. We are currently in year two of the three-year plan established at the Investor Day in 2020, and I believe we are well-positioned to achieve the goals we set, which include a mid-teen pretax ROE goal. Now, I’ll turn the call over to Eric for further insights into our financial results and guidance for the remainder of the year.

Thank you, Jean, and good morning, everyone. There are a few things I wanted to point out before talking about the quarter's results. First, in 2020, we introduced the future lease rate differential, or FLRD. This metric calculates the implied change in revenue for railcar leases expiring over the next four quarters, assuming they were renewed at the current transacted lease rate for each railcar type. We have refined the way we aggregate the data to better correlate with actual revenues, and have adjusted the FLRD to account for this change in prior periods, as you will see on the trend line on slide four. The goal of this metric is the same, and we view it as a good indicator of the direction of our future leasing revenue. As we've previously announced, we priced a $245 million asset-backed securitization that is expected to close tomorrow. The debt is backed by a discrete pool of railcar assets, the company will continue to own and manage. This financing is critical to our ongoing balance sheet management as the majority of the railcars that will serve as collateral for this debt will come from our warehouse facility, freeing up more availability. At an interest rate of 4.55%, it is clear that we are in a different financing environment than last year. But we are very pleased with investor interest in our securitization program. As we move forward, we will evaluate the most attractive financing structures for our capital needs. Now please turn to slide eight with highlights from our financial statements, starting with the income statement. Total revenues of $473 million in the quarter were relatively flat sequentially and up significantly from the first quarter 2021. The year-over-year increase is driven by increased Rail Product deliveries. Our first quarter GAAP EPS from continuing operations was $0.09. But adjusting for the Cartersville gain previously mentioned, our adjusted EPS was $0.03. We also benefited in the quarter from a gain of $11 million that came from railcar portfolio sales, and a gain of $7 million on the sale of a nonoperating property. Railcar portfolio sales are a normal part of our business, and you can expect to see them periodically. I also wanted to briefly talk about our results and discontinued operations, which you'll see in our 10-Q that we will file later today. In the quarter, we recorded additional legal and transaction costs incurred in the period related to the Highway Products business that we sold in the fourth quarter of 2021. Moving to the cash flow statement. Cash flow from continuing operations was $29 million, and free cash flow after investments and dividends was $48 million. Our cash flow was negatively impacted in the quarter by increases in working capital requirements and continued supply chain issues. As operating conditions normalize, we expect to see cash flow improve significantly. We paid $19 million in dividends in the quarter. As a reminder, we are unable to buy back any additional shares until the accelerated share repurchase program is complete, which we expect by the third quarter. Our current share repurchase authorization has $73 million remaining, and expires at the end of the year. Moving to slide nine. We remain diligent in optimizing our balance sheet, and have liquidity of $718 million as of March 31. As you can see from our reported results, we have benefited from lower interest expense resulting from our previous financings. Having fixed approximately 75% of our debt at rates that are attractive relative to the current market, we believe our debt profile and maturity schedule will help dampen the impact of the current rising rate environment. I'd like to reinforce the guidance we gave on our last call, summarized on slide 10. We are leaving our guidance unchanged as our first quarter results are in line with expectations. As Jean mentioned, our 2022 forecast is significantly weighted in the second half of the year. For the full year, we see industry railcar deliveries to be between 40,000 and 50,000 railcars. Recent order and inquiry activity suggest virtually all of the deliveries are in the industry backlog. It's also worth noting, once again, these delivery numbers do not take railcar conversions into account. Our long-term commitment to discipline investment in the fleet remains, and we are anticipating net fleet investment of $450 million to $550 million in the year, depending on the time of deliveries. Embedded in this number are secondary market purchases, which we are anticipating to be meaningful this year. As we think about our three-year fleet investment targets, we are balancing our fleet investment in a period of increased demand for new railcar leases with a very active secondary market. We will continue to allocate capital to generate long-term shareholder value. We expect manufacturing and general capital expenditures of $35 million to $45 million, which will be primarily related to investments in safety, efficiency and automation. And finally, we expect adjusted earnings per diluted share from continuing operations of $0.85 to $1.05 for the full year, excluding any one-time items like the Cartersville gains this quarter. As we move into the second half of the year, we will see substantial growth in our business and we are confident that we have the initiatives in place to enable us to overcome the current headwinds in our business. As Jean mentioned, our rate of new railcar production will increase significantly through the year based on the visibility from the orders we have booked in the last few months, and we expect that to be evident in higher revenues. We expect to exit the year with mid to high single-digit margins in Rail Products, hitting the goal we introduced at our Investor Day. We expect similar trends in leasing with higher lease rates driving up revenue in the segment and normalization of maintenance costs driving up margins in this group. We are seeing increased interest in utilizing existing railcars due to the rise in prices of new railcars. Given higher demand, we were able to raise the rates on these older railcars that have a lower cost basis, and thus improve our return on equity. In closing, Trinity has greater near-term visibility, and this allows us to have confidence in the company's ability to achieve our guidance for the year, as well as our long-term return goals. We look forward to sharing our progress with you.

Hi, good morning. And thanks for taking my questions. I wanted to go back. I mean, I know you have the three-year plan out there. But a lot of things have changed, and some of them quite positive for your business, others may be more mixed since November of 2020. I was hoping we could maybe high level go through some of those factors that have shifted and talk about how they affect your business. Starting maybe with interest rates, I know you alluded to 75% of your debt being fixed now, but just how you feel about the funding of the fleet? And what a sustained higher rate environment changes on your leasing strategy if it changes it at all?

Sure. Bascome, this is Eric. That's a good question. I mentioned in our prepared remarks that we're satisfied with our debt profile. We are finalizing another financing tomorrow by accessing the ABS market. Interest rates are currently higher than they have been in the past couple of years. However, we have a favorable maturity profile with very few maturities in the near term. Most of our leasing debt has a fixed rate. The increase in interest rates will have an effect, particularly on new railcar leases, where the funding costs become apparent during investment decisions, whether for new assets or secondary market acquisitions. This higher interest rate environment will likely raise the hurdle rates for investors, consequently increasing lease rates. Our FLRD indicates that lease rates are indeed rising, which is one of the factors contributing to that rise, especially with a balanced market, which we currently have. The industry fleet is more balanced today, so overall, we believe this is more beneficial than detrimental for our existing fleet.

All right. So short term, since you have fixed so much of your portfolio in the last three or four years, do you think that inflation helps you more on revenue than it hurts you on funding?

I do. You're going to reprice the fleet if we have a three-year remaining lease term, which we do on average. So we're going to reprice a significant amount of the fleet during that period of fixed debt. It does get into timing, but overall, I think it's beneficial. Please go ahead.

No, go ahead. I’m sorry.

These are long-term assets. These are 30, 40-year assets, and part of the leasing business is that you finance it and then you pay down the debt and you refinance it. Every time you refinance it, those are liquidity events. It just speaks to the cash flow generation of the lease fleet. Even in periods with higher interest rates, I would expect we'll still generate significant amounts of cash flow from it over time.

And I'll ask one more on kind of a similar angle. I mean, certainly, steel prices and new asset costs have been dramatically more inflationary than I'm assuming you underwrote in that plan in November of 2020. I'm a little surprised the annual guide for net lease fleet investment of around $450 million to $500 million is roughly in line with what you had planned over three years in that period. Can you talk a little bit about the math between monetizing assets in a very high new car price environment versus investing in the future of your lease fleet? And then how that balance has changed or can change in this environment versus how you planned a couple of years ago?

That's a great question, and you're correct on several points. Things have evolved, but our capital allocation strategy remains unchanged. We've previously discussed a modest investment in our leased fleet over the next three years, and we are still targeting that. Demand for railcars is higher at the moment, particularly for lease products, as evidenced by our growing backlog in both areas. It's important to note that the net fleet investment estimate of $450 million to $550 million represents a total that accounts for both new lease fleet additions from our manufacturing operations and any secondary market transactions, minus railcar sales. Our platform can generate value from all these components of net fleet investment. Ultimately, it's about timing. We're noticing increased demand for leases, along with opportunities within the secondary market, as well as heightened interest in our rail lease products, whether via our RIV platform or the secondary market. Timing is everything since transactions only occur when we have the right content. While examining a single year might show fluctuations, our overall framework and approach remain consistent over three years. I realize this is a lengthy response, but it highlights the various factors in play. I’ll pause here to see if you have any further questions.

Thank you.

Thank you. Good morning guys. I know the inquiry activity is still strong and the translation into orders clearly picked up in the last two quarters as steel prices began to ease. But has the translation to orders subsided again following the conflict in Europe, which drove steel prices back up?

Good morning Matt, this is Jean. We're actually still seeing strong conversion. The impacts of inflation, the impacts of steel prices going back up after we sell them coming down have really not changed that pattern yet. As we look at it, the car owners are making long-term decisions on what they're going to put into their fleet. Some of the short-term headwinds that we're seeing have not slowed anything down yet.

Got it. So the quarter-to-date order number is satisfying for you guys so far?

If you're talking about the second quarter, yes, I would say we're still happy with what we're seeing.

Got it. Jean, when do you think we'll start seeing some of the largest lessors decide to place orders? Do you think they will continue to delay until they have clarity on steel prices? Or do you think some of them are at a point where they need to expand their fleet to maintain customer relations and achieve scale?

So when we're looking overall at what's going on, it's pretty well distributed. We talked in the past about when you have a recovery railroads and third-party lessors are the first to the table. Then the end shippers come in, and we're seeing orders come in from all three of those areas. I would say we're already getting the activity. Remember, though, on this cycle, we're projecting 40,000 to 50,000 railcars minus sustainable conversions or without the sustainable conversion. That's really replacement level. So there's no big driver to do anything different than replace the fleets that have been scrapped over the last three years, and are continuing to get scrapped now.

Okay. And then you mentioned the 40,000 to 50,000, which you guys had kept unchanged. Would you guys be willing to share any thoughts on where you think deliveries for the industry could go in 2023?

So again, we think orders are going to be the 40,000 to 50,000, and we would expect to see similar deliveries to what you're seeing this year.

Got it. And then just one last quick question for me, which I asked one of your competitors three weeks ago. This cycle is driven by more than one or two railcars, which is typically the case. It's a lot more broad-based. So I was wondering what the margin implications might be for a cycle that involves having to do more line changeover than you have done in the past. I mean, the mid to high single-digit margin you expect to finish the year at, is that pretty much where you could hope to be in 2023? Or is there more upside to that given the mix of cars that are in high demand?

Well, as you look at this year, we started at a lower run rate. We said we'll double that by the end of the year. We're expecting next year to come in still with that double rate, so what we're ending this year will help you overall as far as efficiencies. I would say there's potential upside for next year on those margins, but we still are taking orders for 2023. It's nice to already be getting orders this early in the year for next year, but we'll have to see where that lines up, and I would expect to see some possible improvement on that.

Thank you, Jean. Appreciate it.

Thank you.

Good morning, everyone. Thank you for taking my questions. I have a question regarding your Rail Group margins. It seems that some railcars sold at the bottom of the cycle last year contributed to the margin pressure. As we move further into the year, how do you anticipate cost pressures will change? Regarding the expected improvement in your Rail Group margins, how much do you expect will come from higher value cars compared to the easing of cost pressures?

So this is Jean. I'll go ahead and take that, Gordon. When you look at rail products for the second half of the year, first, we have definitely been taking the orders in the environment we're in now, which is a tighter market. We're seeing better pricing that we're getting there, better margins that would come along with that. And that's no small piece. I'm not going to give you the exact percentage, but that is very helpful. The other thing you've got to look at is, we had high impacts, at least in January from the Omicron variant. Some of our facilities had up to 30% absenteeism during that time period. We've seen that abate as we've gone through the first quarter. The other thing I'll say is first quarter, there were some more supply chain issues, especially in some of the specialty items, hatches, valves, covers that we had to get that we've been working to abate by the second half of the year. Some of that working capital that we're putting into the inventory will help us limit the number of changeovers we were doing due to not having components to finish cars. That's really disruptive during a run if you have to pull cars out, so you can wait on materials to come in. So there's a combination of having better labor availability, having better supply chain, and also having better dynamics around the orders that we're getting.

That's very helpful. It also clarifies your inventory build. Regarding orders, I think you mentioned this in your prepared remarks, and I apologize if I missed it. Can you share where you are seeing some increased activity and which sectors are involved?

So it is pretty wide-based. As we look at where orders are coming from right now, it's not in a single area. But if you look at the top areas of boxcars, definitely there's been a lot that has been scrapped over the last few years, they were getting older and they are being replaced, grain cars remain strong and plastics would be some of the top three areas.

Plastics. Okay. Great. And then I'll just squeeze in another quick one, please. For your new orders that, in my opinion, I think it looks pretty good compared to last year, particularly and especially in the average value that you guys reported. So you mentioned the boxcars and plastics were some of the higher demand items. But how broad are your customers? Are these pickups in orders coming from just a few customers? Or are you seeing more and more sources?

It’s pretty broad based and across all the different areas that we are seeing those customers come in, which we mentioned a little bit earlier in the discussion and the questions was the fact that it typically is with railroads and third-party lessor, and it’s moved into shippers also buying more cars. So it’s great to see it progress up as we look at the different areas. The shippers were seeing a lot more attrition, we got an eco-box or inflated boxcar that is taking new product design from us that’s getting some more momentum.

Okay. Very helpful. And I'm sorry, this is actually the last one. In terms of your downstream shipments to the leasing, is there any indication that you guys have given as far as how many cars you'll be selling in-house?

So James, this is Eric. When we release our quarterly report, we will detail the backlog by distinguishing between our delivery and leasing backlog. Our leasing backlog has increased to just under $700 million, significantly higher than this time last year. You will find all of this information in the report that we will file this afternoon.

Hi, good morning, guys. It's Ken Newman on for Steve. I appreciate the color on expectations for rail segment margins for the first half. But I'm curious if you could just help us think about the sequential improvement in margins for the second quarter versus the first quarter. Should we expect margins will kind of be in that low to mid-single-digit range? Or should we expect that it's similar to the first quarter level?

So Ken, unfortunately, we're not giving quarterly guidance. We typically just give annual guidance. We're trying to help you roll out a little bit talking about first half versus second half. And in my prepared remarks, I talked about a step change in the margins for the second half of the year, and that's really as far as we'll go on that.

Okay. So maybe just asking it in a different way then. I know you talked about full year margins kind of being in that, call it, mid to high single-digit asset range? Is it fair to assume that the segment margins in the second half will be below that top end here? Just trying to think about the magnitude of that stuff change from first half to second half.

One thing I will tell you is, we've mentioned that in the first half of the year, we will be delivering the orders of the cars that were taken at the bottom of the market. Until we work through those, I don't see a step change. Once you get to the orders that we're taking now, that we'll deliver in the second half of the year, I think you'll see, again, a marked or a step change in what those margins will be.

Understood. For my follow-up, it seems like service levels from the Class I have obviously taken a hit amid the current supply chain environment. Just to clarify on the inquiry comments that you made earlier, are you seeing any of these new inquiries for 2023 talking about demand beyond replacement activity? Or is it still primarily replacement at this point?

There are certain markets that are seeing some growth. But overall, it's still replacement type demand that we're seeing. And remember that, as these shippers or car owners make their fleet plans, they're looking for the long term, not just for that short-term impact that you're seeing from the railroads, because they're still looking at either opening new plants, some of the replacements or growth opportunities they might see.

Understood. One last one, if I might. I'm just curious if you could talk a little bit about the large impact from the supply chain at this point. Obviously, we know that steel has been a big impact. Anything that we should kind of be aware of as we think about some of these escalations in inflation or other supply chain side as we think about the cadence from 1Q to the second quarter?

The biggest thing that we still see lingering on the supply chain is, at least in the U.S., labor shortages still are causing them to delay some of their shipments, not get tools in the time different than we expect. We are trying to mitigate the majority of that that we can by that inventory build that we've talked about to try to smooth the impacts on our facilities. We still think we'll see some of those impacts through the first half of the year, and expect to see that getting better in the second half.

Understood. Thank you.

Thanks, Ken.

Thanks.

Hi, good morning. It's been kind of a hectic morning so, sorry, if I missed this, but could you all talk about the sequential progression in lease rates that you saw in the first quarter? And maybe quarter-to-date as well for both freight cars and tank cars?

Sure. So when you look at our FLRD, it's 2.4% is what we're reporting for the first quarter. It's the third quarter in a row that we've seen a positive FLRD. As you look at a tightening market that we still see out there for railcars, with railcars and storage going down, and scrapping continues. Railroads being a little bit slower as far as our speed, all are contributing for that demand. As long as we continue to see that demand, I would expect to see I'll be able to adjust or increase that lease rate and keep up with some of the inflation that we are seeing.

Okay. Got it. That's helpful. And then, sort of thinking about some of the impacts that the Russia and Ukraine conflict have had on the energy markets, have you all seen some of those customers reenter the market or some increased activity in coal and frac sand markets? And how should we think about that from both a lease perspective, leasing cars, and then also potentially some new railcar orders?

I'll start, and then I'll let Eric jump in here. So first, our thoughts and prayers go out to the people in Ukraine with a war that they're going through. We don't see any positives coming from that. It's a terrible situation to be dealing with. And I think overall, it's going to be minimum impact to the cars and the orders that we're seeing here in the U.S. But Eric, I don't know if you'd add.

I wouldn’t attribute the drivers to the war. Regarding small cube covered hoppers, we have noticed an increase in drilling activity that began last year, and the fleet is becoming tighter. It's not completely tight, but it is becoming tighter. Most movements in crude oil will be handled by pipeline, so we do not anticipate a significant rail movement there. The growth in the liquid sector is primarily from biofuels, with rising demand for biofuels putting pressure on the tank car fleet and making it tighter. I just wanted to clarify that.

Okay. That's helpful as well. And then I have one last one, more longer term. Going back to your Investor Day in 2020, you highlighted some new products with potential operating income impact of $150 million to $200 million. How much of that has been realized at this point? And how do you expect some of those products to progress this year and maybe next year as well?

It was multiple years. So it takes a little time to do the design and get the cars out running and pick up. But I'm going to point to a few things. Our new grain car covered hopper has gone extremely well, and that's a significant number of the railroads that have picked up on that car throughout North America and not just in the U.S., and has done well for us. Our boxcar work is also picking up, and that's insulated boxcars, refrigerated and some of the standards. So making moves on all of those. The autorack redesign we did, it's an hourglass autorack. It's meant for the large vehicles and it allows more space on the interior design for people to get in and out as they're loading and unloading those cars. We're starting to see autorack demand pick back up. I think you'll see that escalate as the chip shortage is overcome, and you can get those automobiles out and running. We haven't really said how much of the dollar amount will be done for this year, but we are making progress. We're seeing that go up. We still have confidence that we'll hit a big chunk of that number.

Okay. Thank you, I'll leave it there. Thank you both for the time.

Thank you.

And ladies and gentlemen, with that, we will be ending today's question-and-answer session. I'd like to turn the floor back over to Jean Savage for any closing remarks.

Well, thank you, and thanks everyone for joining us this morning. The excitement of the second half of the year is high. As we've shared with you today, we look around our business and see improving metrics and data that forecast higher returns and earnings later in the year. We look forward to seeing our hard work pay off and reporting those positive results with you. Thank you for your support of Trinity, and please reach out to Leigh Anne with any further questions.

And ladies and gentlemen, with that we'll be concluding today's presentation. We do thank you for joining. You may now disconnect your lines.