trn-20240222February 22, 2024February 22, 2024TRINITY INDUSTRIES INC0000099780false00000997802024-02-222024-02-22
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | | | | | | | |
| Date of Report (Date of Earliest Event Reported): | | February 22, 2024 |
_______________________________________
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
| | | | | |
| Delaware | | 1-6903 | | 75-0225040 |
(State or other jurisdiction
of incorporation) | | (Commission File No.) | | (I.R.S. Employer
Identification No.) |
14221 N. Dallas Parkway, Suite 1100,
Dallas, Texas 75254-2957
(Address of Principal Executive Offices, and Zip Code)
(214) 631-4420
Registrant's Telephone Number, Including Area Code
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
______________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | TRN | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
Trinity Industries, Inc. ("Trinity") hereby furnishes the information set forth in its News Release, dated February 22, 2024, announcing operating results for the three and twelve month periods ended December 31, 2023, a copy of which is furnished as Exhibit 99.1 and incorporated herein by reference. On February 22, 2024, Trinity held a conference call and webcast with respect to its financial results for the three and twelve month periods ended December 31, 2023. The conference call scripts of Leigh Anne Mann, Vice President of Investor Relations; E. Jean Savage, Chief Executive Officer and President; and Eric R. Marchetto, Executive Vice President and Chief Financial Officer; are furnished as Exhibit 99.2, and incorporated herein by reference.
The conference call, News Release, and Supplemental Materials, described below, included references to Adjusted Operating Results and Adjusted Earnings Per Share, Pre-Tax Return on Equity, Adjusted Free Cash Flow, EBITDA and Adjusted EBITDA, which are not calculations based on generally accepted accounting principles (“GAAP”). Reconciliations of each of these non-GAAP measures to the most directly comparable GAAP measures have been included in the News Release and/or the Supplemental Materials. When forward-looking non-GAAP measures are provided, Trinity does not provide quantitative reconciliations of forward-looking non-GAAP measures to the most directly comparable GAAP measures because it cannot, without unreasonable effort, predict the timing and amounts of certain items included in the computations of each of these measures. These factors include, but are not limited to: the product mix of expected railcar deliveries; the timing and amount of significant transactions and investments, such as lease portfolio sales, capital expenditures, and returns of capital to shareholders; and the amount and timing of certain other items outside the normal course of our core business operations.
This information and the materials described in Item 7.01 are not "filed" pursuant to the Securities Exchange Act of 1934 and are not incorporated by reference into any Securities Act of 1933 registration statements. Additionally, the submission of the report on Form 8-K is not an admission of the materiality of any information in this report that is required to be disclosed solely by Regulation FD.
Item 7.01 Regulation FD Disclosure.
See "Item 2.02 – Results of Operations and Financial Condition." Additionally, Trinity posted Supplemental Materials to its website to accompany the conference call; a copy of these materials is furnished as Exhibit 99.3 and incorporated herein by reference.
The conference call, News Release, and Supplemental Materials contained information about a change to the composition of the Company's reportable segments that became effective January 1, 2024. The Supplemental Materials included an unaudited comparison of our reported segment results for 2023 to our segment results that have been recast to show the effects of this change. The unaudited financial information contained in the Supplemental Materials is presented for illustrative purposes only and is based upon available information and certain assumptions that management believes are reasonable under the circumstances.
Forward-Looking Statements
Some statements in this release, which are not historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about Trinity's estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements, including, but not limited to, future financial and operating performance, future opportunities and any other statements regarding events or developments that Trinity believes or anticipates will or may occur in the future. Trinity uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” “guidance,” “projected,” “outlook,” and similar expressions to identify these forward-looking statements. Forward-looking statements speak only as of the date of this release, and Trinity expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Trinity’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations, including but not limited to risks and uncertainties regarding economic, competitive, governmental, and technological factors affecting Trinity’s operations, markets, products, services and prices, and such forward-looking statements are not guarantees of future performance. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” and “Forward-Looking Statements” in Trinity’s Annual Report on Form 10-K for the most recent fiscal year, as may be revised and updated by Trinity’s Quarterly Reports on Form 10-Q, and Trinity’s Current Reports on Form 8-K.
Item 9.01 Financial Statements and Exhibits.
(a) - (c) Not applicable.
(d) Exhibits:
| | | | | | | | |
| NO. | | DESCRIPTION |
| 99.1 | | | |
| 99.2 | | | |
| 99.3 | | | |
| | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document (filed electronically herewith). |
| | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith). |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed electronically herewith). |
| | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| Trinity Industries, Inc. |
| | |
| February 22, 2024 | By: | /s/ Eric R. Marchetto |
| | Name: Eric R. Marchetto |
| | Title: Executive Vice President and Chief Financial Officer |
Exhibit 99.1
FOR IMMEDIATE RELEASE
Trinity Industries, Inc. Announces Fourth Quarter and Full Year 2023 Results
Reports full year GAAP and adjusted earnings from continuing operations of $1.43 and $1.38 per diluted share, respectively
Lease fleet utilization of 97.5% and Future Lease Rate Differential ("FLRD") of positive 23.7% at quarter-end
Generates full year operating and adjusted free cash flow of $309 million and $29 million, respectively
Delivered 17,355 railcars in the year; backlog of $3.2 billion at year-end
DALLAS, Texas – February 22, 2024 – Trinity Industries, Inc. (NYSE:TRN) today announced earnings results for the fourth quarter and year end ended December 31, 2023.
Financial and Operational Highlights – Fourth Quarter
•Quarterly total company revenues of $798 million; 35% improvement year over year
•Quarterly income from continuing operations per common diluted share ("EPS") of $0.81 and quarterly adjusted EPS of $0.82
◦Results include tax benefits related to state apportionment and tax law changes
•Lease fleet utilization of 97.5% and FLRD of positive 23.7% at quarter-end
•Quarterly railcar deliveries of 4,000 and new railcar orders of 840
Financial and Operational Highlights – Full Year
•Full year total company revenues of $3.0 billion
•Full year reported EPS of $1.43 and adjusted EPS of $1.38
•Full year cash flow from continuing operations and adjusted free cash flow after investments and dividends ("Adjusted Free Cash Flow") were $309 million and $29 million, respectively
•Full year railcar deliveries of 17,355 and new railcar orders of 11,500
2024 Guidance
•Industry deliveries of approximately 40,000 railcars
•Net investment in the lease fleet of $300 million to $400 million
•Manufacturing capital expenditures of $50 million to $60 million
•EPS of $1.30 to $1.50
◦Excludes items outside of our core business operations
Management Commentary
“Trinity Industries ended the year with revenue up 51% over 2022, a backlog of $3.2 billion, and adjusted EPS of $1.38, up 47% year over year,” stated Trinity’s Chief Executive Officer and President, Jean Savage.
“In our Railcar Leasing and Management Services Group, we maintained an impressive Future Lease Rate Differential through the year, and rising lease rates drove our revenue up 13% over 2022. Fleet utilization remains favorable at 97.5%." Ms. Savage continued, “The Rail Products Group faced challenges in the fourth quarter with the border closure and related congestion impacting deliveries and margins in the segment. Despite unexpected headwinds through the year, this segment reported operating profit up 119% over 2022.”
“In 2024, we expect to see continued improvement in our business. We are introducing 2024 EPS annual guidance of $1.30 to $1.50, which reflects improving margins in both our segments. This is offset by significantly lower planned railcar sales, higher elimination of profit from intercompany railcar sales, and a normalized tax provision as compared to 2023.”
Ms. Savage concluded, “We view ourselves as a leasing company that is enabled by our manufacturing and services businesses. As a result, we are re-aligning our segments starting in 2024 and moving our maintenance business into the Railcar Leasing & Services segment. This allows us to better leverage our maintenance capabilities to support lease fleet optimization and growth in our services business.”
Consolidated Financial Summary
| | | | | | | | | | | | | | | | | |
| Three Months Ended
December 31, | | |
| 2023 | | 2022 | | Year over Year – Comparison |
| ($ in millions, except per share amounts) | | |
| Revenues | $ | 797.9 | | $ | 591.2 | | Higher external deliveries and favorable pricing in the Rail Products Group |
| | | | | |
| | | | | |
Operating profit | $ | 148.7 | | $ | 113.5 | | Higher external deliveries in the Rail Products Group, partially offset by lower lease portfolio sales volume |
| | | | | |
| Interest expense, net | $ | 67.7 | | $ | 59.4 | | Higher interest rates and higher overall average debt during 2023 |
| Net income from continuing operations attributable to Trinity Industries, Inc. | $ | 68.1 | | $ | 37.9 | | |
| | | | | |
EBITDA (1) | $ | 225.2 | | $ | 185.0 | | |
| | | | | |
| Effective tax expense rate | 8.8 | % | | 19.2 | % | | State apportionment and tax law changes enacted in 2023 |
| Diluted EPS – GAAP | $ | 0.81 | | $ | 0.46 | | |
Diluted EPS – Adjusted (1) | $ | 0.82 | | $ | 0.44 | | |
| | | | | |
| Year Ended
December 31, | | |
| 2023 | | 2022 | | Year over Year – Comparison |
| ($ in millions, except per share amounts) | | |
| Revenues | $ | 2,983.3 | | $ | 1,977.3 | | Higher external deliveries in the Rail Products Group |
| | | | | |
| | | | | |
Operating profit | $ | 417.0 | | $ | 334.0 | | Higher external deliveries in the Rail Products Group and improved lease rates in the Leasing Group, partially offset by lower lease portfolio sales volume and the impact of foreign currency fluctuations in the Rail Products Group |
| | | | | |
| Interest expense, net | $ | 265.5 | | $ | 207.6 | | Higher interest rates and higher overall average debt during 2023 |
| Net income from continuing operations attributable to Trinity Industries, Inc. | $ | 119.4 | | $ | 86.1 | | |
| | | | | |
EBITDA (1) | $ | 720.1 | | $ | 616.8 | | |
| | | | | |
| Effective tax expense rate | 6.0 | % | | 21.8 | % | | 2023 tax rate includes benefits related to the release of residual taxes out of AOCI, changes in state apportionment and tax law changes, and changes in valuation allowances |
| Diluted EPS – GAAP | $ | 1.43 | | $ | 1.02 | | |
Diluted EPS – Adjusted (1) | $ | 1.38 | | $ | 0.94 | | |
| | | | | |
| Year Ended
December 31, | | |
| 2023 | | 2022 | | Year over Year – Comparison |
| (in millions) | | |
| Net cash provided by operating activities – continuing operations | $ | 309.0 | | $ | 9.2 | | Higher external deliveries and stabilization of working capital levels relative to prior year |
Adjusted Free Cash Flow (1) | $ | 28.5 | | $ | 138.3 | | Higher cash from operations offset by lower lease portfolio sales and the timing of railcar financing |
| Net lease fleet investment | $ | 287.0 | | $ | 178.1 | | |
| Returns of capital to stockholders | $ | 86.0 | | $ | 153.7 | | 2022 included $77 million of share repurchase activity |
| | | | | |
(1) Non-GAAP financial measure. See the Reconciliations of Non-GAAP Measures section within this Press Release for a reconciliation to the most directly comparable GAAP measure and why management believes this measure is useful to management and investors.
Additional Business Items
•Total committed liquidity of $906.3 million as of December 31, 2023.
•In December 2023, our Board of Directors declared an increase of approximately 8% to our quarterly dividend from $0.26 per share to $0.28 per share.
•Effective January 1, 2024, the Company modified its organizational structure to better leverage our maintenance services capabilities to support lease fleet optimization and to grow our services and parts businesses. In connection with this organizational update, we will align the maintenance services business, which is currently reported in the Rail Products Group, to be presented within our leasing business. Consequently, beginning January 1, 2024, we will report our operating results in two reportable segments: (1) Railcar Leasing and Services Group, formerly the Railcar Leasing and Management Services Group, and (2) Rail Products Group. These changes will have no impact to our previously reported consolidated results of operations, financial position, or cash flows. All prior period segment results will be recast to reflect these changes and present results on a comparable basis in future filings, beginning with our Quarterly Report on Form 10-Q for the three months ended March 31, 2024.
Business Group Summary
| | | | | | | | | | | | | | | | | |
| Three Months Ended
December 31, | | |
| 2023 | | 2022 | | Year over Year – Comparison |
| ($ in millions) | | |
| Railcar Leasing and Management Services Group | | |
| Leasing and management revenues | $ | 221.6 | | $ | 197.4 | | Improved lease rates and net additions to the lease fleet, as well as acquisition-related revenues included in the current year period |
| Leasing and management operating profit | $ | 99.5 | | $ | 75.6 | | Improved lease rates and net additions to the lease fleet |
| Operating profit on lease portfolio sales | $ | 36.4 | | $ | 54.5 | | Lower lease fleet portfolio sales volume |
Fleet utilization (1) | 97.5 | % | | 97.9 | % | | |
Future Lease Rate Differential (2) | +23.7 | % | | +25.1 | % | | Continued strength in current lease rates |
Owned lease fleet (in units) (1) | 109,295 | | 108,440 | | |
| Investor-owned lease fleet (in units) | 33,005 | | 33,235 | | |
| Rail Products Group | | | | | |
| Revenues | $ | 674.0 | | $ | 655.7 | | Favorable pricing, partially offset by lower deliveries |
| Operating profit | $ | 41.2 | | $ | 18.6 | | Favorable pricing and improved efficiencies, partially offset by lower deliveries and foreign currency fluctuations. Includes insurance recoveries of $1.4 million in the current year period. |
| Operating profit margin | 6.1 | % | | 2.8 | % | |
| Revenues eliminations – Lease subsidiary | $ | (97.5) | | $ | (261.7) | | |
| Operating profit eliminations – Lease subsidiary | $ | (3.8) | | $ | (16.5) | | |
| New railcars: | | | | | |
| Deliveries (in units) | 4,000 | | 4,400 | | Q4 2023 unfavorably impacted by approximately 1,300 deliveries due to the U.S.-Mexico border closure and congestion |
| Orders (in units) | 840 | | 3,015 | | |
| Order value | $ | 156.1 | | $ | 350.8 | | |
| Backlog value | $ | 3,200.9 | | $ | 3,903.0 | |
|
| Sustainable railcar conversions: | | | | | |
| Deliveries (in units) | 520 | | 495 | | |
| Backlog (in units) | 1,015 | | 1,965 | | |
| Backlog value | $ | 81.9 | | $ | 166.5 | | |
| Corporate and other | | | | | |
| Selling, engineering, and administrative expenses | $ | 26.6 | | $ | 24.5 | | $2.0 million from the change in estimated fair value of additional contingent consideration associated with an acquisition |
| Gains on dispositions of property | $ | (1.1) | | $ | (5.9) | | |
| | | | | |
| December 31, 2023 | | December 31, 2022 | | |
| Loan-to-value ratio | | | | | |
| Wholly-owned subsidiaries, excluding corporate revolving credit facility | 64.3 | % | | 65.7 | % | | |
(1) Includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.
(2) FLRD calculates the implied change in lease rates for railcar leases expiring over the next four quarters. The FLRD assumes that these expiring leases will be renewed at the most recent quarterly transacted lease rates for each railcar type. We believe the FLRD is useful to both management and investors as it provides insight into the near-term trend in lease rates.
Conference Call
Trinity will hold a conference call at 8:00 a.m. Eastern on February 22, 2024 to discuss its fourth quarter and full year results. To listen to the call, please visit the Investor Relations section of the Company's website at www.trin.net and access the Events & Presentations webpage, or the live call can be accessed at 1-888-317-6003 with the conference passcode "7787991". Please call at least 10 minutes in advance to ensure a timely connection. An audio replay may be accessed through the Company’s website or by dialing 1-877-344-7529 with passcode "2184903" until 11:59 p.m. Eastern on February 29, 2024.
Additionally, the Company will provide Supplemental Materials to accompany the earnings conference call. The materials will be accessible both within the webcast and on Trinity's Investor Relations website under the Events and Presentations portion of the site along with the Fourth Quarter Earnings Call event weblink.
Non-GAAP Financial Measures
We have included financial measures compiled in accordance with generally accepted accounting principles ("GAAP") and certain non-GAAP measures in this earnings press release to provide management and investors with additional information regarding our financial results. Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies. For each non-GAAP financial measure, a reconciliation to the most comparable GAAP measure has been included in the accompanying tables. When forward-looking non-GAAP measures are provided, quantitative reconciliations to the most directly comparable GAAP measures are not provided because management cannot, without unreasonable effort, predict the timing and amounts of certain items included in the computations of each of these measures. These factors include, but are not limited to: the product mix of expected railcar deliveries; the timing and amount of significant transactions and investments, such as lease portfolio sales, capital expenditures, and returns of capital to stockholders; and the amount and timing of certain other items outside the normal course of our core business operations.
About Trinity Industries
Trinity Industries, Inc., headquartered in Dallas, Texas, owns businesses that are leading providers of rail transportation products and services in North America. Our businesses market their railcar products and services under the trade name TrinityRail®. The TrinityRail platform provides railcar leasing and management services; railcar manufacturing, maintenance and modifications; and other railcar logistics products and services. Trinity reports its financial results in two reportable segments: the Railcar Leasing and Management Services Group and the Rail Products Group. For more information, visit: www.trin.net.
Some statements in this release, which are not historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about Trinity's estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements, including, but not limited to, future financial and operating performance, future opportunities and any other statements regarding events or developments that Trinity believes or anticipates will or may occur in the future. Trinity uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” “guidance,” “projected,” “outlook,” and similar expressions to identify these forward-looking statements. Forward-looking statements speak only as of the date of this release, and Trinity expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Trinity’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations, including but not limited to risks and uncertainties regarding economic, competitive, governmental, and technological factors affecting Trinity’s operations, markets, products, services and prices, and such forward-looking statements are not guarantees of future performance. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” and “Forward-Looking Statements” in Trinity’s Annual Report on Form 10-K for the most recent fiscal year, as may be revised and updated by Trinity’s Quarterly Reports on Form 10-Q, and Trinity’s Current Reports on Form 8-K.
| | |
| Investor Contact: |
| Leigh Anne Mann |
| Vice President, Investor Relations |
| Trinity Industries, Inc. |
| (Investors) 214/631-4420 |
|
| Media Contact: |
| Jack L. Todd |
| Vice President, Public Affairs |
| Trinity Industries, Inc. |
| (Media Line) 214/589-8909 |
- TABLES TO FOLLOW -
Trinity Industries, Inc.
Condensed Consolidated Statements of Operations
(in millions, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
December 31, | | Year Ended
December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Revenues | $ | 797.9 | | | $ | 591.2 | | | $ | 2,983.3 | | | $ | 1,977.3 | |
| Operating costs: | | | | | | | |
| Cost of revenues | 637.0 | | | 490.2 | | | 2,456.2 | | | 1,609.6 | |
| Selling, engineering, and administrative expenses | 48.6 | | | 47.7 | | | 201.9 | | | 185.4 | |
| Gains on dispositions of property: | | | | | | | |
| Lease portfolio sales | 36.4 | | | 54.5 | | | 82.8 | | | 127.5 | |
| Other | — | | | 5.7 | | | 6.8 | | | 25.2 | |
| | | | | | | |
| Restructuring activities, net | — | | | — | | | (2.2) | | | 1.0 | |
| 649.2 | | | 477.7 | | | 2,566.3 | | | 1,643.3 | |
| Operating profit | 148.7 | | | 113.5 | | | 417.0 | | | 334.0 | |
| Interest expense, net | 67.7 | | | 59.4 | | | 265.5 | | | 207.6 | |
| Loss on extinguishment of debt | — | | | — | | | — | | | 1.5 | |
| | | | | | | |
| Other, net | 0.5 | | | 1.1 | | | 2.5 | | | (1.6) | |
| Income from continuing operations before income taxes | 80.5 | | | 53.0 | | | 149.0 | | | 126.5 | |
| Provision (benefit) for income taxes: | | | | | | | |
| Current | 24.3 | | | 11.7 | | | 50.5 | | | 12.9 | |
| Deferred | (17.2) | | | (1.5) | | | (41.5) | | | 14.7 | |
| 7.1 | | | 10.2 | | | 9.0 | | | 27.6 | |
| Income from continuing operations | 73.4 | | | 42.8 | | | 140.0 | | | 98.9 | |
| Loss from discontinued operations, net of income taxes | (5.3) | | | (6.6) | | | (13.4) | | | (20.3) | |
| Loss on sale of discontinued operations, net of income taxes | — | | | — | | | — | | | (5.7) | |
| Net income | 68.1 | | | 36.2 | | | 126.6 | | | 72.9 | |
| Net income attributable to noncontrolling interest | 5.3 | | | 4.9 | | | 20.6 | | | 12.8 | |
| Net income attributable to Trinity Industries, Inc. | $ | 62.8 | | | $ | 31.3 | | | $ | 106.0 | | | $ | 60.1 | |
| | | | | | | |
| Basic earnings per common share: | | | | | | | |
| Income from continuing operations | $ | 0.83 | | | $ | 0.47 | | | $ | 1.47 | | | $ | 1.05 | |
| Loss from discontinued operations | (0.06) | | | (0.08) | | | (0.16) | | | (0.32) | |
| Basic net income attributable to Trinity Industries, Inc. | $ | 0.77 | | | $ | 0.39 | | | $ | 1.31 | | | $ | 0.73 | |
| Diluted earnings per common share: | | | | | | | |
| Income from continuing operations | $ | 0.81 | | | $ | 0.46 | | | $ | 1.43 | | | $ | 1.02 | |
| Loss from discontinued operations | (0.06) | | | (0.08) | | | (0.16) | | | (0.31) | |
| Diluted net income attributable to Trinity Industries, Inc. | $ | 0.75 | | | $ | 0.38 | | | $ | 1.27 | | | $ | 0.71 | |
| Weighted average number of shares outstanding: | | | | | | | |
| Basic | 81.6 | | | 80.9 | | | 81.2 | | | 81.9 | |
| Diluted | 83.5 | | | 83.1 | | | 83.4 | | | 84.2 | |
Trinity has certain unvested restricted stock awards that participate in dividends on a nonforfeitable basis and are therefore considered to be participating securities. Consequently, diluted net income attributable to Trinity Industries, Inc. per common share is calculated under both the two-class method and the treasury stock method, and the more dilutive of the two calculations is presented.
Trinity Industries, Inc.
Condensed Consolidated Balance Sheets
(in millions)
(unaudited)
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| ASSETS | | | |
| Cash and cash equivalents | $ | 105.7 | | | $ | 79.6 | |
| | | |
| Receivables, net of allowance | 363.5 | | | 323.5 | |
| Income tax receivable | 5.2 | | | 7.8 | |
| Inventories | 684.3 | | | 629.4 | |
| Restricted cash | 129.4 | | | 214.7 | |
| Property, plant, and equipment, net: | | | |
| Manufacturing/Corporate | 341.1 | | | 340.7 | |
| Leasing: | | | |
| Wholly-owned subsidiaries | 5,940.7 | | | 5,788.1 | |
| Partially-owned subsidiaries | 1,473.2 | | | 1,521.3 | |
| Deferred profit on railcars sold to the Leasing Group | (750.2) | | | (763.3) | |
| 7,004.8 | | | 6,886.8 | |
| Goodwill | 221.5 | | | 195.9 | |
| | | |
| Other assets | 392.1 | | | 386.6 | |
| Total assets | $ | 8,906.5 | | | $ | 8,724.3 | |
| | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| Accounts payable | $ | 305.3 | | | $ | 287.5 | |
| Accrued liabilities | 302.3 | | | 261.0 | |
| Debt: | | | |
| Recourse | 794.6 | | | 624.1 | |
| Non-recourse: | | | |
| Wholly-owned subsidiaries | 3,819.2 | | | 3,800.7 | |
| Partially-owned subsidiaries | 1,140.4 | | | 1,182.8 | |
| 5,754.2 | | | 5,607.6 | |
| Deferred income taxes | 1,103.5 | | | 1,134.7 | |
| | | |
| Other liabilities | 165.7 | | | 163.9 | |
| Stockholders' equity: | | | |
| Trinity Industries, Inc. | 1,037.1 | | | 1,012.4 | |
| Noncontrolling interest | 238.4 | | | 257.2 | |
| 1,275.5 | | | 1,269.6 | |
| Total liabilities and stockholders' equity | $ | 8,906.5 | | | $ | 8,724.3 | |
Trinity Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
| | | | | | | | | | | |
| Year Ended
December 31, |
| 2023 | | 2022 |
| Operating activities: | | | |
| Net cash provided by operating activities – continuing operations | $ | 309.0 | | | $ | 9.2 | |
| Net cash used in operating activities – discontinued operations | (13.4) | | | (22.0) | |
| Net cash provided by (used in) operating activities | 295.6 | | | (12.8) | |
| | | |
| Investing activities: | | | |
| Proceeds from lease portfolio sales | 381.8 | | | 750.7 | |
| Proceeds from dispositions of property and other assets | 19.9 | | | 44.0 | |
| Capital expenditures – lease fleet | (668.8) | | | (928.8) | |
| Capital expenditures – manufacturing and other | (41.3) | | | (38.0) | |
| Acquisitions, net of cash acquired | (62.2) | | | (80.4) | |
| Proceeds from insurance recoveries | 5.1 | | | 10.0 | |
| Equity investments | (1.1) | | | (15.5) | |
| Other | 3.6 | | | — | |
| Net cash used in investing activities – continuing operations | (363.0) | | | (258.0) | |
| Payments related to sale of discontinued operations | — | | | (2.7) | |
| | | |
| Net cash used in investing activities | (363.0) | | | (260.7) | |
| | | |
| Financing activities: | | | |
| Net proceeds from (repayments of) debt | 133.8 | | | 422.1 | |
| Shares repurchased | — | | | (51.8) | |
| Dividends paid to common shareholders | (86.0) | | | (76.9) | |
| Other financing activities | (39.6) | | | (28.0) | |
| | | |
| | | |
| Net cash provided by financing activities | 8.2 | | | 265.4 | |
| Net decrease in cash, cash equivalents, and restricted cash | (59.2) | | | (8.1) | |
| Cash, cash equivalents, and restricted cash at beginning of period | 294.3 | | | 302.4 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 235.1 | | | $ | 294.3 | |
Trinity Industries, Inc.
Reconciliations of Non-GAAP Measures
(in millions, except per share amounts)
(unaudited)
Adjusted Operating Results
We have supplemented the presentation of our reported GAAP operating profit, income from continuing operations before income taxes, provision (benefit) for income taxes, income from continuing operations, net income from continuing operations attributable to Trinity Industries, Inc., and diluted income from continuing operations per common share attributable to Trinity Industries, Inc. with non-GAAP measures that adjust the GAAP measures to exclude the impact of certain selling, engineering, and administrative expenses; gains on dispositions of other property; restructuring activities, net; interest expense, net; the income tax effects of the CARES Act; and certain other transactions or events (as applicable), described in the footnotes to the table below. These non-GAAP measures are derived from amounts included in our GAAP financial statements and are reconciled to the most directly comparable GAAP financial measures in the tables below. Management believes that these measures are useful to both management and investors for analyzing the performance of our business without the impact of certain items that are not indicative of our normal business operations. Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2023 |
| GAAP | | Selling, engineering, and administrative expenses (1) | | | | Gains on dispositions of property – other (2) | | | | Interest expense, net (3) | | | | Adjusted |
| Operating profit | $ | 148.7 | | | $ | 2.0 | | | | | $ | (1.4) | | | | | $ | — | | | | | $ | 149.3 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Income from continuing operations before income taxes | $ | 80.5 | | | $ | 2.0 | | | | | $ | (1.4) | | | | | $ | (0.4) | | | | | $ | 80.7 | |
| | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | $ | 7.1 | | | $ | 0.5 | | | | | $ | (0.4) | | | | | $ | (0.1) | | | | | $ | 7.1 | |
| | | | | | | | | | | | | | | |
| Income from continuing operations | $ | 73.4 | | | $ | 1.5 | | | | | $ | (1.0) | | | | | $ | (0.3) | | | | | $ | 73.6 | |
| | | | | | | | | | | | | | | |
| Net income from continuing operations attributable to Trinity Industries, Inc. | $ | 68.1 | | | $ | 1.5 | | | | | $ | (1.0) | | | | | $ | (0.3) | | | | | $ | 68.3 | |
| | | | | | | | | | | | | | | |
| Diluted weighted average shares outstanding | 83.5 | | | | | | | | | | | | | | 83.5 |
| | | | | | | | | | | | | | | |
| Diluted income from continuing operations per common share attributable to Trinity Industries, Inc. | $ | 0.81 | | | | | | | | | | | | | | | $ | 0.82 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| GAAP | | Selling, engineering, and administrative expenses (1) | | Gains on dispositions of property – other (2) | | Restructuring activities, net | | | | Interest expense, net (3) | | | | | | Adjusted |
| Operating profit | $ | 417.0 | | | $ | 4.0 | | | $ | (6.3) | | | $ | (2.2) | | | | | $ | — | | | | | | | $ | 412.5 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations before income taxes | $ | 149.0 | | | $ | 4.0 | | | $ | (6.3) | | | $ | (2.2) | | | | | $ | (1.5) | | | | | | | $ | 143.0 | |
| | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | $ | 9.0 | | | $ | 1.0 | | | $ | (1.6) | | | $ | (0.6) | | | | | $ | (0.4) | | | | | | | $ | 7.4 | |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations | $ | 140.0 | | | $ | 3.0 | | | $ | (4.7) | | | $ | (1.6) | | | | | $ | (1.1) | | | | | | | $ | 135.6 | |
| | | | | | | | | | | | | | | | | |
| Net income from continuing operations attributable to Trinity Industries, Inc. | $ | 119.4 | | | $ | 3.0 | | | $ | (4.7) | | | $ | (1.6) | | | | | $ | (1.1) | | | | | | | $ | 115.0 | |
| | | | | | | | | | | | | | | | | |
| Diluted weighted average shares outstanding | 83.4 | | | | | | | | | | | | | | | | 83.4 |
| | | | | | | | | | | | | | | | | |
| Diluted income from continuing operations per common share attributable to Trinity Industries, Inc. | $ | 1.43 | | | | | | | | | | | | | | | | | $ | 1.38 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2022 |
| GAAP | | | | | | | | | | Interest expense, net (3)(4) | | Income tax effect of CARES Act | | Adjusted |
| Operating profit | $ | 113.5 | | | | | | | | | | | $ | — | | | $ | — | | | $ | 113.5 | |
| | | | | | | | | | | | | | | |
| Income from continuing operations before income taxes | $ | 53.0 | | | | | | | | | | | $ | (0.4) | | | $ | — | | | $ | 52.6 | |
| | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | $ | 10.2 | | | | | | | | | | | $ | — | | | $ | 0.6 | | | $ | 10.8 | |
| | | | | | | | | | | | | | | |
| Income from continuing operations | $ | 42.8 | | | | | | | | | | | $ | (0.4) | | | $ | (0.6) | | | $ | 41.8 | |
| | | | | | | | | | | | | | | |
| Net income from continuing operations attributable to Trinity Industries, Inc. | $ | 37.9 | | | | | | | | | | | $ | (0.4) | | | $ | (0.6) | | | $ | 36.9 | |
| | | | | | | | | | | | | | | |
| Diluted weighted average shares outstanding | 83.1 | | | | | | | | | | | | | | 83.1 |
| | | | | | | | | | | | | | | |
| Diluted income from continuing operations per common share attributable to Trinity Industries, Inc. | $ | 0.46 | | | | | | | | | | | | | | | $ | 0.44 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| GAAP | | | | Gains on dispositions of property – other (2)(4) | | Restructuring activities, net (4) | | | | | | Interest expense, net (3)(4) | | Income tax effect of CARES Act | | Adjusted |
| Operating profit | $ | 334.0 | | | | | $ | (7.5) | | | $ | 1.0 | | | | | | | $ | — | | | $ | — | | | $ | 327.5 | |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations before income taxes | $ | 126.5 | | | | | $ | (7.5) | | | $ | 1.0 | | | | | | | $ | (1.4) | | | $ | — | | | $ | 118.6 | |
| | | | | | | | | | | | | | | | | |
| Provision (benefit) for income taxes | $ | 27.6 | | | | | $ | (1.9) | | | $ | 0.3 | | | | | | | $ | (0.3) | | | $ | 0.6 | | | $ | 26.3 | |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations | $ | 98.9 | | | | | $ | (5.6) | | | $ | 0.7 | | | | | | | $ | (1.1) | | | $ | (0.6) | | | $ | 92.3 | |
| | | | | | | | | | | | | | | | | |
| Net income from continuing operations attributable to Trinity Industries, Inc. | $ | 86.1 | | | | | $ | (5.6) | | | $ | 0.7 | | | | | | | $ | (1.1) | | | $ | (0.6) | | | $ | 79.5 | |
| | | | | | | | | | | | | | | | | |
| Diluted weighted average shares outstanding | 84.2 | | | | | | | | | | | | | | | | 84.2 |
| | | | | | | | | | | | | | | | | |
| Diluted income from continuing operations per common share attributable to Trinity Industries, Inc. | $ | 1.02 | | | | | | | | | | | | | | | | | $ | 0.94 | |
(1) Represents the change in estimated fair value of additional contingent consideration associated with an acquisition.
(2) Represents insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.
(3) Represents interest income accretion related to a seller-financing agreement associated with the sale of certain non-operating assets.
(4) The effective tax rate for gains on dispositions of other property; restructuring activities, net; and interest expense, net is before consideration of the CARES Act.
Pre-Tax Return on Equity
Pre-Tax Return on Equity (“Pre-Tax ROE”) is defined as a ratio for which (i) the numerator is calculated as income or loss from continuing operations, adjusted to exclude the effects of the provision or benefit for income taxes, net income or loss attributable to noncontrolling interest, and certain other adjustments, described in the footnotes to the table below, which include certain selling, engineering, and administrative expenses; gains on dispositions of other property; restructuring activities, net; and interest expense, net; and (ii) the denominator is calculated as average stockholders’ equity (which excludes noncontrolling interest), adjusted to exclude accumulated other comprehensive income or loss. In the following table, the numerator and denominator of our Pre-Tax ROE calculation are reconciled to income from continuing operations and total stockholders’ equity, respectively, which are the most directly comparable GAAP financial measures. Management believes that Pre-Tax ROE is a useful measure to both management and investors as it provides an indication of the economic return on the Company’s investments over time. Pre-Tax ROE is used in consideration of the Company’s expected tax position in the near-term. Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.
| | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 | | December 31, 2021 |
| ($ in millions) |
| Numerator: | | | | | |
| Income from continuing operations | $ | 140.0 | | | $ | 98.9 | | | |
| Provision (benefit) for income taxes | 9.0 | | | 27.6 | | | |
| Income from continuing operations before income taxes | 149.0 | | | 126.5 | | | |
| Net income attributable to noncontrolling interest | (20.6) | | | (12.8) | | | |
| Adjustments: | | | | | |
Selling, engineering, and administrative expenses (1) | 4.0 | | | — | | | |
Gains on dispositions of property – other (2) | (6.3) | | | (7.5) | | | |
| Restructuring activities, net | (2.2) | | | 1.0 | | | |
| | | | | |
| | | | | |
Interest expense, net (3) | (1.5) | | | (1.4) | | | |
| | | | | |
| Adjusted Profit Before Tax | $ | 122.4 | | | $ | 105.8 | | | |
| | | | | |
| Denominator: | | | | | |
| Total stockholders' equity | $ | 1,275.5 | | | $ | 1,269.6 | | | $ | 1,296.8 | |
| Noncontrolling interest | (238.4) | | | (257.2) | | | (267.0) | |
| Accumulated other comprehensive (income) loss | (11.0) | | | (19.7) | | | 17.0 | |
Adjusted Stockholders' Equity | $ | 1,026.1 | | | $ | 992.7 | | | $ | 1,046.8 | |
| | | | | |
| Average total stockholders' equity | $ | 1,272.6 | | | $ | 1,283.2 | | | |
Return on Equity (4) | 11.0 | % | | 7.7 | % | | |
| | | | | |
| Average Adjusted Stockholders' Equity | $ | 1,009.4 | | | $ | 1,019.8 | | | |
Pre-Tax Return on Equity (5) | 12.1 | % | | 10.4 | % | | |
(1) Represents the change in estimated fair value of additional contingent consideration associated with an acquisition.
(2) Represents insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.
(3) Represents interest income accretion related to a seller-financing agreement associated with the sale of certain non-operating assets.
(4) Return on Equity is calculated as income from continuing operations divided by average total stockholders' equity.
(5) Pre-Tax Return on Equity is calculated as adjusted profit before tax divided by average adjusted stockholders' equity, each as defined and reconciled above.
Adjusted Free Cash Flow
Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") is a non-GAAP financial measure. We believe Adjusted Free Cash Flow is useful to both management and investors as it provides a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. Adjusted Free Cash Flow is reconciled to net cash provided by operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following table. Adjusted Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from lease portfolio sales, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for leased railcars. Equity CapEx for leased railcars is defined as capital expenditures for our lease fleet, adjusted to exclude net proceeds from (repayments of) recourse and non-recourse debt. Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.
| | | | | | | | | | | |
| Year Ended
December 31, |
| 2023 | | 2022 |
| Net cash provided by operating activities – continuing operations | $ | 309.0 | | | $ | 9.2 | |
| Proceeds from lease portfolio sales | 381.8 | | | 750.7 | |
| Capital expenditures – manufacturing and other | (41.3) | | | (38.0) | |
| Dividends paid to common stockholders | (86.0) | | | (76.9) | |
| Equity CapEx for leased railcars | (535.0) | | | (506.7) | |
| Adjusted Free Cash Flow After Investments and Dividends | $ | 28.5 | | | $ | 138.3 | |
| | | |
| Capital expenditures – lease fleet | $ | 668.8 | | | $ | 928.8 | |
| Less: | | | |
| Payments to retire debt | (1,518.9) | | | (1,578.5) | |
| Proceeds from issuance of debt | 1,652.7 | | | 2,000.6 | |
| Net proceeds from (repayments of) debt | 133.8 | | | 422.1 | |
| Equity CapEx for leased railcars | $ | 535.0 | | | $ | 506.7 | |
EBITDA and Adjusted EBITDA
“EBITDA” is defined as income from continuing operations plus interest expense, income taxes, and depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA plus certain selling, engineering, and administrative expenses; gains on dispositions of other property; restructuring activities, net; and interest income. EBITDA and Adjusted EBITDA are non-GAAP financial measures; however, the amounts included in these calculations are derived from amounts included in our GAAP financial statements. EBITDA and Adjusted EBITDA are reconciled to net income, the most directly comparable GAAP financial measure, in the following table. This information is provided to assist management and investors in making meaningful comparisons of our operating performance between periods. We believe EBITDA is a useful measure for analyzing the performance of our business. We also believe that EBITDA is commonly reported and widely used by investors and other interested parties as a measure of a company’s operating performance and debt servicing ability because it assists in comparing performance on a consistent basis without regard to capital structure, depreciation or amortization (which can vary significantly depending on many factors). EBITDA and Adjusted EBITDA should not be considered as alternatives to net income as indicators of our operating performance, or as alternatives to operating cash flows as measures of liquidity. Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
December 31, | | Year Ended
December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Net income | $ | 68.1 | | | $ | 36.2 | | | $ | 126.6 | | | $ | 72.9 | |
| Less: Loss from discontinued operations, net of income taxes | (5.3) | | | (6.6) | | | (13.4) | | | (20.3) | |
| Less: Loss on sale of discontinued operations, net of income taxes | — | | | — | | | — | | | (5.7) | |
| Income from continuing operations | $ | 73.4 | | | $ | 42.8 | | | $ | 140.0 | | | $ | 98.9 | |
| Interest expense | 71.4 | | | 61.6 | | | 277.9 | | | 213.9 | |
| Provision (benefit) for income taxes | 7.1 | | | 10.2 | | | 9.0 | | | 27.6 | |
| Depreciation and amortization expense | 73.3 | | | 70.4 | | | 293.2 | | | 276.4 | |
EBITDA | $ | 225.2 | | | $ | 185.0 | | | $ | 720.1 | | | $ | 616.8 | |
| Selling, engineering, and administrative expenses | 2.0 | | | — | | | 4.0 | | | — | |
| Gains on dispositions of property – other | (1.4) | | | — | | | (6.3) | | | (7.5) | |
| | | | | | | |
| Restructuring activities, net | — | | | — | | | (2.2) | | | 1.0 | |
| Interest income | (0.4) | | | (0.4) | | | (1.5) | | | (1.4) | |
| | | | | | | |
| | | | | | | |
| Adjusted EBITDA | $ | 225.4 | | | $ | 184.6 | | | $ | 714.1 | | | $ | 608.9 | |
Exhibit 99.2
Trinity Industries, Inc.
Earnings Release Conference Call – Q4 2023
February 22, 2024
Leigh Anne Mann
Vice President, Investor Relations
Thank you, operator. Good morning everyone. We appreciate you joining us for the Company’s fourth quarter 2023 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 certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the supplemental slides, which are accessible on our investor relations website at www.trin.net. These slides are under the Events and Presentations portion of the website, along with the Fourth 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 February 29, 2024. Replay information is available under the Events and Presentations page on our Investor Relations website.
It is now my pleasure to turn the call over to Jean.
E. Jean Savage
Chief Executive Officer and President
Thank you, Leigh Anne, and good morning everyone. We ended 2023 on a strong note and proved our ability to deliver results despite unexpected challenges throughout the year. Our 2023 revenue of $3.0 billion was up 51% year over year. Full year GAAP EPS was $1.43 per diluted share, and adjusted EPS was $1.38, up 47% year over year. Segment margins, excluding railcar sales, were up year over year in both the Rail Products Group and the Railcar Leasing and Management Services Group.
While our 2023 results show significant progress, I am also encouraged by the forward metrics that are positioning our operations for an even stronger 2024. The Future Lease Rate Differential, or FLRD, is currently 23.7%, and our fleet utilization remains high at 97.5%. These indicators show
continued strength in the lease fleet and our ability to increase lease rates. On the Rail Products side of the business, the backlog of $3.2 billion gives us production visibility. It allows us to efficiently plan our operations and compete for business that maximizes our platform’s returns in the current market. Eric will discuss our financial expectations for 2024, but we are well-positioned to execute a solid year. We also believe we are well-positioned in sustainability, safety, and diversity, and I would like to share a few notable updates from these initiatives.
ESG
In the fourth quarter, Trinity was pleased to receive Union Pacific’s first-ever Sustainability Partner Award. We were recognized based on multiple sustainability initiatives. One of the initiatives was our collaboration with UP to deliver the 5239 covered hopper, which utilizes thinner and lighter materials to maximize the car’s capacity. Additionally, as part of its EcoConnexions Partnership Program, CN recognized Trinity for our efforts and commitment to sustainability.
In Mexico, we earned the ESR badge again, highlighting our work to promote employee well-being, sustainability, environmental stewardship, philanthropy, and community involvement.
Finally, Newsweek recently named us one of the “Greatest Workplaces for Diversity” highlighting our steadfast commitment to cultivating an inclusive environment where diverse perspectives coexist and thrive.
We strongly believe these awards are recognition of hard work and dedication. I want to congratulate our team for keeping our core values at the forefront of our minds.
Before discussing specifics from the quarter and the year, I’d like to discuss what we are seeing in the market.
Market Update
Carloads improved sequentially and year over year in the fourth quarter with improvements in chemicals, certain energy markets, and key agricultural markets, like grain mill products, fertilizer, and biofuels. Automotive demand has remained strong as supply chain issues continue to improve. This is despite consumers’ perceived headwinds due to the recent high inflation levels and higher borrowing costs. These are favorable trends for tank cars and autoracks.
Railroad service is improving. In December, train speeds were the fastest since January 2021 with dwell times also showing faster service among the Class I Railroads. This improvement has contributed to lower active railcar needs despite carload gains, with just over 20 thousand more railcars in storage at the beginning of February than a year ago. Nevertheless, we continue to view fluid rail service as a positive and believe better rail service will drive modal share growth and, ultimately, a stronger rail industry. Coupling better rail service with our emerging logistics platform incentivizes customers to increase rail usage in their supply chain planning.
Now, I want to provide some segment-level highlights, starting with the Railcar Leasing and Management Services segment.
Railcar Leasing and Management Services Group
In the fourth quarter, our Leasing Group earned $222 million in revenue and $136 million in operating profit. As foreshadowed earlier this year, fourth quarter results included railcar sales proceeds of $136 million and a gain of $36 million.
In the full year, leasing segment revenues were up 13% year over year, driven by a favorable FLRD all year, higher lease rates, and net additions to the fleet. Furthermore, our 2023 revenue includes RSI Logistics, which we acquired in the first quarter of 2023. As mentioned at the beginning of the call, the FLRD was 23.7% in the fourth quarter, and fleet utilization remained favorable at 97.5%. For the full year, our renewal rates were approximately 30% higher than expiring rates, and our average renewal lease term was 54 months, allowing us to lock in the higher rates longer.
While the operating margin of 49.2%, which includes secondary market railcar sales, is down year over year, this is driven by significantly more gains in railcar sales in 2022. When removing the impact of the gains, the segment margin is up year over year and reflects the impact of higher lease rates improving performance in the sector.
Rail Products Group
Trinity delivered 17,355 railcars in 2023 and 4,000 in the fourth quarter. Fourth quarter deliveries were approximately 1,300 units below our projections, primarily as a result of the border closing. In addition to the previous border closure that affected us in Q3, the U.S. Customs and Border Protection Agency closed the international railway crossing bridges at Eagle Pass and El Paso, Texas, on December 18th, and they remained fully closed until December 22nd. Eagle Pass is Trinity’s primary border crossing for railcar deliveries from our Sabinas and Monclova, Mexico manufacturing facilities. The
financial impact of the border closure and related congestion primarily includes lost revenue on delayed units, increased freight and storage expenses, reduced efficiency, and increased overtime pay.
In the fourth quarter, Trinity booked 840 new railcar orders or about 20% of the quarterly industry orders, which demonstrates the lumpiness of order activity from quarter to quarter. For the full year, our share of industry orders was in our normal range of 30-40%, and we still hold about half of the industry backlog with long lead times on most new orders. This allows us to be disciplined in the orders we accept into our backlog. We have seen inquiry activity pick up substantially in the first quarter and continue to view our backlog and order volume favorably.
In the fourth quarter, segment revenue of $674 million was slightly down sequentially primarily due to the border closing preventing us from getting finished railcars across the border by year-end. This also affected the segment’s operating margin, which was 6.1%. Fourth quarter results included gains from insurance recoveries; the margin would be 5.9% excluding the gains, up 70 basis points sequentially. The border closure affects our efficiency, which results in lower margins. The margin impact from the border closure was approximately 150 basis points in the fourth quarter.
On a full year basis, the Rail Products Group showed significant improvement year over year. Deliveries were 30% higher year over year, driving revenue improvement of 30% and operating profit improvement of 119% in the segment. This is especially impressive when you remember the headwinds we faced in 2023 – including challenges with labor in Mexico, as well as external challenges including: a strengthening peso at the beginning of the year, border closures, and related supply chain challenges in the back half of the year. Our full year operating margin of 4.8% is up 200 basis points from 2022, and we expect to see continued improvement in 2024.
Over the last several years, external headwinds have negatively impacted the manufacturing business’s performance. We will remain disciplined in our pricing and production decisions to account for our current external limitations, allowing us to drive consistent and efficient operations. We have conducted our annual make vs. buy review and have found opportunities to bring some capabilities in-house. We are also working in tandem with our logistics partners to ease constraints at the border, and we will continue to evolve our manufacturing footprint and product portfolio in order to maximize returns for our entire platform. I feel confident this is a necessary step for Trinity and expect to see the positive effects in 2024.
2023 Highlights and Segment Change
Before I turn the call over to Eric, I would like to take a minute to review some highlights from 2023. I already mentioned some of the challenging headwinds we faced, and I am so proud of our employees and their willingness to work hard to find creative solutions that drove results with considerable year over year growth, despite an unexpected operating environment. As mentioned, we completed our acquisition of RSI Logistics in the first quarter. We are very pleased with the performance of this business, and our prior acquisitions, as we have worked to integrate them into Trinity.
Ultimately, our goal is to make rail shipping an easy choice for shippers across North America. We have focused on expanding our offerings to include digitally enabled logistics services as our customers work to modernize their supply chains. We are working to enhance our large, diversified lease fleet, and better serve our customers. We believe Trinity has a growing strategic value to our customers because of these services. Continued focus on service expansion will make Trinity, and the rail industry as a whole, more appealing to customers.
On a related note, as you may have seen previewed in our press release this morning, we have moved our maintenance business into our Railcar Leasing segment, effective January 1st. Trinity is a leasing company enabled by manufacturing and services, and this change reflects that organizational structure. It allows us to better leverage our maintenance services capabilities to support lease fleet optimization and to grow our services business. As a result, we will rename the segment the “Railcar Leasing and Services Group”. We will recast all prior segment results starting with our first quarter filings, which will change the margin makeup of both segments. Eric will give some guidance on how to think about these segments in 2024 and going forward.
Finally, as we look forward strategically as a company, I’m excited to announce that we will host an Investor Day in Dallas on Tuesday, June 25th. Reach out to Leigh Anne for information on the event and accommodations. We look forward to hosting you in Texas and sharing our vision for Trinity.
And now, I’ll turn the call over to Eric to review the financial statements, discuss the fourth quarter results, and share our expectations for 2024.
Eric R. Marchetto
Executive Vice President and Chief Financial Officer
Thank you Jean and good morning everyone.
I’ll start by discussing our fourth quarter and full year financial statements and conclude with high-level guidance for 2024, including a reconciliation to our new segment reporting structure.
Income Statement
Starting with the income statement, on a consolidated basis, fourth quarter revenue was $798 million, representing a 35% improvement year over year. Company revenues were $3.0 billion for the full year, 51% higher than 2022. With improved margins in both segments excluding secondary market railcar sales, we ended the year with GAAP EPS of $1.43 and adjusted EPS of $1.38, which is above our previously issued guidance range of $1.20 to $1.35. We benefited in the fourth quarter and full year from a lower than expected tax rate, driven primarily by the release of residual taxes, changes in state apportionment and state rate changes in 2023, and changes in valuation allowances. With a normalized tax rate, we would have completed the year in the lower portion of our guidance range. For the full year, we completed $382 million in secondary market railcar sales for a gain of $83 million, which also benefited our 2023 results.
Net interest expense in the year was $266 million, up significantly over 2022, driven by higher interest rates and higher overall average debt. We expect a similar run rate in 2024 to the fourth quarter.
Cash Flow Statement
Moving to the cash flow statement, full year net cash from operations was $309 million, up significantly year over year due primarily to stabilized inventory levels and production. Adjusted free cash flow for the year was $29 million. This was driven by higher cash flow from operations offset by lower lease portfolio sales and the timing of railcar financing.
Our full year net lease fleet investment was $287 million, in line with our guidance. In the fourth quarter, proceeds from secondary market railcar sales were $136 million for a gain of $36 million, in line with our expectations.
In December, we increased our quarterly dividend by approximately 8% to $0.28 per share. This dividend, our 239th consecutive paid dividend, was paid in January. We remain committed to returning capital to shareholders through our dividend.
Guidance
I’ll close my comments with high-level guidance for 2024.
As Jean noted, we enter 2024 with a strong backlog which gives us good visibility for the Rail Products segment’s 2024 production. I would like to note that in the fourth quarter, we had two adjustments to our backlog and removed 365 railcars worth $33.4 million. One was based on a mutual decision with the customer as we could not come to an agreement on a delivery date. The second was a reduction in order size from a customer for which we received compensation for the accommodation. We continue to view our backlog favorably.
As Jean mentioned, we are moving our Maintenance Services business out of the Rail Products segment and into the Leasing and Services segment. We believe our railcar maintenance business primarily exists to service our own lease fleet and internally view maintenance as an enabler of the leasing business. Therefore, we think it is logical to include that business as part of the Leasing and Services segment. All 2024 reporting will reflect this change. This will not change our financial reporting below the operating profit line of our two reporting segments; the change will have no effect on consolidated operating results. A reconciliation of 2023 segments as reported to recast segments is included in the appendix of today’s supplemental slides and is Slide 18 for reference.
In the Leasing and Services segment, we expect improvement in 2024 as we continue to re-price our fleet and push lease rates higher. Since the FLRD turned double digit positive in the second quarter of 2022, we have re-priced approximately 37% of our fleet, giving us plenty of opportunity to renew leases at significantly higher market rates than expiring rates. We expect the FLRD to remain strong through 2024 as we are seeing absolute lease rates rising, and we have a favorable mix of railcars renewing. Excluding the impact of secondary market railcar sales, we expect margin improvement above the 2023 recast margin of 34.1%, which includes the railcar maintenance business. We anticipate fleet maintenance expenses to remain elevated in 2024 due to the current tank car compliance cycle. For 2024, we expect gains on railcar sales to be approximately half of what they were in 2023 and expect minimal railcar sales in the first quarter.
In the Rail Products segment, given the anticipated stable production levels, we expect 2024 margins to be significantly improved from the recast 2023 operating margin of 4.5%, which excludes the maintenance business. We forecast a 2024 margin in the range of 6% to 8%, improving through the year, which reflects better efficiency, complexity reduction, and a more stable border. First quarter margins will be impacted by increased freight and storage costs and the seasonality of our business.
We expect industry deliveries of approximately 40 thousand railcars in 2024, which is consistent with our long-term view of replacement-level demand and supportive of our rationalized capacity in Mexico.
We anticipate net lease fleet investment of $300 to $400 million for the year. While we see plenty of opportunity in the secondary market as both buyers and sellers, we expect lower railcar sales as compared to 2023. We expect to deliver 53% of our total backlog in 2024. For those deliveries in the year, we expect 20% to 25% will be internal.
We expect our manufacturing and general capital expenditures to be approximately $50 million to $60 million for 2024. These expenditures are generally supporting automation, technology, and modernization of our facilities and processes.
And finally, we are announcing our 2024 EPS guidance at a range of $1.30 to $1.50. As mentioned, this guidance reflects higher deliveries and better efficiency in our manufacturing business in 2024 driving higher margins, and continuing improvement in average lease rates. The major year over year EPS headwinds are higher eliminations, significantly lower gains on railcar sales, and a more normalized tax provision, which generally we define as 25% to 27% in 2024.
In closing, 2024 is off to a strong start, and we believe the plan we have in motion is achievable and reflects the work we have done across our business to improve our financial performance. We have learned from the challenges of 2023 and believe we are better positioned as a company to remain disciplined and deliver improved returns for our business. And we look forward to sharing some longer term targets at Investor Day next quarter.
(after Q&A)
E. Jean Savage
Chief Executive Officer and President
Thank you for joining us this morning. For every unexpected challenge in 2023, Trinity found a unique solution. As we look to 2024, we anticipate continued margin growth, consistent operations, and a focus on improving the returns of our business. Thank you for your support of Trinity. We look forward to speaking again in May and seeing you in Dallas in June for Investor Day.
