American Railcar Industries ( ARII)

Q3 2010 Earnings Call Transcript

October 28, 2010 10:00 am ET

Executives

Dale Davies – CFO, SVP and Treasurer

Jim Cowan – President and CEO

Analysts

Art Hatfield – Morgan, Keegan

Alison Wolf – Longbow Research

Alexander Walsh – KeyBanc Capital

Tyson Bauer – Wealth Monitors

Presentation

Operator

Welcome to the third quarter 2010 earnings call. My name is John and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Dale Davies. Mr. Davies, you may begin.

Dale Davies

Good morning. I would like to welcome all of you to the American Railcar Industries third quarter 2010 conference call. I'm Dale Davies, the Chief Financial Officer, and I would like to thank you for being with us this morning. For all those who are interested, a replay of this call will also be available on our Web site, www.americanrailcar.com, shortly after this call ends. Joining me this morning is Jim Cowan, our President and CEO.

Our call today will include a discussion regarding the railcar industry, our planned operations, and the company's financial results. We will also make a few comments about our joint ventures. Following these remarks, we will have a Q&A session.

Before we get started, let me remind everyone that today's call contains forward-looking statements, including statements as to estimates, expectations, intentions, and predictions of future financial performance. Participants are directed to American Railcar Industries' SEC filings and press releases for a description of certain business issues and risks.

A change in any one of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Also, please note that the company does not undertake any obligation to update any forward-looking statements made during the call.

Jim, will you please start the call with a few comments about our industry and our operations.

Jim Cowan

Certainly. Thank you, Dale, and good morning. The US economy and the railcar industry remain weak, but both have experienced modest improvements during 2010. Railcar loadings have increased during 2010 from the prior year. And during the third quarter, the industry saw the highest weekly average since the fourth quarter of 2008. Although the reported idle US railcar fleet remains sizeable at 22% or approximately 331,000 railcars, it has continued to decline from the recent high level of 32% or approximately 503,000 railcars in June of '09.

In addition, industry-wide new railcar orders were almost 9,200 and new railcar deliveries were approximately 3,700 during the third quarter of 2010. This has been the highest quarterly level of orders and deliveries during 2010, and the highest level of order since the second quarter of 2008. As a result of the continued increase in order levels, industry backlog has increased in each quarter of 2010. Deliveries are forecasted to be approximately 14,000 cars in 2010 and 29,000 in 2011.

Based on these figures, we believe the first half of 2010 appears to be the low point for the railcar industry. We continue to quote on new railcar order opportunities and were successful in securing orders for approximately 640 new railcars in the third quarter of 2010, resulting in a backlog of approximately 1,420 new railcars as of September 30th and we continue to book new business this month as well.

We have noted previously that the customers active in the market are railroads and shippers primarily seeking new specialty railcars, whereas leasing companies have been fairly inactive. In addition, many of these customers currently have a greater need for hopper railcars as compared to tank railcars. Most of our orders during 2010 have focused on specialty hopper railcars with many orders taken at very competitive prices. While new railcar production will remain at low levels, we have increased production at one of our railcar manufacturing facilities to meet our customers' needs.

During the third quarter of 2010, we began producing our first open-top hopper railcars for use in iron ore service that have began to ship in the fourth quarter. We are seeing benefits from vertical integration projects, which have lowered the cost of parts used to manufacture railcars. We will continue to use some available capacity at our railcar manufacturing plants for railcar repair work. This allows us to effectively utilize our seasoned workforce and superior facilities to earn additional revenue.

Our railcar service segment experienced increased revenue and improved efficiencies in 2010 due to completed expansion projects and the utilization of our railcar manufacturing plants as previously mentioned. We expect that these expansions will further grow our presence in the railcar repair market. Our repair plants have seen improved demand due in part to railcars that were idle and are now being repaired and returned to service. However, we are seeing some customers limiting repairs to mechanical maintenance and deferring paint and lining work.

I will turn the call back to Dale for discussions of third quarter 2010 financial results.

Dale Davies

Thanks, Jim. Revenues for the third quarter of 2010 were $65 million, down from revenues of $78 million in the third quarter of 2009. Deliveries for the third quarter were approximately 420 railcars, down from approximately 610 for the same period of 2009. The reduced revenues in deliveries resulted from depressed demand for new railcars. Although revenues decreased year-over-year, this is the second sequential quarter we've experienced an increase in manufacturing operations revenues.

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