FreightCar America CEO Discusses Q2 2012 Results - Earnings Call Transcript

FreightCar America, Inc. (RAIL)

Q22012 Earnings Call

August 6, 2012 11:00 am ET

Executives

Joe McNeely - Chief Financial Officer

Ed Whalen - President, Chief Executive Officer, Director

Analysts

Michael Gallo - C. L. King

Peter Nesvold - Jefferies

Brad Delco - Stephens

Sal Vitale - Sterne, Agee

Matt Brooklier - Longbow Research

Matthew Dodson - Edmunds White Partners

Adam Peck - Heartland Funds

Steve Barger - KeyBanc Capital Markets

Presentation

Operator

Ladies and gentlemen, welcome to FreightCar America's second quarter 2012 earnings conference call and webcast.

(Operator instructions) Please note that this conference is being recorded. An audio replay of the conference call will be available from at 1 p.m. Eastern Daylight Time today midnight Eastern Daylight Time, September 6, 2012. To access the replay, please dial 1-800-475-6701. The replay pass code is 255509. An audio replay of the call will be available on the company’s website within two days following this earnings call.

I would now like to turn the conference over to Joe McNeely, Chief Financial Officer of FreightCar America. Please go ahead, sir.

Joe McNeely

Thank you and welcome to FreightCar America's second quarter 2012 earnings conference call and webcast. Joining me today are Ed Whalen, President and CEO, Ted Baun, Senior Vice President, Marketing and Sales and Terry Heidkamp, Senior Vice President, Operations.

Before we begin, I would like to remind everyone that statements made during this conference call relating to the company's expected future performance, future business prospects, or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Participants are directed to FreightCar America's 2011 Form 10-K for a description of certain business risks, some of which may be outside the control of the company that may cause actual results to materially differ from those expressed in the forward looking statements.

We expressly disclaim any duty to provide updates to our forward-looking statements whether as a result of new information, future events, or otherwise. Our 2011 Form 10-K and earnings release for the second quarter of 2012 are posted on the company's website at www.freightcaramerica.com.

I would now like to turn the call over to Ed Whalen, our President and CEO.

Ed Whalen

Thank you, Joe and good morning. I am pleased to report another strong quarter for FreightCar America as we registered year-over-year improvements in both our top and bottom line despite significant headwinds we have been experiencing in the coal market. Revenues and operating income decreased sequentially for the first time in several quarters. However we were able to build upon the efficiencies gained over the last two years to maintain solid financial results.

To recap order activity, 961 railcars were ordered in the second quarter of 2012, of which 600 were new, compared to 1089 new railcars ordered in the second quarter of 2011. In the first quarter of 2012, 1244 railcars were ordered of which 1163 were new. As a result of our product diversification efforts, our second quarter orders included a variety of car types with services other than coal including hoppers, gondolas and flat cars.

We delivered 2,786 railcars in the second quarter of 2012, which included 1,815 new, 361 used and 610 leased railcars. This compares to 1,309 railcars delivered in the second quarter of 2011, of which 1,219 were new. There were 2,613 railcars delivered in the first quarter of 2012, of which 2,146 were new.

Our backlog of unfulfilled orders at June 30, 2012 was 5,109 railcars compared to 4,986 railcars at June 30, 2011 and 6,934 railcars at March 31, 2012. Total industry railcar orders were 16,434 in the second quarter with tank cars accounting for 84% of all orders. 17,927 railcars were delivered in the second quarter of 2012 and as a result industry-wide backlog decreased to 58,674 railcars at the end of June.

The overall number of railcars in storage reached to roughly 318,000 as of June, an increase of 19,000 when compared to March 31, 2012. However we estimate that the number of coal cars in storage decreased from about 35,000 railcars at the end of March to approximately 33,000 at the end of June and continued to decrease further to 24,000 at the end of July.

While U.S. railcar loading for most commodities remained strong, coal continued to be challenged. When compared to the second quarter of 2011, commodity loadings in the second quarter of 2012 were down 3.2% driven by coal and agricultural products. Coal loadings decreased by 11.7% and intermodal container loadings increased by 6.3% in the second quarter versus the same quarter in 2011.

U.S. electricity generation where coal competes as a power generating fuel was down 2.6% in the first half of the year compared to the first half of 2011. Overall the U.S. coal production was down 6.2% in the first half of 2012 versus the same period last year.

Lower natural gas prices and lower electric power consumption continued to negatively impact coal demand. Efficiency of the railroads and the anemic economic recovery also impacted overall coal demand. The Energy Information Administration's latest estimate report stockpile as of May 2012 is 203 million tons approaching the record level of 2009, 35% above the 10-year average and 16% above the year-ago stockpile level.

Indications are that harder than normal summer is helping to reduce the absolute level of the utility coal stockpile, but it is difficult to say when the stockpile will return to historical average levels.

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