FreightCar America sees benefit in tight rail car supply, better rail service
Although macroeconomic uncertainties loom and higher inflation could be keeping some would-be customers at bay, rail car manufacturer FreightCar America is bullish on the second half of 2022.
“I would like to emphasize just how optimistic we are about the future,” President and CEO Jim Meyer said in prepared remarks during FreightCar America’s second-quarter earnings call Tuesday morning. “At the same time, I would like to emphasize that we are also realistic about the potential temporary impacts of a slowdown in the economy and continuing supply chain disruptions.”
“We will be producing rail cars at approximately twice the rate in the second half of this year than we did in the first half. And we will continue with the build-out of the Castaños [Mexico] facility exactly as envisioned,” Meyer added. The company moved the last of its U.S. manufacturing operations from Alabama to northern Mexico in 2020. “We will also remain committed to scaling the business profitably and to not let our capacity and fixed costs become burdensome.”
Company executives pegged customer sentiment as “cautiously optimistic,” with the recent increase in interest rates putting some speculative buying on hold. But FreightCar America still sees the rail car market as benefiting the company since rail network congestion and the scrapping of older rail car assets have resulted in “many car types being in tight supply,” Meyer said.
FreightCar America reported second-quarter 2022 net income of $56.8 million, or 58 cents per share, compared with a net loss of $4.2 million, or a loss of 24 cents per share, in the second quarter of 2021.
Second-quarter revenue rose 52% year over year to $56.8 million on the deliveries of 468 rail cars, which was in line with company estimates and contrasts with the 313 rail cars delivered in the second quarter of 2021.
The company received 1,045 new orders in the second quarter, and it turned down “a comparable number” of orders, according to Meyer. For 2022, it expects to deliver between 3,000 and 3,200 rail cars, up from previous guidance of 2,800 to 3,000.
“Our cost structure and the size of the footprint in Mexico provide us some flexibility so we can focus on business that is well suited for Freightcar America,” said Chief Commercial Officer Matt Todd.
The company’s orderbook is currently full for the remainder of fiscal year 2022, and FreightCar America is building its backlog for 2023 and beyond, according to Todd. The company also sold out its capacity in 2021.
“During the quarter our inquiry levels remain robust and in line with the strong activity that we experienced last quarter, with industry demand largely tied to railcar replacement,” Todd said on the earnings call. Inquiries from shippers have increased, as have inquiries from the more traditional leasing and Class I railroad customers, he said.
Meanwhile, FreightCar America’s expansion projects continue to progress, Meyer said, with the large-scale wheel-and-axle shop and the 162,000-square-foot fabrication shop coming online soon. A new assembly building with additional production lines will also be ready within six months, he said. A third production line will be ready in the fourth quarter, while a fourth production line will be ready in 2023. These additional lines will double production capacity to roughy 4,000 to 6,000 units per year.
“The second quarter of 2022 serves as an additional proof point of the strength and efficiency of our manufacturing footprint in Castaños to deliver upwards of 2,000 rail cars in the second half of the year, while we continue to build out the new footprint with a focus on meeting our future anticipated demand levels and achieving world-class manufacturing excellence,” Meyer said.
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