Andrzej Tomczyk

Andrzej Tomczyk inquired about the potential impact of the recently announced transcontinental rail merger on the leasing business, the sustainability of the high lease price renewal rates, and the regulatory timeline for the Wells Fargo Rail transaction.

Answer

President & CEO Bob Lyons stated it was too early to assess the rail merger's full impact but noted that long-term rail efficiency is positive for lessors. He also confirmed the Wells Fargo deal timeline is tracking as planned. Paul Titterton, EVP & President of Rail North America, added that the lease rate environment remains strong and stable, predicting "more of the same" without a new external catalyst, supported by what Bob Lyons described as an ongoing "supply led recovery."

Andrzej Tomczyk inquired about the potential impact of the recently announced transcontinental rail merger on the leasing business, the sustainability of the high lease price renewal rates, and the regulatory approval timeline for the Wells Fargo Rail transaction.

Answer

President & CEO Robert Lyons stated it was too early to assess the merger's impact but noted that long-term rail efficiency is positive for lessors. He also confirmed the Wells Fargo deal timeline is on track. Paul Titterton, EVP & President of Rail North America, added that the lease rate environment remains strong and stable, supported by supply-side constraints, and expects absolute lease rates to remain flattish without a new catalyst.

Andrzej Tomczyk of Goldman Sachs asked about the potential impact of a major transcontinental rail merger on the leasing business, the sustainability of the high 24% lease price renewal rate, and the approval timeline for the Wells Fargo Rail transaction.

Answer

President & CEO Robert Lyons stated it was too early to assess the rail merger's impact but noted long-term efficiencies are positive for lessors. He also confirmed the Wells Fargo deal timeline is on track. Paul Titterton, EVP & President of Rail North America, added that the lease rate environment remains strong and stable, predicting flattish absolute lease rates without a new external catalyst.

Andrzej Tomczyk from Goldman Sachs requested more detail on how macroeconomic volatility and tariffs are impacting the North American railcar segment, including recent customer commentary on reshoring trends. He also asked about new railcar pricing, the ability to pass on costs, and current valuations in the secondary market, along with the outlook for remarketing income.

Answer

President and CEO Robert Lyons explained that while customers express uncertainty about long-term growth, their actions, such as high renewal rates, show a clear need to retain their current fleets. EVP Paul Titterton added that customer views on reshoring are mixed and long-term in nature. Titterton confirmed new car prices are high, which indirectly supports existing fleet values, and that secondary market valuations remain strong. Lyons reiterated the full-year remarketing income forecast of $100 million to $110 million.

Andrzej Tomczyk inquired about the drivers behind the increased lease renewal success rate in North America, the potential business impact of the new U.S. administration, and any notable changes in secondary market activity.

Answer

Paul Titterton, EVP and President of Rail North America, attributed the high renewal rate to a balanced supply-demand market with disciplined new car production. Regarding the new administration, Titterton noted it's too early to know the full effects, while President and CEO Robert Lyons added that GATX is prepared for various potential tariff scenarios. Lyons also stated that secondary market sales are programmatic and diverse, a strategy that will continue into 2025.

Andrzej Tomczyk from Goldman Sachs asked for clarification on the manufacturing margin ramp in H2 2025, the competitive leasing environment, the impact of steel tariffs on demand, and the potential industry effects of a major transcontinental rail merger.

Answer

CEO E. Jean Savage reiterated the full-year 5-6% margin guidance for the Rail Products segment, driven by improving volumes through the year. She described the leasing market as tight and balanced, with a high 89% renewal success rate. On potential tariffs, she noted that higher steel prices also increase scrap values, which can accelerate fleet attrition and eventually drive new orders. She viewed the proposed rail merger as a long-term positive that could improve network efficiency and drive modal share gains from truck to rail. CFO Eric Marchetto added that the secondary market remains strong, prompting an increase in the full-year guidance for gains on sale.

Andrzej Tomczyk of Goldman Sachs asked about management's confidence in converting inquiries to orders, the potential timing for orders to outpace deliveries, the percentage of railcars delivered to the internal fleet, and how manufacturing margins would perform at different levels of industry deliveries.

Answer

CEO Jean Savage stated that the company is currently finalizing several orders totaling approximately $100 million, indicating that inquiries are beginning to convert. She noted that while the fleet is tight, macroeconomic uncertainty makes it difficult to predict when the book-to-bill ratio will exceed one. CFO Eric Marchetto clarified that deliveries to the internal fleet were 29% in Q1 and are expected to be over 30% for the full year. Savage confirmed that if industry deliveries are at the low end of the 28,000-33,000 range, Trinity's margins would likely be closer to the 5% end of their guidance.

Andrzej Tomczyk questioned if Trinity's 2025 delivery decline would align with the industry's, how manufacturing margins might trend through the year, the nature of recent order inquiries, and the performance of the Parts business.

Answer

CEO Jean Savage confirmed Trinity expects to maintain its typical 30%-40% share of industry deliveries and anticipates a stronger second half for 2025. CFO Eric Marchetto provided a detailed 2024-to-2025 bridge, outlining headwinds like lower deliveries and higher taxes, and tailwinds like strong lease pricing and cost savings. Savage noted that order inquiries are still led by freight car replacement demand but that tank car inquiries have been consistent. She also highlighted strong performance from the Parts business, boosted by the Holden acquisition.

Andrzej Tomczyk, on for Jordan Alliger at Goldman Sachs, asked conceptually if a potential consumer-led recession would have a less pronounced impact on freight markets, given the sector has already been in a prolonged downturn.

Answer

CFO Jennifer Hamann concurred that the truck-competitive market has been weak for some time and that UNP is now better positioned with improved service and partners. She emphasized that the franchise's broad diversity across many markets provides a natural insulation against a downturn in any single area, a historical strength for the company.