Original Source: FD (FAIR DISCLOSURE) WIRE
. Rhonda Johnson, GATX Corp., IR . Bob Napoli, Piper Jaffray, Analyst
. Bob Lyons, GATX Corp., CFO . Jim Earl, GATX Corp., EVP, Head of Rail . Brian Kenney, GATX Corp., President, CEO . John Hecht, JMP Securities, Analyst . Art Hatfield, Morgan Keegan, Analyst . Jordan Hymowitz, Philadelphia Financial, Analyst . James Owen, Seacliff, Analyst . Dan Clerk, Sea Trust Capital, Analyst
Co. reported $0.83 in diluted EPS on $47.9m in net income for 1Q06 and reiterated 2006 diluted EPS guidance of $2.60-$2.70, which includes a $0.20 benefit from lower depreciation on aircraft held for sale.
A. Key Data From Call 1. 1Q06 net income = $47.9m. 2. 1Q06 diluted EPS = $0.83 3. 2006 diluted EPS guidance = $2.60-2.70
S1. 1Q06 Highlights (R.J.) 1. Income: 1. 1Q06 net income was $47.9m or $0.83 EPS diluted. 1. Included approx. $3.4m in after-tax benefit from lower depreciation on air assets held for sale.
2. Compares to 1Q05 $28.4m net income from continuing operations or $0.52 EPS diluted. 2. Income by Segment: 1. Markets remain strong. 2. Rails net income up 24% from $20m in 1Q05 to $24.8m in 1Q06. 1. North American fleet utilization increased to 99%.
2. Good results in renewing leases at higher rates to existing
customers. 3. Renewal rates on basket of most common car types up 14% vs. expiring rate in 1Q, and up from 9% in 1Q05. 4. Able to increase lease term on many of those renewals. 5. Rail is cyclical business; balancing of rate and term is intended to reduce future volatility. 3. Air net income was $11.3m in 1Q06, including $3.4m after-tax benefit. 1. Compares to $4.8m in 1Q05.
2. Able to increased fee income for qtr, up more than $2m over
1Q05, mainly due to completion of air remarketing commitments.
3. Of 28 owned aircraft up for renewal in 2006, only six remain
to be released under higher lease-rate. 4. Initiated sale of aircraft as announced last qtr. and are encouraged by market interest.
4. Specialty reported 1Q06 $18.4m in net income, up from $10m in
2005. 1. 1Q06 results include significant remarketing income of approx. $14m pretax from transaction in managed portfolio.
2. In total, had nearly $20m in remarketing income in 1Q06. 1. Only had $28m in remarketing income in all of 2005. 2. 1Q06 unusually high, mainly due to one transaction, as noted. 3. No expectation of another lease termination that would result in a gain of that magnitude in 2006. 3. Invested nearly $40m in critical use industrial equipment. 1. 1Q06 (indiscernible) portfolio increased vs. year end.
3. 2006 Guidance: 1. Still confident about EPS guidance outlined in January. 2. 1Q06 was good start for year with markets performing in line with expectations. 3. As a reminder, expecting $2.60-2.70 EPS diluted. 1. Includes $0.20 per share of benefit, mainly from lower depreciation expense on aircraft targeted for sale and certain nonoperating events.
QUESTION AND ANSWER SUMMARY
OPERATOR: Bob Napoli, Piper Jaffray.
BOB NAPOLI, ANALYST, PIPER JAFFRAY: Question on the trend in rail pricing and kind of -- your pricing was up 14% kind of in line with the fourth quarter. One of your competitors, CIT, and I doubt if we're talking apples-to-apples, but they talked about 20 to 30% pricing increase. And I noticed you extended the term from a year ago 40 months to 60 months. I don't know -- is that having a big effect to the pricing, you're going out longer -- and giving up rate to do so? And what is the outlook? Are we going to see increasing -- that pricing gap increase through '06 and into early '07?
BOB LYONS, CFO, GATX CORP.: Let me tackle the second part of your question first and then I will let Jim Earl provide some additional color on the rail environment right now. As we have discussed before, we do anticipate that we're going to continue to see positive rate variance, certainly through 2006 and into 2007 as we roll the portfolio over from the older leases. We have not commented specifically on the magnitude of that and there is definitely an interplay between the rate increase and term. And to the extent you stay shorter term in this environment on certain car types, you could certainly boost that rate up beyond what we did in the first quarter. But our objective here is to build a balanced portfolio for the long haul. So we're trying to extend term on certain car types as noted and we're still getting very attractive rate increases at the same time. I will let Jim add some additional comment there as well.
JIM EARL, EVP, HEAD OF RAIL, GATX CORP.: Non, I would second Bob's comments that there are some trade-offs always when you stretch term, although we're finding in this environment pricing is very solid and our customer base is a little less sensitive to term extensions than you might see in a little softer market. The other thing just in comparing lessors and thinking about rate increases, remember what is being measured, it is the great increase over the expiring rate. That is really a function of today's rate of course, but also, you have to look back and say what is that you are replacing, what was that -- when was that prior rate put in place? What's the mix of the fleet that it applies to? And the GATX fleet is significantly different than CIT and many other lessors and one of the characteristics of a fleet as ours with a pretty heavy composition of tank cars is that pricing tends to be a little bit more stable over time. And so I think the lows are probably a little less low and the highs may be a little less high, but you have that balance re time. So I think that may be what you're seeing in that comparison.
BOB NAPOLI: Would you expect -- as we roll through '06, are we getting -- are the lease rates on what is rolling off lower than what we saw in the first quarter?
JIM EARL: I think they're pretty consistent throughout the year, actually.
BOB LYONS: The beginning of '03 was like the depth of the market downturn last time. So we're renewing those leases as we speak.
BOB NAPOLI: Okay. Question on Air. On trying to get a handle on the run rate in …