The Greenbrier Companies, Inc.
Q3 2017 Earnings Call Transcript

Published: 29 Jun 2017

[Operator:]

Hello, and welcome to The Greenbrier Companies Third Quarter of Fiscal Year 2017 Earnings Conference Call. Following today's presentation, we will conduct a question-and-answer session. Each analyst should limit themselves to only two questions. Until that time, all lines will be in listen-only mode. At the request of The Greenbrier Companies, this conference call is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Ms. Lorie Tekorius, Executive Vice President and Chief Financial Officer. Ms. Tekorius, you may begin.

[Lorie Tekorius:]

Thank you, and good morning everyone and welcome to our third quarter fiscal 2017 conference call. On today's call, I am joined by our Chairman and CEO, Bill Furman. We'll discuss our results for the quarter, as well as provide our outlook for the rest of the fiscal year. Following our prepared remarks, we will open up the call for questions. In addition to the press release issued this morning which includes supplemental data, additional financial information, and key metrics can be found in a slide presentation posted today on the IR section of our website. Matters discussed on today's conference call include forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we will describe some of the important factors that could cause Greenbrier's actual results in 2017 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier. We continue to produce strong results. Aggregate gross margins during the quarter was strong at 20.4%. Highlights for the quarter include adjusted EBITDA of $63.8 million and earnings of $32.8 million or $1.3 per diluted share on third quarter revenues of $439.2 million. Interest expense associated with our convertible bonds issued in February 2017 had an $0.08 per share impact on the quarter. General and administrative expense was $42.8 million, a sequential increase driven by the timing of long term incentive compensation expense. Similar to past years, this will trend back down in Q4. As a percentage of revenue, G&A was 9.7% reflecting the dollar increase on a lower revenue base which I will discuss in a moment. We continue to target around 6% of revenue for our core G&A bearing in mind the impact of short term or development projects that I have discussed in the past. Operationally we recorded deliveries of 2600 units. While our production rates on certain lines have decreased modestly since the beginning of the fiscal year, the primary driver of the lower level of deliveries was timing related to lease syndications. As a reminder, we originate leases for new railcars, which once billed are carried short term on the balance sheet in lease railcars for syndications. Upon sale, these transactions are reflected in manufacturing revenue and gross margins, as well as deliveries. The timing of syndications was driven by a combination of customer delivery requirements and production scheduling. We expect the majority of these units to be syndicated in our fiscal fourth quarter. Our tax rate for the quarter was driven by a combination of discrete items and cumulative adjustments from a slightly reduced expected annual rate resulting in a $0.12 benefit in the quarter. As a reminder, last quarter's tax rate was similarly but unfavorably impacted which created an earnings headwind of approximately $0.09 per share for the second quarter versus the benefit this quarter. We expect our current annual rate to be about 29% to 30%. Noncontrolling interest for the quarter was accretive to earnings versus the normal deductions and with the significant shift from the last several quarters. This was driven by the timing of syndication product at our GIMSA joint venture. A large proportion of GIMSA production for the quarter is in leased railcars for syndication to be syndicated in Q4 and into 2018. Setting aside the GAAP elimination consolidation noise, GIMSA continues to produce railcar safely, efficiently and profitability. Orders totaled a strong 11,000 units during the quarter, valued at 1 billion on average sales price of approximately $92,000 and reflected diverse set of car types, as well as a 6,000 unit order from Mitsubishi UFJ or MUL. Order activity excludes 500 units from Greenbrier-Maxion, our Brazilian manufacturing operation which is not consolidated and Greenbrier-Astra Rail which was formed subsequent to quarter end. While we’re pleased with our order activity this quarter, we’re cognizant that the market remains competitive and we believe orders will continue to be non-linear. Bill will provide additional color on the significant strategic progress made internationally during his remarks. Our diversified backlog as of May 31 was 31,000 units with an estimated value of $3.1 billion or an average sales price of $100,000. Backlog includes approximately 1,000 units related to the formation of Greenbrier-Astra Rail but does not reflect backlog for Greenbrier-Maxion our Brazilian operation. We continue to view backlog as a key indicator of future earnings and cash flow generations. Turning our focus to our business segments, quarterly gross margin in our Manufacturing business was 22.7%, driven primarily by strong production efficiencies even at lower production rates and a more profitable mix of business. Wheels & Parts quarterly margin was 8.5%, our aftermarkets business continues to experience operational headwinds as volumes and the mix of work continue to be challenged. This business unit along with our GBW aftermarkets repair joint venture remain a strategic part of our integrated model. Leasing & Services gross margin was 28.7% in Q3. The margin percent was impacted by lower net interim rents and continued strong externally sourced syndication transactions which typically have lower gross margin percentages. Excluding these external syndications activity, gross margin for this segment was 43.6%. Greenbrier is in a strong financial position and our balance sheet provides us with significant optionality and flexibility. We ended the fiscal third quarter with $885 million of liquidity, and cash balances and available borrowings on our revolving credit facilities. As of May 31, our cash balance was $465 million and net debt continues to be low at $108 million. We're committed to our balanced approach to capital deployment and best positioning the company towards enhancing long-term shareholder value, while continuing to seek and identify opportunities to profitably grow the business within our core set of competencies. Returning capital to shareholder continues to be a key tenet of our overall strategy evidenced by the $0.22 quarterly dividend announced today. The strategic actions we've made including diversification and prudent balance sheet management position us well to successfully navigate shifting market conditions and take advantage of our growing presence in international markets. Based on current production rates and schedules and barring any major economic shifts, we’re tightening our fiscal 2017 guidance for deliveries to be approximately 15,000 to 16,000 units, revenue to be $2.1 billion to $2.3 billion, and diluted earnings per share in the range of $3.45 to $3.65 which excludes $0.17 per share of new convertible interest expense. For the rest of the year, we expect gains on sales to be between $15 million and $20 million reflecting used equipment activity in our expanded MUL relationship. Growth capital expenditures of $80 million with $75 million in proceeds from the sale of leased assets; depreciation and amortization of about $60 million and again our annual tax rate is expected to be 29% to 30% based on the geographic mix of earnings, and we expect fiscal 2017 earnings attributable to our GIMSA joint venture, our minority interest, to be approximately $50 million. Quarter-to-quarter this amount will vary as you no doubt noticed this quarter and is based on the timing of syndication of railcars built at that operations. Due to the timing of the Astra deal closing on June 1, the 2017 guidance has minimal benefit from Greenbrier-Astra Rail in which we will have an approximate 75% interest. We still expect the annual accretion to be $0.15 to $0.35 per share on a go-forward annual basis. And now I will turn it over to you Bob.

[William Furman:]

Thank you, Lorie. We had a very busy quarter with strong orders and execution on three significant strategic deals. As you know, Greenbrier has a two-part strategy that we adopted just over year and half ago in light of the current domestic market conditions and the strategy both protects and grows our core North American businesses while we expand our markets internationally into promising regions for rail transportation. Major highlight of this quarter was new railcar orders reaching 11,000 units at a time when our markets remain highly competitive. Our commercial activity during the quarter was punctuated by the landmark multiyear deal with MUL. This transaction leverages our capabilities in manufacturing, leasing and railcar management services and expands our international focus by creating a strong partnership for international growth, as well as domestic growth. Deals that offer the opportunity for railcar deliveries into 2023 and realization of more than $1 billion of business over the life of the agreement, plus an exclusive manufacturing relationship with a partner building a very strong fleet in North America. These kinds of deals are not easily won. I’m very proud of our entire team who up complete the MUL transaction especially Mark Rittenbaum who many of you know from his past participation on our conference calls when he was CFO. I am also pleased by the bottom line results this quarter with strong EPS and our fifth consecutive quarter of aggregate gross margins that exceed 20%. Lastly in the North American market setting aside the MUL transaction, we received orders for 5000 railcars which is a very good quarter indeed compared to industry expectations increasing our market share we believe during the quarter. Our backlog of 31,000 railcars provides a good base of business for manufacturing facilities and helps our visibility as we approach fiscal 2018. Our backlog spans almost all railcar types and is international in scope, as well as domestic. It is also of high quality in the sense that is comprised orders for longtime customers to understand that we don't sell options on production capacity and that placing an order is a firm commitment to lock up space and to gain benefit. We’ve had an excellent record of holding our backlog and our orders once taken in place. As Lorie explained during her comments, our balance sheet provides us with considerable optionality and flexibility. This is a testament to the hard work Lorie, Justin Roberts, Mark Rittenbaum have done over the past seven years. Our ability to generate free cash flow should continue to strengthen our balance sheet. These things allow us to navigate shifting market condition and to take advantage of our growing presence in our international markets and to improve market share in our domestic markets. We're pleased by the some of the early benefits produced by our two-part strategy. However our real progress with the strategy will be revealed by achievements that occur year-over-year and in years to come rather than merely quarter-over-quarter. We are confident we have a formula for growth that secures Greenbrier's future as a leading provider and a designer of transportation equipment providing services to customers and problem solving to customers around the world. Our strategy also bends of having great people oversea it. That's why I’m particularly pleased to announce today but separate announcement that our Board has added two new Independent Directors. We’ve increased our Board size to nine members including me. The Board now contains - is comprised of a fully Independent Directors. Wanda Felton and Dave Starling are both great additions to our Board with substantial international experience in financial on the case of Mr. Felton and Railroad CEO with extensive operating experience in Asia and in Latin America and in the North-South corridors with Kansas City Southern in the case of Mr. Starling. We are very fortunate to add these two new directors to our Board of Directors. Turning to international operations, I would now - manufacturing operations on three continents and a strong presence in commercial activities on four continents. We believe we're well positioned in the world's busiest and most rapidly expanding rail transportation regions. At the beginning of our third quarter, we announced the successful completion of our investment in Brazil by increasing Greenbrier's direct ownership position in Greenbrier-Maxion from 19.5% to 60%. We also increased our business interest in the castings joint venture in Brazil with Amsted and Maxion. We can leverage Brazil's geographic position to serve the rest of Latin America and to link it with Mexico and then potentially export to other regions out of Latin America and Brazil. In Europe, the formation of Greenbrier-Astra Rail closed on June 1. Greenbrier-Astra Rail is Europe's largest end-to-end freight car railcar manufacturing, engineering and repair business. It reaches markets throughout Europe, Eurasia and the Gulf Cooperation Council. Greenbrier's equity position in Greenbrier-Astra Rail is as you know 75% will be part - Greenbrier as a global manufacturing organization in system. Industry estimates indicate a high replacement demand for freight railcars in the Western European rail market with a typical freight railcars has been in service for longer than 25 years. Demand in material markets like Western Europe coupled with opportunities in nearby emerging markets position Greenbrier-Astra Rail coupled with our global manufacturing system including depending on currencies in Brazil and Mexico. It positions Greenbrier in total for real success. Turning to the economy in North America and our business outlook. Sentiment has improved during the beginning of the year. Unforeseen developments in our markets are always possible but I will remind everyone that these can be positive, as well as negative and we believe we are prepared for whatever changes that may occur. Steady improvement in railcar loadings across commodity categories during the last few months, as well as decreasing rail velocity are both positive indicators for the near term demand environment. Over the next few years we expect to see demand driven primarily by replacement of the older portions of the fleet, as well as growth in petrochemical and plastic traffic while during the current economy in despite some reports automotive will remain strong. We are optimistic and feel confident that the strategic actions we've taken including international diversification and prudent balance sheet management position us well to successfully navigate changing market conditions. Indeed, we can now engineer any type of car and deliver any type of car in North America, Latin America, South America, Europe, Eastern Europe, Eurasia. We have the engineering capabilities to do all of that. In summary we are far stronger to-date both operationally and financially than we have been in previous cycles. Our transformation continues as we continue to forge new partnerships and expand on existing relationships like the transactions we finalized this quarter with MUL, Greenbrier-Maxion and Astra Rail. Looking ahead Greenbrier is well-positioned to pursue growth. We will maintain our focus on North American rail markets by investing in product enhancements and efficiency developments while preserving and protecting our core competencies. We will focus on profitability, cash flow and developing human capital for the future. We will continue to actively seek opportunities to diversify and access international and domestic markets to expand the reach of our integrated business model using our strong flexible balance sheet and our financial capabilities developed through many, many years in the leasing and financial services business. With manufacturing operations on the three continents, our presence on the four continents solid railcar backlog, strong cash flows and a stable balance sheet. Greenbrier continues to deliver long-term value for shareholders and we believe we'll be able to do so in the future. Now I’ll turn back to you Lorie.

[Lorie Tekorius:]

Thank you, Bill. And operator we will go ahead and open it up for questions.

[Operator:]

[Operator Instructions] Our first question will be from the line of Justin Long from Stephens & Company. Sir your line is now open.

[Justin Long:]

So the first question I had was on the guidance. It looks like in the fourth quarter you're expecting deliveries to essentially double sequentially but the midpoint of the EPS guidance or the implied guidance suggests it will see a cut roughly half in terms of EPS on a sequential basis. I think the midpoint of the guidance implies something around $0.47 when you include the interest on the convert. So I was just wondering if you could talk about any abnormal cost items in the fourth quarter that are driving this margin pressure or is it purely just mix and pricing that's more reflective of a competitive environment that we're seeing today?

[Lorie Tekorius:]

That’s great question Justin and it’s a combination of a number of things. You're absolutely right. We do expect the fourth quarter to be strong when it comes to deliveries. We do expect our manufacturing operations to face a bit of headwinds as they transition to more commoditized car types and a bit more competitive pricing on those orders. The other thing that I would point out kind of as the offset to what happened in the third quarter, is we do expect more syndication and delivery activity out of our GIMSA joint venture and as you know that will become a reduction when it comes to the EPS calculation. So again strong performance from an operational perspective, but the sharing of half of those operations with our GIMSA joint venture partner is a headwind to the EPS number.

[Justin Long:]

Okay.

[William Furman:]

Justin I'd just like to supplement that by saying that we try to be realistic and prudent in these - setting these expectations. Sequentially in the last three quarters we have over achieved our expectations. So we still have some [shoes to drop] [ph] in the quarter that could be positive. So we’ll see how this goes but that’s the guidance.

[Lorie Tekorius:]

Yes, a slight conservative comp, aggressive comp.

[William Furman:]

Well I would say more like a realistic comp in my case, certainly your [class comp is terrible] [ph].

[Justin Long:]

And maybe kind of following up on that. When you look at manufacturing margins specifically is there any color you can give or provide on what you're baking in for the fourth quarter. And then as we get into next year, based on what you already have locked in for delivery in the backlog do you expect manufacturing margins to rebound from what we're – you're expecting to see in the fourth quarter?

[Lorie Tekorius:]

I think to tack on to what Bill has said, our manufacturing colleagues continue to amaze and astound us with their abilities. I think I have said before that those guys wake up every single day not being satisfied with what they did the day before and we’ll continue to drive efficiencies. We are shifting again to a more competitive market, so there will be mix impact of having maybe lower pricing, lower margin on certain car types but still having robust margins on other car types. I’m not prepared to give specific guidance for the fourth quarter for a particular segment nor are we prepared to give guidance for 2018 but with the backlog that we have and the team that we have, we’re very excited about what our outlook looks like and we don’t expect some sort of draconian shift as we move into 2018.

[William Furman:]

At our Board meeting this week Justin we went through our backlog and momentum into 2018 and I think the Board was pleased with the progress we've made. We have a fair amount of bookings in 2018. This is an industry which is a long-distance run. We’re trying to position the company for the future, we’re trying to build cash flows out into the next recovery and we have to compete in the marketplace that we see. Sometimes we're affected by industry pundits who can declare a defeat when the industry is actually pretty healthy. The railroad balance sheet is the healthiest they’ve ever been. They have been [posse] [ph] but the fundamentals as we spoke to you in our press release with velocity and increased loadings, are a good harbinger for a stronger margin pickup - if not an 18 and beyond that period of time in domestic markets.

[Justin Long:]

And just quickly before I pass it on, I think last quarter you talked about 10,000 to 12,000 units being locked into the backlog for delivery in fiscal 2018. Is there any update to that number?

[Lorie Tekorius:]

We are in the midst of working on our 2018 planning process. I’d say we’re obviously with the kind of order activity we had this quarter, we’re nearing the top end of that guidance but nothing further specific to provide.

[Operator:]

Our next question will be from the line of Matt Elkott from Cowen & Company. Sir, your line is now open.

[Matt Elkott:]

I want to talk about orders if I may. The 5,000 orders, organic orders that you guys got from your traditional American and North American and European businesses, can you talk about the drivers, what drove those orders and what types of railcars they were and what portion of that came from Europe versus North America.

[William Furman:]

Well, as indicated in our press release we had a 1,000 international orders, 500 of which were not included in our order book because we wanted to show comparability to past periods and we’re not consolidating Greenbrier-Maxion in Brazil. The orders were diverse, the larger portions of those were - for Q3 were medium covered hoppers, tank cars, auto and auto recs, flats non-intermodal, boxcars and diverse mix, principally in automotive and box type wagons in Europe. So its diversifying order base and I think I have answered the question about the European mix.

[Lorie Tekorius:]

Matt I would say that as we've talked about several times over the last several quarters, with the expansion of our product mix over the last couple of years it’s allowed us to really broadly participate in market demand and there wasn't any particular standout in the quarter, it was a really diverse mix of order that make up that 5,000.

[Matt Elkott:]

Does it feel to you guys because this is a significant jump from what we see in the last two years I think last quarter you had 700 in the quarter, before you had 2,400. We haven't seen this level of orders since I think third fiscal quarter 2015. Does it feel to you guys like this may signal some sort of an inflection point or is it just a normal lumpiness of the industry.

[William Furman:]

Well which awareness would like to answer the question.

[Matt Elkott:]

Maybe you can talk it out and give us a hybrid answer Bill.

[William Furman:]

All right, why don’t you to give official answer Lorie.

[Lorie Tekorius:]

Well I would actually say that I think our commercial folks had an amazing quarter. They have been working very diligently out there in the market. I would say that, just as we talked about the manufacturing folks up in the game with having improved manufacturing margins and efficiencies that kind of spurs all of us across the company to do better and better. So I think the commercial folks just knocked it out of the park this quarter.

[William Furman:]

I guess metrically driven way of answering that is looking at our pipeline of orders that we're tracking and no doubt the industry is tracking and that pipeline seems to be going out. I don't think that one should read into this in any of our comments as we think this is an extraordinary thing necessarily. It will be interesting to see how others in this space are doing when we look at aggregate orders next month because we - in our quarter one month before the fiscal or the calendar quarter lead reports come out. But I expect we got a fair amount of the orders that were awarded domestically. Why? It's not just a commercial team, it's excellence and engineering and quality. We have a robust programs take cost out of our car types and improve the car types so they are more serviceable and more useful to our customers and I think this is all paying off. Lastly I'd just say that the synergy, the model we have is not dissimilar to trend this on the leasing side. This really differentiates and allows a lot better maneuver. When we couple that with the repair and wheel business that we have, we can do transactions and add service packages that others simply can’t come close to. And the only exception probably in the domestic space being trying to.

[Matt Elkott:]

I was just trying to gauge you know how much of this - sharp increase in orders may have been driven by overall market strength or and market share gain potentially on your part because I know you guys tend to gain market share in a sluggish market. So I guess it looks like it may be a combination of the two.

[Lorie Tekorius:]

I think that's fair.

[Operator:]

Our next question will be from the line of Ari Rosa from Bank of America. Your line is now open.

[Ari Rosa:]

So congratulations on the big spike in orders here. So I just wanted to start on the international opportunity. It seems like from the slides that you guys have distributed. In Western Europe the order levels are much lower and yet the fleet age is also considerably higher than what it seems to be in North America. So was hoping you could just discuss looking out kind of over the next five, 10 years, do you expect that order level to trend up and what are the implications of that older fleet age and maybe where you expect the demand to come from in terms of the car types that you're seeing?

[William Furman:]

Well there are some early interesting demographic changes that are going on in the Western European market. I think it's fair to characterize that market as a mature market but it's quite likely that we will see 3% to 5% growth in activity there and maybe the market growing by as much as 30% annually in terms of car conversion. You've got two, three demographic forces going on the state on railroads the - railroads that own most of the cars have a much older demographic profile than on many of the leasing companies and others who have been investing in recent years in cars. The second thing that is occurring it will be difficult to predict how this will work out is in Chinese amazing investment strategy in the One Belt One Road program that essentially is enhancing efficiency from the Chinese border in through Eurasia and they're putting in tremendous amount of investment which will improve the infrastructure and certainly will benefit Chinese trade and probably supply chain but it will also benefit those of us who see, improves infrastructure. So much of what we see is the opportunity and Western Europe is to consolidate and have solid market there with a - to be the largest freight car builder and engineer but also to export into Eurasia and to export into the GCC where there will be a lot of opportunities and by Eurasia I mean Turkey potentially longer-term Ukraine and certainly overtime in the next five years Saudi Arabia and Gulf Cooperation Council will be investing in their infrastructure and this is going to be very positive story for our European operation that can do both if you handle the Western European market and export out of there and collab your transactions with local partners, this can be a very good recipe for success. But it's a little longer, a distance run then again quarter-to-quarter. We expect to expand the scale of operations and go where the orders are. This business over there and we're well equipped to get that business.

[Ari Rosa:]

That's a really comprehensive response. I appreciate it. Just really quickly for my second question I'll ask about the margin issue because kind of going back to what Justin was talking about, it seems like the margins have continued to be really strong despite the fact that the macro environment has been a little bit weak in terms of new orders. Is there a way to quantify how much of the improvement in margins is driven by cost-cutting versus car types that are being delivered and just that those car types maybe a higher price point because it does seem like if we look at fourth quarter and just do the math on the deliveries, it seems like that falls off a quite a bit. Some I am just trying to disaggregate between cost-cutting and what kind of floor might look like on the margin side?

[Lorie Tekorius:]

I’ll try and I’m sure Bill will have some supplementary stuff I would guess. I would encourage you as you’re looking at your model, do not get too caught up and just merge in being your differentiator as to how you get to the EPS but don’t forget about minority interest and the significant impact that can have as you get from deliveries down to EPS. That being said, I don’t think that we have any particular way to quantify the benefits that we’ve enjoyed in manufacturing how much of that comes from cost cutting versus the various car types. That's I would guess one of the more complicating parts of having a broader product mix as it makes it more difficult to aggregate or to disaggregate exactly where that benefit is coming from. We know that we’re seeing solid margins across the product types that we’re building right now and as I said before, the manufacturing folks continue to focus on driving cost out of the system, becoming more efficient while maintaining safety. So I don’t think there is any way that we can separate this three basis points associated with cost containment in two basis points associated with more or less tank cars. Matter of fact, as we’re not surprisingly, we’re probably delivering fewer tank cars today than we were some quarters ago. So, again we’ve been able to maintain margins easily as we go to more commoditized car types.

[William Furman:]

And I think just simplifying the drivers, pricing is of course very important and has older backlog has worked off and market conditions as industry observers have observed - become more competitive, pricing is a factor. However, equally important is the type of car in the next that is being run the quantity or runs and the conductivity of runs, I would characterize the railcar business is much more existing business then most people recognize, very much like an aerial dogfight, where things are squirming around and you have to queue and load multiple plants with multiple lines, as many as 12 to 15 lines and the queuing of these is an art, not a science. So I think if you’re going to have continuous production runs, if you’re going to have space available almost instantly in a market like this, if you're flexible and nimble that does go along the way and that's all commercial skill sets and competitive information. But we have been successful in sustaining longer production runs than others. We use our leasing company to bridge opportunities and it's not just simply a matter of all these pumps down in market. Overhead absorption is a big factor and pricing the volume really does matter too.

[Ari Rosa:]

That's a really comprehensive answer, I appreciate it. I haven't heard the manufacturing process referred to as an aerial dogfight before, so I appreciate that analogy.

[William Furman:]

It's not exactly, so that's really a manufacturing, it's the selling of the cars that's more like a dogfight.

[Ari Rosa:]

Is it fair to say then that more than kind of margin deterioration what we should be looking for is as a step up in minority interest, is that fair?

[Lorie Tekorius:]

I think that is fair.

[Operator:]

Our next question will be from the line of Steve Barger from KeyBanc Capital Markets. Sir, your line is now open.

[Steve Barger:]

On the last couple of calls, you've indicated that 2018 results would look similar to 2017. Is that still the way you're thinking about it?

[Lorie Tekorius:]

I would say - at this point I would say that we are encouraged that there are further opportunities now that Astra Rail has closed. We’re excited about what that could become. Again as we continue to post solid manufacturing margins, we’re excited about what that could bode for 2018. We've got a number of moving parts that give us more comfort I would say going into 2018. But we always like to - there's always the but, right? It is a competitive marketplace and so I would say we are balanced. I would say '18 like '17 would potential upside.

[William Furman:]

Yes, the only thing I would add to that is that for a time, the street was anticipating a real bump down and I think that's reflected in share valuation from 2017 and really a kind of gloomy outlook or rollout and certainly if you read some of the information that has been out there for the past six months and comments, you can interpret the market is softer more competitive with a total orders looking a lot different than they were a couple of years ago. However we haven't - we’re not giving guidance yet for 2018. We continue to think that there is cut out between our own expectation and while the street expects and is more gloomy outlook, fueled not by necessarily our view of the market but by the collective view of some of the statistical observers.

[Steve Barger:]

Presumably buttressed by some of the international investments that you've made that give you more visibility into the forward outlook than you had previously?

[William Furman:]

Yes.

[Steve Barger:]

And so to that point Bill you talked about the manufacturing footprint in Europe and Brazil and you talked about exporting and being position to reach the world’s busiest rail markets. Can you talk more specifically about how big the opportunities in the GCC or other areas in emerging markets could be or just should we think about it overall?

[William Furman:]

I think the GCC has had a jump ball kind of things. We've just had some recent changes with the deputy - former Deputy Crown Prince now being designated the Crown Prince. This should be positive for the economy in the context of the 2030 plan and it should be positive for the region – positive for U.S. interest. Having said that, the market is a fairly thin markets is one of several that we're looking at. We're having success on the project that we have in [Shalah]. We need - we continue to the ability to have that. I think we're well-positioned in that market. But it's not a huge market like United States, it's something that will be coming to fruition over the five years. I think what's more exciting about the international picture is the potential in other areas that are even larger, the Silk Road, the Turkish market, some of the things that are happening logistics where as much as seven to 10 days of trans time are being taken out of land bridge movements through - and as capital investment that China is going to put in and linking China, and Silk Road to Europe.

[Steve Barger:]

And I know this is going to play over the long period of time but do you have an estimate for how much rolling stock those projects would lead over the 10 year period or whatever it might be.

[William Furman:]

We might be able to give more visibility. I hope you can excuse us this quarter. We had at time of closings and lot of activity. We're trying to take a deep breath and get guidance prepared for 2018 by the next conference call and beyond. I think we will be able to get more color on our longer-term goals and objectives in the international business. At present as we said before, it's still a – that is huge part of our backlog of our business but we do look for it to be gaining momentum year-over-year. And again I would say is a little bit of a longer term gain which should get us 2019, 2020, 2021.

[Operator:]

Our next question will be from the line of Bascome Majors from Susquehanna. Sir, your line is now open.

[Bascome Majors:]

Someone earlier asked about the car type color with some of the orders that you've received this quarter. I was curious if you could give us a little more color on the customer type and who is actually in the market here. Broadly speaking if we look at the 5000 or so cars that weren't part of the MUL order, are you seeing other what we would call may be early cycles strategic positions being taking by operating lessors in your backlog yet and if not, are you seeing these kind of bids or inquiries coming to the marketplace. And could we see that start to happen in maybe more size in the second half of the year?

[William Furman:]

Yes, I would recommend maybe a quick read of some of the commentary from analyst in the street relating to the tone or tenure of the marketplace. There seems to be a quite agreement where things are getting a little bit better driven by railroad loadings and just the tenure of the conversations. For example, Cowen and Company put out fairly a good reflection on the tone that they're picking up through their excellent research that they do. In terms of customer type, it’s across the board. We have a strong leasing partners that we favor. We have 1, 2, 3, 4, 5, 6 big railroads in the book of the orders where we have some from - some actual cars that are converting from the backlog numbers from MUL's and normal course and beyond the multiyear deal - and a number of shippers. It's nothing extraordinary I'd say but it's broaden mix much like the car types. The big difference that has happened in Greenbrier in the last five years is that we have emerged from being a specialist builder with essentially a couple of factories in Oregon, in Mexico an earlier in Nova Scotia building just a few car types, building almost any car type with the expectation of coal cars, in coal cars that market is not doomed but it's down and if we were going to have to have a car type that we're not participating in today that's the good one not to be participating in.

[Bascome Majors:]

Maybe to just narrow the focus of the question a little bit, when you look at the kind of inquiries you're getting today, do you expect from the conversation with customers not with what me and my brethren will say, but do you expect to see more strategic positions or longer-term multiyear positions being taken by the operating leasing companies as we look over the next call it two to four quarters?

[William Furman:]

No, what I think is they’re working off the commitments that they made and they're kind of balance their own fleets. I think they are - these companies are very professional, they are not going load up in equipment until they see the rates and the picture more clearly. But clearly there is a lot of tactically driven buying right now because pricing has been very competitive and I think people are taking advantage of that, they are seeing rates and isolated and actually across the broader pace going up, that’s what I am referring to some of the commentary. As rates - lease rates recover in some selected car types and as philosophy falls, I think some of these companies specially shippers are taking advantage and placing orders in these more favorable conditions.

[Bascome Majors:]

Thanks for that Bill. And Lorie just a follow-up on I think it was Steve's question earlier I think the word he used last quarter to describe which you hope you could put next year was quote flattish. I know you talked about some of the puts and takes but generally more optimism today than you then is that a fair assumption that potential for flattish and maybe even a little higher is that what you’re trying to kind of poke at earlier or are you to precise here?

[Lorie Tekorius:]

I think in the absence specific guidance yes I think that’s a fair assessment flattish and with a number of areas where we see that there is potential for upside but we’re still cooking dinner.

[William Furman:]

Well and I’m a little more optimistic but I tend to be optimistic quarter-over-quarter so I don’t want to contradict Lorie but I think things are looking a lot better than they were a couple of years ago. If we want to worry about things just playing things and worry about, you can worry about a great recession, you can worry about banking crisis, North Korea, there is plenty things for us to worry about. But the things we can control and participate in, all those vectors are looking a lot better than they get three quarters ago, two quarters ago at least as far as I am concerned.

[Operator:]

Our next question will be from the line of Allison Poliniak from Wells Fargo. Ma'am, your line is now open.

[Allison Poliniak:]

Talking about the pricing environment, you mentioned that's competitive but you feel just given some of the stability in the inquiries coming in at least its stabilizing at this point?

[William Furman:]

Yes, I would say that’s a good characterization.

[Lorie Tekorius:]

It’s definitely very car type specific but I would say overall its stabilizing there are still some areas that - are stronger and others that are a little bit more weak.

[William Furman:]

The competition has been tough. It's tough on those of the peer group that are not broadly diversified and the deals are very creative and sorry there is a real advantage to having a broad part of mix in the recent fleet. We’re seeing that kind of transaction really - but playing around winning all of those, we’re taking passes on some because our backlog works against us in some ways when we have a better backlog than our peers.

[Allison Poliniak:]

But the color that you gave on the European market is really good so thank you for that. Could you talk a little bit about competitive environment over there, I think there is fewer builders how does it look what’s your share look like over there and what do you expect it to be?

[William Furman:]

Again Allison I prefer to give more color on that. We just recently got all the antitrust approvals that we needed over there from three or four countries and we certainly increased with this Astra deal, our overall market share. In the past we’ve been three premier car building companies. There are number of car builders but the big three have all been in Central or Eastern Europe. Our factories are in Poland with two significant factories, the Astra factories are in Romania with German management. It was the German management that we were looking for as much as anything else and their customer base. They also didn't have an overlap in their design, this brings a much stronger design portfolios. So the two distinctive things we have a much larger market share than we have consolidated two of the big three. We have one competitor that’s broad spectrum that's Astra Tatravagónka Poprad - Tatravagónka Poprad in Slovakia. So I think that for the base Western European business that’s a competitive situation. We’re stronger in two ways because there is two larger builders now of which we're the largest and more importantly we have a remarkable design capability and much broader product mix.

[Operator:]

Our next question will be from the line of Matt Brooklier from Buckingham. Sir, your line is now open.

[Matt Brooklier:]

Of the orders that were received in the quarter, can you talk to how many of those orders were small-cube covered hoppers? And specifically, are any of those orders for the sand market? That seems like it's the only market right now that really has any momentum. But I'm just trying to get a feel for did you take any sand car orders? And then maybe talk to what's in the backlog at this point.

[William Furman:]

I don’t think we had any sand car orders. We did and I think we said something about it on the last call, we renegotiated one sand car deal very attractively but we are anticipating - continuing to compete in that market. And there are some transactions as you say going down in that market and it didn't occur in our core as well.

[Matt Brooklier:]

And then maybe just talk to - my second question, talk to the types of customers that you received orders from in the quarter. And also talk to maybe are there any like lumpy orders outside of MUL that you received or that are maybe longer term in nature? Thank you.

[Lorie Tekorius:]

Sure and just following up on that from the - were they any other significant orders outside of MUL, I say no. It is true the other 5,000 is a broad smattering both customers and car types, so it’s a great diversified mix. And I think Bill mentioned earlier that the customers that place orders with us this quarter mix of railroads, shippers and other mixing companies and you get a broad mix of car types some intermodal, some non-intermodal flat cars, automotives, boxcars, a variety of other tank cars

[William Furman:]

There is not a lot of lumpiness say, there is a just a big board mix of car types in the various areas continuing to runs that we got. Probably the most interesting thing about it is, we are able to sustain the lines that we have and keep adding to the efficiency of those lines by adding production in each case.

[Operator:]

At this time speakers, there are no questions in queue. You may proceed ma'am.

[Lorie Tekorius:]

Thank you everyone for joining us on our call today. We look forward to following up with some of you afterwards and hope everyone has a great long weekend.

[Operator:]

Thank you, speakers. And that concludes today's conference. Thank you for joining everyone. You may now disconnect.