The Greenbrier Companies, Inc. (GBX) Q4 2014 Earnings Report, Transcript and Summary

Hello, and welcome to Greenbrier Companies Fourth Quarter of Fiscal Year 2014 Earnings Conference Call. [Operator Instructions] At the request of Greenbrier Companies, this conference call is being recorded for instant replay purposes. At this time, I would like to turn today's conference over to Ms. Lorie [indiscernible], Senior Vice President and Treasurer. Ms. [indiscernible], you may begin at this time. Thank you.

Thank you, Carol. Good morning, everyone, and welcome to Greenbrier's Fourth Quarter and Full Fiscal Year 2014 Conference Call. For those of you that noticed, my name did change. I'm am happy to announce I got married earlier this month. On today's call, I'm joined by our Chairman and CEO, Bill Furman; and CFO, Mark Rittenbaum. We'll discuss our results for the fourth quarter and fiscal year ended August 31, 2014. We'll also provide our outlook for 2015 and our new strategic goals. After that, we will open up the call for questions. In addition to the press release issued this morning, which includes supplemental data, more financial information and key metrics can be found in the presentation posted today on the IR section of our website. As always, matters discussed on this conference call include forward-looking statements within the meaning of the 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 2015 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier. In 2014, we clearly demonstrated the strength of our diversified business model. In financial terms, we had a record quarter and year in revenue, net earnings, diluted EPS and adjusted EBITDA. In operational terms, we achieved record levels of new orders, production and deliveries. And we ended the year with the highest level of backlog in the company's history. Highlights for the quarter include adjusted EBITDA of $80.8 million and earnings of $33.7 million or $1.03 per diluted share on record fourth quarter revenue of $618.1 million. Now these results are excluding a noncash gain of $13.6 million net of tax on the contribution of our Repair operations to GBW. We ended the year with over $505 million of liquidity from cash balances and available borrowings on our revolving credit facility. Orders for the quarter totaled 10,400 new railcars valued at $1.06 billion, and broad-based demand drove backlog at August 31 to a robust 31,500 units valued at $3.33 billion dollars, of which less than 40% are tank cars. Subsequent to quarter end, we received diverse orders for an additional 11,400 units valued at nearly $1 billion. About 30% of our resulting backlog is in tank cars compared to 40% at the end of fiscal -- Q3 of 2014, again, reflecting the diversity of car types in our backlog as well as pent-up tank demand pending regulatory changes. In addition to the rail activity, momentum in our Marine operations drove marine backlog to $112 million this quarter. We significantly exceeded our goals established in April 2013 of a minimum 13.5% aggregate margin by Q4 and $100 million of capital liberation. In addition, we have now fully executed on our $50 million share buyback and instituted a quarterly dividend of $0.15 per share. And now I'll turn it over to Bill.

Thank you, Lorie. Greenbrier continues to roll down the line, with many notable benchmarks achieved during the year and our fourth quarter just ended. So I'm going to cover just a few of those. Market visibility has never looked better for Greenbrier and for our industry in general. Greenbrier's prospects are strong for continuing to improve margins and operating efficiencies while bolstering strong cash flow. Markets and businesses that have been underperforming for the past 2 years are all recovering such as Repair, double-stack, forest products and marine. All of this provides Greenbrier strong tailwinds in addition to strong markets, unlike anything we have seen in recent years and perhaps the strongest in our history, if not the history of our supply industry. I believe these trends will prevail through 2018 and probably beyond that time. And by then, Greenbrier will have completely transformed itself with an optimized business strategy; improving diversification; greater manufacturing efficiencies; and most importantly, wise investment in free cash flow. This transformation commenced more than 3 years ago has advanced rapidly over the past 2 years. So this is our story. We fortified our business with a triple strategy: number one, flexible and low-cost manufacturing footprint, which has been ramping and now is set to achieve the efficiencies of that ramping and operational optimization; number two, car type manufacturing diversification, including exciting new products; And number three, a more robust leasing strategy with what we call an asset-light model, featuring enhanced throughput that begins with a diverse and sophisticated new investor base, accompanied by a strong lease syndication and asset management activities. New products include our covered hopper car lines, including an exciting car for sand, where we have a significant market share. We've been taking market share from others. Our proprietary automobile carrying cars featuring Multi-Max and AutoMax and the newly launched plastic pellet car. Through automation and lean manufacturing techniques, we've also meaningfully reduced our manufacturing cost footprint in intermodal, a car type where, traditionally, we have enjoyed very high market share and which is now recovering, and we expect to be robust in the next few years. We've achieved scale and efficiency in tank cars, something many in 2008 believed impossible for a company introducing a tank car product line. And this week, we have begun our first Tank Car of the Future with 9/16-inch steel and safety features, which have been described in earlier press releases. Our 3-fold strategy has dramatically increased market share in the new car market, improved our margins and boosted our capital efficiency. These new dynamics have served us well throughout the cycle and given the company a different business profile in earlier cycles. Indeed, today, Greenbrier is substantially different company, substantially larger, a substantially but more valued company -- valuable company than it was just a few short years ago. Including orders received, following the quarterly close, our backlog is about 40,000 units or $4 billion, nearly 1/3 of just announced industry backlog. With a value of just over $4 billion, this is a dramatic increase from the past, when our share at this point in the cycle would typically be equal to only 15% of industry-wide backlog. This is striking evidence that our strategy is producing results. We received 37% new railcar orders placed in the third calendar quarter 2014, the largest share of any builder. Importantly, only about 1/3 of our backlog is in tank cars for crude-by-rail, and our remaining mix of backlog is well diversified. Low-cost capacity and product diversification, coupled with a robust leasing business and our strong values, have allowed Greenbrier to realize these new heights, but it is just beginning. Margins are at an all-time highs in almost all car types. New car prospects and commercial opportunities have never been better. Our balanced business model, along with our core values and value proposition for customers and the communities in which we operate, are all working very well. I'm proud of what our teams have accomplished or what they are going to accomplish. We deeply value the hard work of our employees and our various teams' specialists whose excellence and support of customers make all this possible. So what does the future look like for us? Well, we believe both the tank car market and general freight car markets will be buoyed by the energy renaissance in North America. Replacement demand will be robust for both retrofit and new car production. As safety percolates into the consciousness of the American public and the shipping community and particularly the shipping community and the supply chain, we believe all these things will occur. Indeed, Greenbrier has been a leader in advocating for tank cars safety, and we believe our leadership will be rewarded as the next few years play out and the national tank car fleet is upgraded and replaced in almost all hazardous material cars. There are approximately 170,000 such DOT-111 cars that can be and should be made much safer either through replacement or retrofit. The older fleet should be recycled. Non-qualified energy cars should be remarketed with less hazardous service. Likewise, cars and hazardous service not now in the regulatory crosshairs such as those transporting pesticides, herbicides and toxic substances, also need attention, given that they can still damage the environment and cause death and damage to habitat and rivers. Remember -- and all you have to do is remember the Dunsmuir spill in the pristine Northern California Sacramento River several years ago. That was a big news then. And if that situation were to repeat itself today, it would again be headline-grabbing news. Why is that important? It's important because rail transportation is an iconic part of North American history. And for the most part, it's safe and efficient, providing high-quality and reliable service for goods and commodities of all descriptions. In fact, rail transportation has only itself to blame if our industry, along with the supply industry and its customer base, snatches its feet from the jaws of victory as an industry sage used to say that we are capable of doing. As long as trains operate in rails, there will be derailments. When these derailments occur at high speeds with huge mass and when they're transporting hazardous materials, what could consider to be a manageable accident under normal situations can, indeed, become a catastrophe. And it doesn't have to be this way. We can avoid this type of thing with safer tank car designs and reasonable retrofits using the principles of triage. Safety for our industry is not an option. Recent events have shattered communities, and the industry's hard-earned trust has been shaken. We cannot allow public trust in railroading to falter further. This is part of who we are. Railroading is America. We do not want our industry to fall victim to the kind of loss of public confidence we've grown accustomed to seeing in the modern public relations environment. We don't want to have franchise value destroyed by high-visibility accidents at the cost of lives and extreme property damage. For there to be a sense of renewal and healing in these communities and beyond, trust must be restored. And it's incumbent upon all of us and the supply chain and the shipping community and the rail operations to do our part. Again, safety is not an option. We believe the next course of action to restore public trust will be when the DOT finally announces its new rule requiring safer tank cars and safer tank car designs. Retrofit options for legacy tank cars will also emerge once the new tank car design standard is established. Both retrofits and new car design are doable now and at a reasonable cost. We know it's doable because we are doing it and so are others. Our industry should welcome these long-overdue requirements, not impede them. This is why the U.S. government needs to act now to bring about sensible tank car design standards, which we all know can be made much better than today. We favor PHMSA's Option 2 design, which we have called the Tank Car of the Future. As I said, we are building that car and we have a strong backlog for that car. Many shippers are leading because they believe in safety. A new tank car design available today is -- can be made 8x safer by reducing the probability of release of hazardous products of tank cars in a derailment. Why are we waiting? The additional cost is modest, and the carrying capacity is the same, if not better. We need to modernize these rules, end the danger to our industry and get back on track to restore trust in railroading. Greenbrier just completed the strongest quarter and annual results in our history, but that's not the end of where we're going. We realized the strength of our integrated and diversified business model in 2014 with record revenues, record EPS and material improvements in gross margins. We strengthened our management team through multiple programs for internal development of senior managers and strategic hires, entry veterans, adding over 20 people to our senior and middle management staff in key positions, many from outside the industry and many from our competitors. A significant number of new key management additions have been made in manufacturing, operations, finance, Repair, Parts, Wheels, leasing and commercial. Our experienced team is the right team, and we work together unlike any other in the industry. We believe in service for our customers and shooting straight with all of our stakeholders. We value respect, safety and fairness for our employees, along with respect and service in the communities where we operate. We understand the necessity of serving many stakeholders, and we certainly understand the respect for capital and the respect for margins that are -- and respect for return on investment, which are required to serve our stockholders who put their trust in us. We need to put paid to this notion that this is as good as it gets. This is the beginning, as I think Steve Menzies said recently on the Trinity call, of a longer and sustained robust period in railroading for certain. I think we are in for a sustained recovery. Yesterday morning, we just heard from U.S. Trust Chief Economist and he agrees. According to FTR transportation predictions, rail commodity volume is expected to grow by almost 3% in 2015. Intermodal growth is expected to grow by about 48%. Other areas will be strong, too, well in advance of GDP growth. North American drilling in the North American energy renaissance will continue to bolster railway volumes. The end of the energy boom that's been forecast by many pundents has also, in the last 2 weeks, been easily brushed away. The truth is this energy renaissance is here to stay. Conversations with customers, other experts in the industry indicate that the breakeven price for drilling crude and gas is falling very rapidly. And in fact, the uncertainties that we've recently seen, many of which have been driving by hedge -- and hedging and other technical movements in oil, do nothing more than shake the confidence of those who may want to rethink long-term commitments to pipelines. Why? Because railroad cars are fungible. They're available on shorter commitments. And in many ways, they're more efficient. They're also not going to be replaced in the next 5 years for east-west distribution. How does that affect the total market for railcars? Well, scarcity of factory space, declining velocity in the North American railcar fleet and pent-up replacement and growth demand will all play a part in creating a robust demand for railcar products and services. Tank car safety regardless of the price of oil will have a tremendous effect on replacement and retrofit demand as the cost of less safe cars become known and new government regulations kick in. Demand is strong across all of our car types, and this favors our business model. The things that we anticipated 18 months ago will allow us marginal leverage across a variety of many, many different kinds of cars. Today, we're in production with 12 kinds of cars in our factories. We're transforming our factory network by building more efficient facilities, exiting an older facility and a leased facility in Mexico. And we expect, following the first quarter, that the efficiencies of all of that will really make themselves known. We're intending to drive margin enhancement with a rigorous focus on training, selected CapEx and valued manufacturing engineering along with global sourcing. We do not see more new plant expansion in North America by Greenbrier. But rather, we'll focus manufacturing CapEx after this year in efficiency-driven investments, and during this year. When we do invest in manufacturing, we'll seek very high return on invested capital and paybacks in just a few years, if not only 1 year. Record backlog will allow us to continue long runs and to continue to reduce costs through careful capital investment, training and engineering, and these will produce very high ROICs, which will support the ROIC targets that we have announced today. These factors have already allowed us to achieve manufacturing margins of almost 18% in our fourth quarter, up nearly 6 full percentage points from last year. We expect to push this curve hard in the future. 18 months to strive the beyond the goals Mark and Lorie have described. Marine, forest products and intermodal have recovered in strong backlogs and now are present in each of these areas, allowing scaling opportunities, higher margins and better service to our customers. Our visibility is a promising indicator of positive financial performance again -- ahead. Finally, leasing helps drive the train. With an asset-light model and prospects for doubling volumes each year with improved utilization and improved gross margin in dollars actively increasing the transaction volume through our leasing company creates a virtuous cycle with a rich downstream aftermarket and asset management repair and services. I'm excited about our prospects for the leasing side of our business and see it as a strategic differentiator for Greenbrier and for companies like Trinity, who are practicing it. Formation of GBW with Watco has achieved an exciting scale in the Repair business, the weaker part of our business with weaker margins, and this company has extremely strong future possibilities. Joining with Rick Webb at Watco, Greenbrier has formed a world-class tank car and general freight car repair system, with 38 shops in the U.S. and Canada, including 14 tank car repair shops. This, for the first time, allows a one-stop shop network to contract for large customers' full-service repair and maintenance needs in order to deliver enhanced service design with a goal of reducing dwell time and creating efficiencies. Jim Cowan, formerly with ARI and Amsted Industries, is running this network, and we look forward to building margins dramatically in this new network to levels he achieved at ARI. So what does Greenbrier look like in the future? Well, we're already an international company, with our highest ROICs earned from operations at facilities in Mexico and Europe. We also rely on global sourcing and obtaining majority of parts and components for our assembly operations in Mexico for manufacturers in the U.S. While we are pleased with our current visibility, our business is traditionally cyclical, a fact we are well aware of. With heavy cash flow anticipated over the next 5 years, we plan to invest in our strengths to make Greenbrier more nimble and diversified in the areas which we understand. The importance of Latin American markets will grow. We have almost 6,500 workers now in Mexico. These workers are highly trained. This is a logical foundation for expansion, particularly with energy opportunities in Latin America. Increased trade and energy developments between the U.S. and Mexico will be good for both countries and especially for Mexico, which is becoming the new China for manufacturing. We see opportunities in Latin America and in America in energy-related fields, with modernization of facilities in manufacturing in America has a great future also with the robotics and lean manufacturing. We anticipate a broader America strategy in the future, which will add to our versatility and earnings diversification, building on the strong base we already have in Mexico and with our supply chain partners around the world. Back to you, Mark.

Thank you, Bill. I'll make a few comments, and then we'll open it up for questions. As Bill stated, we have very good visibility, and we're confident about the opportunities in 2015 and beyond and plan to build upon the momentum we generated in fiscal 2014. Today, we gave outlook for our fiscal 2015 based on our current business and industry trends. We expect our deliveries in fiscal '15 will exceed 20,000 units, our revenue to exceed $2.5 billion. This revenue excludes revenue from GBW as it is accounted for under the equity method of accounting, so it will not be consolidated. Diluted EPS will be in the range of $4.25 to $4.55 per share. Further, we expect gross CapEx of about $140 million this year, driven primarily by North American manufacturing activity. Proceeds from the sale of leased assets are expected to be about $10 million, resulting in net CapEx of $130 million. Last year, our gross CapEx was about half of this, $70 million, and our net CapEx, only $16 million. Obviously, the 2015 CapEx budget is significantly more robust than last year and significantly more robust than we would expect in future years. The increase in our gross CapEx is to complete previously announced capacity projects in Mexico, enhance our vertical integration and CapEx for efficiency improvements in all of our operations. Our capacity projects include transitioning from a leased facility in Mexico to a lower-cost footprint owned facility and the doubling of our tank car capacity to total of 4 lines, with the flexibility to convert these lines to conventional railcar types as well. As Bill noted, with our strong backlog and outlook, we expect thse projects to have quick paybacks and higher ROICs. Also, as Bill noted, once these capacity projects are completed in 2015, we're comfortable with our North American footprint and capacity of approximately 25,000 railcars, of which about 30% is tank car capacity, again, with the flexibility to build other car types. As a reminder, since most of our tank car capacity is produced -- is at our 50-50 GIMSA joint venture facility, from a bottom line earnings perspective, we are less dependent on tank cars and more diverse than other tank car builders. Continuing on, sales from our own leased fleet and gains on sale are expected to be minimal for this year as last year, we completed the transition of our leasing model to more of what Bill previously referred to as our asset-light model. Our annual depreciation and amortization this year is expected to be about $50 million based on the increases in capital expenditures. Our tax rate is expected to run about 32%, depending on the geographic mix of earnings and the portion of earnings that come from our joint venture. We expect our earnings attributable to our GIMSA joint venture to be higher in 2014 as we increase deliveries and continue to enhance margins. And similar to this year, we expect our earnings to be more back-half weighted as a result of the ramping up of production at the capacity that we're bringing on and our continuing goals of margin enhancement. Speaking of margin enhancement, we're intently focused on achieving balance between continued gross margin improvement, investments needed to drive efficiency throughout our organization and enhancing our ROIC. And just on the front of margin again. Similar to earnings, we expect our margin enhancements to be nonlinear as well. At the time we've set our 2 financial goals in April of '13, we noted that these goals were part of a longer journey. For this year, we have established 2 new financial goals: aggregate gross margin of at least 20% by the second half of fiscal 2016 and our ROIC of at least 25% by the second half of fiscal '16. These metrics will serve to focus management on delivering enhanced shareholder returns over the longer term as well as guide our corporate actions in the years ahead. We're committed to enhancing shareholder value as demonstrated by a recently instituted dividend in conclusion of our $50 million share repurchase program, about 1 year after our board originally authorized it. Our board has now authorized a new $50 million open-market repurchase program. Now we'll open it up for questions. And Carol, if you could give folks instructions on how to do so.

[Operator Instructions] Our first question comes from Allison Poliniak with Wells Fargo.

On the retrofit question. Clearly, there's maybe some level needed. There's a lot of noise out there that maybe those are a bit too onerous. Any thoughts on that? I mean, is it sort of driving a difference between what's buy versus retrofit? Are you hearing any comments around that yet?

I think the simplest way to look at retrofits is to recognize that the DOT, we assume, will issue a regulations on tank car standards. And those tank car standards, once known, will drive retrofit decisions. There is a lot of noise out there about retrofits, and a lot of it is foolishness. It's not rocket science. And we have a number of tank car shops. The industry has a number of tank car shops, repair shops that are capable of doing retrofits. The notion that it can -- that it will take 7 years or 5 years or 8 years to do these and it's going to cost billions and billions and billions of dollars is simply silly. The fact is, America was producing one victory ship a year at each of the facilities doing it right here in Portland, Oregon. One victory ship a day. So it takes a year to ramp up, of course, to get things done, and we basically have 3 years to 4 years to get the retrofits in place. And we had to do a sensible triage of the retrofits that are required. The first ones should be the select DOT-111, 1232 cars that need to be enhanced if they're going to be in ethanol and oil service. That's about 10,000 to 12,000 cars.

Great. And then just with sort of the ramp-up in deliveries on the general freight now. I mean, are you hearing -- or concerned about any component resurges or issues there, limitation?

Well, component -- with the backlogs in the industry as high as they are today and the prospect for continuing surge of demand through 2018 and 2019, we're focused very much on supply chain management. We fortunately have great relationships in place on a global network to help us supply. Right now, we don't -- we're not having any serious issues with supply chain for either our Repair and retrofit programs or our new car construction. But it is a risk factor that we highlight in our public filings, and it's always something we pay attention to.

Our next question is Ken Hoexter, Bank of America Merrill Lynch.

This is actually [indiscernible] taking the call for Ken. So I wanted to to ask the -- obviously, the new orders have been impressive and have been ahead of, I think, what we were looking for. I wanted to get a sense, how long can that really kind of continue to outpace manufacturing?

Well, that's a good question. It's a difficult question. What we're intending to do for our strategy, and I'm sure others are doing it as well, is enhancing the value of the capacity we have with multiyear agreements and commitments. I -- we are -- if we can build long runs of the same product on multiple lines, it really adds a lot to our margin enhancement. And then as you've heard, we have margin enhancement on our minds for the next year in almost everything we're doing. We're finally reaching a point where we have placed capacity. And at the end of this year, this calendar year, we'll be in a position where we've placed our capacity and we can really make it hum. So I think that we can do more with the same footprint. And especially if we get the efficiencies of longer production runs, we and the industry can produce more with the same capacity. So that's a short answer. I think it's a complicated question. It's a good question. We're going to leverage it. Maybe Mark has something he'd like to add.

Yes. So [indiscernible], you correctly noted in the last several quarters here, the book to bill over 2:1, and the industry backlogs are at kind of at record levels here at least. You have to go back a long, long, long time to get the kind of levels they're at now. So we'd -- at these levels, it's pretty hard to sustain a book to bill forever at the 2:1 level. And as Bill noted, we're less fixated on that at this point and more fixated on efficiencies of longer-runs, multiyear type of arrangements. So we'd just caution those that are newer to following our business that these can be nonlinear in nature. And at some point, this is just -- it's not healthy that it continues at that -- at this level.

Sure, yes. No, that makes sense. And then just on the share buyback. So keeping that consistent at $50 million, kind of wanted to get a better sense of what was the thinking there and if we should read anything into that in terms of capital allocation plans and CapEx.

I'm sure Mark would like to add something to what I'm going to say, but a simple answer to this is that we're going to have a very substantial cash flow in the next 3, 4, 5 years, I believe. We need to invest that money wisely. We need to also have a balanced return to shareholders and dividends and in buybacks when we believe the stock is undervalued. I personally have a couple of million shares of stock. I believe it's undervalued or I would have sold it. So I think that it's important to realize when a stock has the kind of momentum we have today despite all the silly talk out there about the energy and end of the renaissance, this company has a lot of capabilities. That's why we're renewing it. Why $50 million instead of $100 million? Well, we still see lots of -- we just put a lot of money into CapEx and plans. We see a lot of efficiency-enhancement opportunity. So we want to keep some dry powder. We got a lot of dry powder. I'll let Mark add anything else he wants to say about it.

I think you covered it here. So it's a balanced approach that we're taking between reinvesting in the business, returning capital to shareholders and growth capital.

Our next question is Justin Long with Stephens.

When you think about the goal of at least 20% gross margins that you laid out, could you help us bridge the path to that target versus where you stand today? What are the different components? And anything on the order of magnitude would be helpful as well.

I'm going to let Lorie handle that. That's a great question. We feel we pretty optimistic about this. Keep in mind mix as you're answering that.

Absolutely.

[indiscernible] people might think we're a little too cautious. A 3% or a couple of percent increase is not a lot. I'm -- I can anticipate people telling us how come it's not higher.

So thanks, Justin. Yes, we look at several different things. As you're aware, we're increasing our tank car capacity, but that's going to come over time this year, so we're looking at that ramp-up. We're also looking at the mix of cars that we have in our backlog, so a combination of higher production of intermodal cars, continuing to have a very high market share in small cube covered hoppers. And then in addition, we've got marine that's coming back, which does tend to add to overall backlog. On the other side of that, as you're aware now with GBW, we're no longer consolidating our Repair operations. So that's something that's going to be coming out of our margins. It hasn't been performing that well over the last 12 to 18 months, but it definitely was an additive to aggregate gross margin. So there's a lot of different pieces that are moving within our aggregate gross margins. And as we were looking to the back half of 2016, again, it's a minimum 20% aggregate gross margin in the back half.

And I'd just point out that we achieved our goals earlier last time, and we're certainly motivated as a management team to achieve our goals as soon as we can achieve them.

Got it. And maybe just to clarify that last point, Lorie, on basically not consolidating the Repair business. ow much of a margin tailwind overall does that have just from removing that alone?

I think if you were to look probably back at -- on a quarterly basis for 2014, it's in the mid-single digits, the margin on the Repair operations.

Okay, okay. Fair enough. We can kind of run the math on that. And then second question I had is when you look at the margin assumptions that you're using by segment for your guidance for 2015, could you just give some more color on what you're assuming there? And I know you have the leased-to-owned facility change over here in the first quarter. So maybe you could address the potential impact that could have in Q1 as well.

Sure. So it's a very good point. And we do -- I think we said in our comments today or we definitely put into our press release that while we expect the margins that we have achieved in the back half of 2014 to be sustainable, there are things that will keep them from being linear. And as you point out, in this first quarter of our fiscal '15, we are transitioning from a leased facility to an owned facility. The management -- the Manufacturing folks every day are showing up and focusing on how to make that happen as smoothly as possible. They're doing a fantastic job. A matter of fact, I think they've delivered their first cars out of that facility just within the last couple of weeks. But it will take a little bit of time. And we don't want to give specific guidance on margins for the quarter, but we would say that the back half is definitely going to be stronger than the first half.

I will just add, though, that...

[indiscernible]

Right. So -- but also to be a little bit more definitive, given that we are ramping up some production lines, moving out of one facility into another facility, do not be surprised. As Lorie said, nonlinear in nature. But do not be surprised if our aggregate margin for the first half of this year is down from the last half of the prior year just as we bring on that capacity.

Next question is Bascome Majors from Susquehanna.

So surprise, I'm going to ask another one on the margins here. I mean, I just want to drill down a little bit more on the longer-term gross margin target. If I do the math and try to adjust for the removal of the Repair business from that overall, it looks like you're going to need to get to the low 20s roughly on a gross margin basis in the rail business to achieve the overall target you set, which -- the spread between the gross and the operating margins is -- remains similar would imply you're going to do margins in the range of what Trinity has done this year but still be producing a heavier freight car, lower tank car mix than they are. So I'm just trying to understand. What's the rise up there from pricing on a like-for-like car basis? Is it mix? Or is it something on the cost on the integration side that's really driving the margin higher than some of your peers, even though the mix may not be as rich in a traditional sense?

Let me take a shot at that, and then I think you can get a more granular answer from Mark or Lorie. We have had a lot of noise in our Manufacturing business as we have enhanced our capacity. We increased our capacity so we can improve our market share, and we've achieved both. But as we've said in past calls, when we ramp new plants and introduce new plants, we have some inefficiency. That drag should be removed completely by the end of this year as we rotate out of one plant, a fairly complicated matter, into a brand new plant. And things seem to be going well. We're also making some changes in increasing our capacity at our Taurus [ph] facility in Monclova, which is part of the GIMSA joint venture. So we've got -- still a lot of movement going on. As that stabilizes and as we're able to get new and more modern facilities, jigs and fixtures, we will get a tailwind that's pretty dramatic. The mix is a factor, but also the other things that Lorie mentioned. This should be -- I think you're generally right. We need to get our Manufacturing margins above 20% in order to hit this goal. But we're already at 18%. We might have a little fallback this first quarter as we complete this arabesque that we're doing. But it is going to get completed, and we're making pretty good progress on it. I'm pretty reasonably optimistic about it.

So we can count -- you go through the litany as you started to spell it out, Bascome. So we have a favorable pricing. We continue to enhance our leasing syndication business, so a higher volume through our lease syndication business that enhance our margins, as Bill noted, our lower-cost footprint, heavier marine, which we've talked on a number of occasions that are marine margins, overall, are very attractive and also helps to absorb overhead at our Gunderson facility, longer production runs, efficiencies of longer production runs overall. And then we're also outside of -- our Manufacturing business, we certainly have set goals to enhance our margins in our Wheels & Parts businesses as well.

While I appreciate that detailed answer, just one more kind of on the same topic. Looking at what you're delivering today into the freight car side of business, I would guess most of that was ordered late last year, early this calendar year. And clearly, the market has tightened up immensely in the last 9 months or so. I mean, can you just directionally talk about what the freight car margins you expect to earn on? What you're taking order for today look like versus what you may be delivering today? Just so we can think about how that churns through as we get into next year in 2016.

I'll just say some -- what should be pretty obvious things about it. As the industry tightens up, when capacity is more constrained, the reliable capacity is more constrained, pricing leverage increases, we've been saying no to a lot of customers and passing up on markets that otherwise, we might have taken. So certainly, the pricing is having a significant effect. And as the -- I hate to use the word pipeline. But at the pipeline -- as these orders go through the pipeline and you reach the point where the pricing leverage is in production, you're certainly going to get a lot more pricing leverage. So there's real boost we're starting to see and coming along in pricing leverage. I wouldn't want to quantify that.

Our next question is J. B. Groh, D.A. Davidson. J. B. Groh - D.A. Davidson & Co., Research Division: Congratulations, Lorie, on the marriage and the good quarter.

Thanks, J.B. J. B. Groh - D.A. Davidson & Co., Research Division: A couple of questions. Could you talk about, Bill, maybe -- obviously, the volatility in energy prices has been a little bit of a headwind for the stock. But you're only 30% exposed to this tank car market in your backlog. Can you talk about sort of security of contracts and how those are structured? Are they cancellable, [indiscernible], that kind of a thing?

We have very strong contracts, and we haven't had any indication of any cancellation. In fact, the opposite is true. There's still a very strong need for tank car capacity, particularly in the replacement side. People are a little on the fence on the DOT-111 car until the government finally acts. We will hope that they will get around to doing something soon. I know it's complex. But again, it's not rocket science. They need to have a safer tank car. Once they do, people are going to be driven by logic and reasoning to replace a lot of the fleet. And there'll be a trickle-down effect that will be very dramatic. So we don't -- we can understand the craziness about oil pricing. And a lot of that was driven by technical factors having to do with money market trends. And if you don't want to dig into it, talk to an economist in one of the major banks, talk to Chris Hyzy at U.S. Trust. I mean, he really gets what happened. But this isn't over, and you just see every day new announcements. All companies, certainly, aren't acting like the party's over, and I just think that we're -- somewhere between $50, $60 a share might lead --or $50, $60 a barrel might weed out a number of the inefficient producers and cause some consolidation. But those who really have their act together are driving that breakeven point down every 4 or 5 months. I mean, the technology is amazing. So this is the longer-term trend, in my opinion, and just one opinion, but it's I think a reasonably informed opinion. So that's my comments on how that's affected us. And I think so -- I think our stock is very -- was undervalued, really undervalued. And I think it's still really undervalued because there's a lot of hysteria going on out there. So there's still strong demand for tank car margins. That's not the only car type where we have strong margins, though. We're enhancing our margins across the board, and some of the other products have got equally attractive margins. We want to have a diversified base because that's where the industry will be over time. J. B. Groh - D.A. Davidson & Co., Research Division: And then so just reading -- just sort of reading between the lines in your comments, it sounds like you don't think that there's any sort of placeholder orders for these for any sort of DOT action in December. I mean, that -- it sounds like customers have really maybe kind of put on the brakes and not really ordered anything. You have a few orders for Tank Car of the Future, but not a lot in that 30%, correct?

No. We have -- when I say not a lot, relatively speaking, we have thousands. We have 3,000, 4,000 Tank Cars of the Future on order, and we've got more stacked up once the exact regulations are going to be known. So there are a lot of companies who are getting in line and who want to have a safe car. And eventually, all these shippers who were complaining about this are going to realize that they're going to have to transport their products, and pipelines are not going to be the alternative. And finally, the cost of not upgrading is -- they're going to be driven by the General Counsel's Office. There's going to be a lot of litigation if people are in record of not wanting to enhance safety. So I mean, just -- it's logical, and it makes sense that this is going to occur. We've got plenty of big customers who aren't publicly making statements about it but are lining up for capacity. Just because they haven't placed the orders doesn't mean they're not there. Thousands of cars in backlog for that 9/16 car of the future design. J. B. Groh - D.A. Davidson & Co., Research Division: Right, okay. Just a couple of quick housekeeping items. What was the marine revenue in the quarter?

It was a little bit better than the third quarter. I'd probably say again we try not to breakout specific marine revenue, but maybe around -- somewhere between $15 million and -- $15 million to $20 million. J. B. Groh - D.A. Davidson & Co., Research Division: Okay, that's good enough. Okay. And then, Lorie, thinking about the contribution of the maintenance business into that JV. Is kind of the revenue impact roughly what we saw sequentially Q3 to Q4, is that kind of -- on a quarterly run rate basis, what's going to come out?

Well, the contribution happened -- the formation of GBW happened kind of mid to late July, so maybe we got about half of a quarter of Repair. I think if you were to look back on our -- I think what we've indicated on an annual basis, Repair probably made up about $150 million to $175 million of that segment revenue.

No, that's what our stand alone repair operations was about $150 million to $175 million.

[Operator Instructions] Our next question is from Albrecht, BB&T. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Just a couple of little questions here. So Bill, I think I heard 2 different statistics from you. I think I heard you say that about 1/3 of your backlog is tank and then later, about 1/3 is CBR. Given that there's a lot of other tanks that are not dedicated to CBR, I wanted to reconcile what the 1/3 really is.

Well, if I -- that may be true in the general sense. If I said that, I didn't mean to say that. [indiscernible] of our backlog, it is of all tank cars, and our tank car backlog does include backlog other than crude-by-rail. It includes other uses as well. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. And then on the SG&A, did you give any guidance on that just because that's sometimes tricky to model with you guys for fiscal '15?

No, we didn't give any guidance. We would -- I think probably a good run rate would be to kind of look at maybe an averaging between the third and fourth quarter of fiscal '14. As Bill indicated in his remarks, we have had a lot of additions as we've ramped up our overall activity, particularly in manufacturing, adding some depth to our bench at the management level. So I think the third and fourth quarter is probably a better run rate to average and look forward into 2015. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. And then -- somebody asked about $150 million to $175 million a minute ago. I think that was your answer, Lorie. I was looking at an email, and I got distracted on what that figure ties into.

That was guidance for how much Repair makes up of our annual revenue on a historical basis. So someone was asking about the transition of our Repair operations into GBW, where it will no longer be consolidated into our revenue. So that will be the -- if you were to look back and trying to model, you'd be looking -- you take out $150 million to $175 million of revenue. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Yes. And still applying that mids to upper single digit margin on a go-forward basis, trying to figure out how much -- with your new earnings guidance of $425 million to $455 million, we're having to work hard to keep it that low, to be honest with you. And you've done a good job of explaining some of the first half margin challenges expansion, all of that. But just wondering maybe how much earnings you would attribute to the GBW that you're backing out to get to that $425 million to $455 million.

So to be clear, we all stick -- still pick up our 1/2 of our earnings in the joint venture. We will just pick it up as a single line item. And the question more was getting to how much of an affect on revenue this had and when we gave our revenue guidance of exceeding the -- our revenue guidance, that excludes any revenue related either to our Repair operation or in GBW.

And then on a go-forward basis, Tom, our Wheels operation, they are definitely very focused on improving margins. So yes, I definitely can appreciate that it's hard to model because there's a lot of different moving pieces going on within the operations.

One way of looking at that is -- one way of looking at that, though, is that Repair trailing -- Repair has been a drag on margins and even earnings. It's going to be a slight positive this year. So eliminate the drag, a slight -- a modest positive and then we're looking in 2016, a really attractive profile from the performance at GBW. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Yes. Because I was thinking back to Rick Webb's comments, I don't know if it was last quarter, whenever you did the deal. But he, as I recall, expressed confidence that Watco had really good Repair margins, and then he didn't see necessarily a lot of hindrance to helping your margins get to where Watco's had been. So if I look forward, what you're going to pick up on the equity basis maybe -- there may be more improvement there than just revenues tying to single digit margin. He kind of expressed some confidence about mid -- low to mid-teens.

Well, we do as well. I think that -- and you heard Rick or Bill's comment earlier that our longer term goals are to get overall margins for the entire business, as Rick had referred to. And Bill referred to ARI's, our Repair margins under Cowan's stewardship that were -- and around the 20% plus range. We're kind of this year doing this -- we're in it for the long run on the Repair side of the business. And as Bill noted, this year, we're as focused on having our processes -- we often describe safety, quality, delivery, efficiency. And that's the order that we're looking at in our Repair operation for this year. But if you're kind of backing into things and saying well it doesn't look like we have a lot built in for Repair this year, if you're indirectly saying that, you're right. And it's just that we're focused on other things.

Yes. Why don't you guys go offline with that. Why don't you have -- Lorie will follow up with you on that. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Yes, that will be fine. And then the last question I would have would be, Bill, you're so insightful into railcar buying trends and all of that and obviously very in touch with these regulations. A quarter or 2 ago, I think you sort of inferred that maybe the newbuild -- new cars versus rebuilds, new might be 10,000, 12,000, 13,000. Have you rethought that to be a much higher number of the 81,000 cars that are in question? I mean, not taking it as firm guidance, but what is your thought on build brand new versus what ends up being retrofitted?

Well, I -- possibly, I was again guilty of not expressing myself very clearly. Let me try again. I feel that the newbuild -- the newbuilds will be driven by safety standards and the time line that the DOT will set for implementing those standards. That's point number one. More importantly -- much more importantly, number two, by railroad behavior. I know -- I'm sure you've noticed that they're raising the prices on cars they don't like, that are unsafe. And if the DOT doesn't do it, the railroads would do it for them because they can't afford to have their franchise destroyed. So you've got -- just the basic numbers, you've got ethanol cars, which would be triaged last. And you've got the oil -- volatile oil cars, which would be triaged first. So you've got 80,000 cars inflammables or at least 70,000 that are in the target zone. And they're going to change. That will have to be either rebuilds or -- and some of those could be DOT-111, 1232 cars that can be made 8x safer. And that's just tragedy maybe for people that have those. We're going to change ours because you can't afford to run them out there and have them derail and cause death or an accident. So that's 10,000 cars of that type of high-risk car that will be taken out for whatever time frame that the railroads decide to do it or DOT wants to do it. But it's easy for the railroads to price this so that it's unattractive to run the cars. And if DOT doesn't act, the railroads won't, right? I think it's got this twin effect here. The total market is 80,000 cars. There's another 80,000 cars or probably 80,000 cars that's in the less hazardous but still hazardous category, a total fleet of 170,000. And I take 10,000 out of it, and that's a source for retrofitting. Because the -- as the other cars come out of service, they're going to have some useful life left to them, and you can put them in these other services and knock out the ones that are less attractive. What's going to happen after all this is that when there is a derailment, railroads will litigate or people will litigate. And the cost of that, the Québec incident is beyond the capacity to insure it. So it's very dangerous to run now with a record and $100 million with public press on this. It's going to be very dangerous for anybody who run one of these cars if there's an alternative. What's that alternative? The government's going to decide, and the government will bless whatever foundation. So we have the protection of the U.S. government saying here is the standard we want you to be in, and we want you to be in this standard by now. That's why you're hearing all the people who are going to be affected so adversely saying, "Well, let's wait for a long time." If they do, I -- and I think the railroads will stop them. So I think it's going to happen very rapidly, and you're looking at an awful lot of cars that are going to have to be replaced and cycled into less hazardous service. So do you need a pesticide or herbicide car to be made 8x safer? Probably not. But if you have the capacity to do it or a reasonable cost and you can make it 4x safer by putting simple retrofits on it, you better do it. Or if you have something in a river or water shed out here in the West, you're going to get sued and you're going to lose. And that's a lot of money.

Our last question comes from Steve Barger, KeyBanc Capital Markets.

I'll be quick. It's great to see you have the confidence to come out with some longer-term targets based on these industry conditions and your backlog. It looks like you have a nice long cash flow window to transform the business. Can you talk just for a minute about your vision for cash employment maybe in the longer term, whether it's from the leased fleet from a size standpoint? Any change on the new line of business that we're nothing thinking about right now? Or just in general, what does the future of Greenbrier look like?

Thank you. I think that's a great question, and I'll try to be brief about it. I'm very excited about our leasing model. As others have shown in our industry, leasing can be a margin enhancer. It can be a commercial tool. I'm very excited about our asset management business. I'm excited about the new relationships we have with huge financial institutions such as Mitsubishi, with whom I just visited the chairman and the CEO in Tokyo 2 weeks ago. I spent a week with them. They're ordering $1 billion of railcars from us through our leasing model and -- over a 5-year period. We have many new relationships like that, and they're very valuable to our franchise. So I see our asset management business growing, including many of our railroad customers in the back office and other activities. So that's one. Number two, manufacturing enhancement will be a very important item. We're taking market share away from a few companies who've gotten complacent with their product lines. We expect counterpunches on that, but I think, in general, we're winning that battle and we're expecting to win it. We're really going to crank up our activity in margin enhancement. The reason we haven't produced better margins in the past is a more diversified mix and just an awful lot of background noise as we introduced product after product, which has brought us to this foundation where we are today. Now with this foundation in place and the capital that we're employing over $100 million, we should really see the effects of that. And we'll still have capital left over to return capital to shareholders. So I'll just say, finally, in terms of our investment in Mexico, a lot of exciting stuff. We just had an economist. We had Rick Webb here for our board meeting yesterday. We had an economist from Mexico. We had an economist to give their annual -- from Bank of America, to give an annual update. We see the importance of Latin American markets as enormous. We see our base in Mexico as an enormous asset for Greenbrier. So we're intending to take this heavy cash flow and invest in our strengths, where we're strong and diversify our business to make ourselves more nimble, but we're not going to go far afield and where we're going to be putting our time and energies in leasing and manufacturing and our relationship with Watco and with companies like Borough [ph] and others to grow our franchise within the manufacturing and the service business.

That's great color. So it sounds like this is really about making targeted investments in businesses that you're already know and then staying disciplined enough to return capital rather than do an empire building kind of exercise just because you have really strong cash flow. Is that right?

That's right. I think this -- the principal challenge that our board and we have is to be disciplined and have respect for capital. And this is not a time to continue to build new manufacturing facilities. It's a time to consolidate our strengths, increase our margins, take advantage of the long runs, take market share away based on the investments we've made. These investments are really going to pay off. So I can't tell you how exciting this possible future scenario is for us because we're going to be throwing off, for the next 3, 4 years, a lot of cash. So investing that cash is probably the most important thing that we and the board have to decide how to do. Right now, buying our stock looks pretty attractive because we're bullish on this -- we're bullish on circumstances. We're not discouraged by all of the chattering classes about oil. There is a lot of people who talk about oil don't understand it. And I probably am one of them.

Thanks, everyone, for your interest in Greenbrier and our earnings today. For those of you who maybe didn't get an opportunity to get on the line to get your questions answered, we'll be following up a bit later today. Just toss an e-mail to Lorie [indiscernible]. Thank you.