The Greenbrier Companies, Inc. (GBX) Q4 2018 Earnings Report, Transcript and Summary

Hello, and welcome to The Greenbrier Companies Fourth Quarter of Fiscal Year 2018 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 a 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 Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts, you may begin.

Thank you, Ash. Good morning, everyone. And welcome to our fourth quarter and full fiscal year 2018 conference call. On today's call, I am joined by Greenbrier's Chairman and CEO, Bill Furman; and Lorie Tekorius, Executive Vice President and COO. They will discuss the results for the quarter and fiscal year as well as provide an outlook for Greenbrier's fiscal 2019. 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 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 2019 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier. Now, I'll turn it over to Bill.

Thank you. Good morning, Justin, good morning everyone. Today we're pleased to report a solid finish to Greenbrier's fiscal year and a high level of order activity as we enter fiscal 2019. Our financial performance revenue deliveries were within our guidance range issued a year ago. Greenbrier finished fiscal 2018 with healthy gross margins and a strong balance sheet, along with solid prospects in a rising railcar market in North America and in the world, and strong economic fundamentals with visibility into the next two years. Our international strategy is working and our goal in 2019 and 2020 is to achieve greater scale through our four-part strategy. Let me just remind you what that strategy is. In April, with input from our Board of Directors we added two new elements to our previously announced strategy, our enhanced strategy has four pillars; number one, to strengthen Greenbrier's performance in it's core North American markets. Number two; enter new international railcar markets to provide stability. Number three; aggressively extend our existing talent base through the creation of a talent pipeline providing for the future of Greenbrier's talent requirements. And number four, efficiently deploying capital to grow at scale in new and existing markets. Greenbrier has sharpened it's focus and has advanced on all four points of this strategy in fiscal 2018. Under the supervision of our Executive Committee chaired by our new Chief Operating Officer, Lorie Tekorius; all of us at Greenbrier are bringing greater energy into the next fiscal year and look forward to executing this strategy with material results. In North America, Greenbrier has a positive outlook for this industry and for Greenbrier. As of October, reasons for optimism include U.S. real GDF of 4.2% in the second calendar quarter, continued strong GDP forecast; these things are driven by business investment, personal consumption and exports according to Oxford Economics, FTR, U.S. Trust Unit of Bank of America. Real growth in GDP is expected to remain positive over the next few years in the 2.2% to 2.7% range. Something to watch of course is inflation, that is also expected by most economic analysts to remain low at existing levels. Obviously inflation could affect GDP rates but the economic outlook and particularly, our industry, looks solid over the next two years. Volatility in the stock market as we have seen this last week perhaps is caused by external factors, but economics inevitably must prevail and the data suggests something other than a negative outlook. Conditions for industrial production remain favorable driven by demand for business equipment and improvements in energy markets. In the prior 25 years during quarters when industrial production is grown or remain stable rail volume has increased 75% of the time. So I'm going to pause just to ask you to consider; why do shippers and railroads need railcars? They need a variety of railcars to carry freight. Different kinds of freight requires different kinds of railcars and that's what we mean when we talk about differences in mix. Turning specifically to rail; year-to-date total carloads through September 2018 finished up 4.3% compared to the first nine months of 2017 driven largely by intermodal, petroleum products, crush stone and sand and chemicals. You will note that we have received a great deal of order momentum in the second half of our fiscal year and that order book reflects growth in those primary areas. Higher crude prices are incentivizing more horizontal drilling and therefore demand for tank cars. Average train velocity has declined 8.1% year-over-year since the beginning of 2018. As a general rule, for every one mile per hour change in train velocity it requires 70,000 railcars to maintain service. So approximately 70,000 to 100 cars are required simply to carry the traffic beginning or compared to the base in the beginning of 2018. Velocity also has been below the 10-year average since the third quarter calendar of 2017. Class 1 rail traffic from North America rose 4.2% in the past quarter versus a year ago. As we've seen all year intermodal in commodity [ph] traffic drove growth and we continue to benefit from favorable conditions for crude oil and grain, as well as a historically tight trucking market. North American railcars and storage were down across nearly all car types; most notably crude oil and LPG tank cars, and continued rail traffic growth as well as depressed rail velocity have been contributing to the decline in stored railcars. We expect near the middle of this year for the frictional level of stored railcars to reach full employment of the fleet recognizing that many cars which are obsolete will remain stored. Strong volume growth and slower speeds are leading indicators for increased demand, and that is why all of this is why industry forecasters such as FTR are projecting annual railcar deliveries in 2019 and 2020 will exceed 60,000 units per year versus deliveries in the low 50's this year. We recently announced moreover -- but recently announced United States-Mexico-Canada Agreement, USMCA, which reminds me of a village people song, is intended to replace NAFTA, and it's been the focus of Greenbrier's advocacy efforts over the past several years; certainly an important development for Greenbrier given our production base in Mexico and our goal of continuing to expand internationally. Reaching a modernized North American Trade Agreement will help reduce uncertainty and eliminate a potential significant headwind against Greenbrier's operation. Maintaining carefree North American trade supports our core business and our vast network of U.S. suppliers while allowing us to continue making advancements in international railcar markets. We will continue to engage in the review process as the new agreement is finalized by the governments of all three countries. Allow me to reflect briefly on why Greenbrier is currently so well positioned. Over the past years, we've secured multi-year orders to provide a base load of manufacturing business helping counter fluctuations in the railcar purchasing cycle; that approach has paid off. Recent railcar orders excluding multi-year deals have been robust with 9,000 units booked in our fourth quarter and 15,000 booked in our second half, a strong trend. Visibility for us remains strong and we remain optimistic. During fiscal 2018 we achieved several key milestones; we delivered 21,000 railcars, our highest total since 2015. And we received railcar orders at our highest level in three years. We ended the year with orders for 21,900 to 22,000 railcars valued at $2.2 billion. We were especially encouraged by the momentum in the second half as I've said. Notably, over 30% of our orders originated from international customers. And let me point out that international customers like all customers everywhere, in North America for example, one to deal with a few number of suppliers rather than to have spread their business around. So large companies which operate in global markets find Greenbrier's model attractive to them [ph] if we can supply solutions to an agricultural company based in United States; however, with investments around the world in those jurisdictions we can strengthen our value proposition to them in the United States. Meanwhile, there are other reasons; our engineering teams are working constantly with their commercial and leasing counterparts to identify and to enhance new product opportunities in railcar design innovations for our global market, product improvement, product design, developments of new designs and efficiencies in the existing designs, and new service packages with our powerful leasing business and Greenbrier management services now providing solutions to 20% of the National North American fleet. As promised on our last call, we confronted the drag on earnings from the GBW joint venture in Q4 turning now to repair by dissolving that venture in August along with our partners at Watco what go and receiving back 12 legacy repair shops which formerly belonged to Greenbrier along with some cash as part of the wind out [ph]. The repair shops have been assumed within our wheels repair and parts business service which we'll be operating under the name of GRS. This provides an opportunity to return to our base, profitably operate a smaller railcar repair shop network, more fully integrated with our business model and our existing operations. Greenbrier Management Service is our best-in-class railcar asset management business which continues to grow. GMS now provide solutions and services to more than 140 unique customers, some of them global customers across 365,000 railcars representing 20% of the North American fleet. Our leasing and service business has made meaningful contributions this year with higher lease fleet utilization, greater gains on sale activity compared to 2017. And with reference to those gains on sale we are providing the basis for future revenue by replenishing our lease fleet and by bringing new cars and under favorable tax advantage or deploying it into revenue service continuing to grow the reservoir of value in our leasing fleet. I'm greatly encouraged by the transformation that has occurred at Greenbrier over the last several years and the wealth of opportunities ahead. I, unlike others, possibly in our industry -- I am very optimistic about the future -- at least for over the next two years. Are there storm clouds in the horizon, certainly there are uncertainties; I largely would suggest that those are political and hard to ascertain. But we now have commercial and manufacturing operations on four continents, today we are firmly established as the second largest railcar manufacturer in North America, the largest builder in Europe and South America, and a major new partner in Saudi Arabia with SAR, Saudi Arabian Rail, which will improve freight and defense mobility in the Kingdom of Saudi Arabia. Lorie will supply -- more provide -- he will provide guidance in a moment. But for fiscal 2019 based on the range of positive indicators I've just mentioned, Greenbrier expects to achieve a new milestone exceeding the $2 billion to $3 billion mark in total revenue for the first time with greater EPS and greater EBITDA than fiscal 2018. So in summary, our top takeaways for the quarter are: we executed in our four strategic goals, strengthened North America, grow internationally, enlarging our talent pipeline and deploying capital to increase great scale. Greenbrier is a great place to work and we are attracting bright young people and specialists in the field. Financially we ended the year with a strong balance sheet, strong liquidity, low levels of debt, a refinanced bank line and leasing credit line which provides us substantial liquidity as we enter the new fiscal year. The railroad system -- railroads have the strongest balance sheets I've seen in my career. Number three; we believe a favorable economy and strong real fundamentals will lead to higher revenues in delivery in North America, and in international markets for fiscal 2019 and into 2020. At the same time, we are uniquely positioned to grow in the international rail markets and are among the Top 3 car builders globally already. Number four; we're targeting range of orders, earnings and deliveries above the range of analyst estimates for 2019 and meaningfully exceeding fiscal 2018 actual results. With that, I'll turn it back to over to Lorie and we'll be happy to answer questions a little later on.

Thank you very much, Bill. Good morning, everyone, thank you for joining us. Since the quarterly and full year financial information and metrics are available in the press release and supplemental slides, as Justin mentioned, I'll just hit a few high points and then provide more information on our 2019 expectations. Highlights for the fourth quarter included adjusted EBITDA at $75.3 million, net earnings at $30.9 million or $0.94 per share on revenue of $689.2 million. Excluding the benefit related to the 2017 Tax Act Transition Tax of $4.5 million or $0.14 per share, our adjusted earnings were $26.4 million or $0.08 per diluted share. Over 20% of our 6,000 units delivered in the fourth quarter were outside the North American market, and we continue to execute well operationally across all business units and posted aggregate gross margins for the quarter of 15.4%. As Bill mentioned, orders in the fourth quarter totaled 9,300 units valued at over $1 billion, and this includes the 5,000 units we previously announced. There were no multi-year orders anywhere or activity this quarter illustrating the improved demand environment in North America. Order activity continues to be broad-based across a variety of railcar types and customers. And finally, our lead fleet utilization improved to 94% in the fourth quarter. For the full year, adjusted EBITDA totaled $318.2 million with adjusted net earnings of $133.9 million or $4.13 per share on revenue of $2.5 billion; our third best annual performance. Adjusted results exclude the one-time financial noise from the 2017 Tax Act and the goodwill impairment at GBW, and exceed our guidance last October of upto $4 per share. In the full year, we also generated over $100 million of operating cash flow and began rebalancing our lease fleet through our multi-year partnership with MUL. At the same time we added about 110 million of railcars to our fleet to replace the assets sold. We continue to perform well operationally, and for the full year generated aggregate gross margin of 16.2%. Internationally, we advanced the integration of AFTRA [ph] in Europe and [indiscernible] in Brazil, and we entered the Turkish rail freight market with an investment in Rayvag in August. We're very proud of another year of strong performance and we're excited about 2019. At the end of our fiscal year, our balance sheet with strong with cash of $530 million. As Bill mentioned last month, we've renewed extended and increased our revolving credit facility and leasing term loans for a total of $825 million, a $100 million increase, thanks to Justin and his great team. The new facilities reflect terms extended to 2023 from 2020, and feature improved economics and fee structures. We continue to be focused on growing the business and believe our balance sheet strength and flexibility position us well to support our strategic objectives to grow at scale. We remain confident in our capital allocation strategy that emphasizes cash flow generation and return-on-capital employed. We expect this approach will continue to create long-term shareholder value; this is supported by our history of steady dividend increases over the last several years. The $0.25 per share quarterly dividend announced today is our eighteenth consecutive quarter dividend. Based on current business trends, production schedules; for fiscal 2019 we expect deliveries to be 24,000 to 26,000 units which includes about 2,000 units from our operation in Brazil. As Bill mentioned, revenue is expected to exceed $3 billion and diluted EPS is expected to be $4.20 to $4.40. 2019 will be a unique and pivotal year for Greenbrier; unlike the last few years a large proportion of our deliveries will be from orders taken over the last twelve months when pricing was much more competitive. While railcar demand in the European and North American markets is improving, core pricing excluding fluctuations and raw material cost has only improved modestly. As a result of changing production schedules, mix shift, and the timing of syndication [ph] activity, our earnings and deliveries will ramp up over fiscal 2019 accelerating significantly during the back half of the year. About two-thirds of our deliveries are scheduled to occur in the second half of 2019, and about 75% to 80% of our earnings are back half weighted. Margins in the first half will be double-digit but at the lower end impacted by the combination of a more general purpose product mix and the competitive pricing environment when the orders were taken. Margins will expand to the mid-teens over the course of the year as an improving product mix and the benefit of higher production rates and longer uninterrupted production runs take hold. We have high confidence in the guidance we're providing today because more than 75% of our 2019 production is in our backlog at year-end. Further for 2019, we expect operating cash flow to be at least $250 million. G&A expense is expected to be $205 million to $210 million, the inclusion or the reintegration of our repair business is the primary driver of the higher G&A expense. We also continue to invest in our international business development, and as Bill mentioned, we're launching programs to strengthen and develop the next generation of leaders at Greenbrier. Reflecting the growth of the business, G&A as a percentage of revenue will be around 6.5% in 2019. We will continue to rebalance our lease fleet and expect gains on sale of about $40 million on $120 million of proceeds from these sales. Similar to 2018, we intend to continue to add to our fleet with expected investments of nearly $100 million. Capital expenditures and our other operations are estimated at $90 million, and combined with our fleet activity our net CapEx will be about $60 million. Depreciation and amortization is expected to be $80 million to $85 million. With the removal of the GBW headwinds, earnings from unconsolidated affiliates are expected to be breakeven to modestly positive in 2019, and we expect earnings attributable to non-controlling interest to be about $40 million. Our consolidated tax rate for '19 is expected to be 24% to 25%, and this rate will fluctuate due to geographic mix of earnings and other geographic -- other discrete items. Again, I'm very proud of what the team at Greenbrier has accomplished, and I'm really excited about what the future holds. So now, we'll turn it back to the operator for any questions.

[Operator Instructions] And our first question comes from Ken Hector [ph] from Merrill Lynch.

Lorie, thanks for that run-through on the outlook, maybe if I can just dig into that, your thoughts on pricing there. Just given the new orders, it seems like you've taken a step-up on some of the additional orders; I get what you were saying in terms of the deliveries but is that also more mix based or I'm just trying to think about the impact of margins as the deliveries come through on these new orders?

I'll start out and I'm sure Bill will add a little bit of additional color. The beginning of -- the first half of our year we expect to have more general purpose type railcars being delivered which are at more modest growth margins and more competitive AFPs. As we move through the year, we expect to ramp up on deliveries and see the benefits of longer production runs. And as you indicate, we have seen gradually improving; it's not fantastic but gradually improving AFPs, and that will start coming through in the second half of the year.

Is that a factor of more international versus domestic or is that a factor of -- like you said longer runs of -- call it intermodal railcars or whatever it might be; just to try to understand that the difference of what drives that.

It really is mix. As we move through the year we'll most likely be ramping up production on tank cars; so shipping from some of those more general purpose cars to more higher priced units.

Bill, if I can ask you a strategic question; I mean you mentioned kind of the railcar load demand, and obviously, I'm sure you've heard a bunch of the rails now talking about implementing precision scheduled rail policies which ultimately can move a lot of equipment, particularly locomotives, and then I guess cars as well off to the sideline as they were moving from the network. Does that impact your thoughts on the growth potential in terms of car demand as you look forward?

No. In fact we had an interesting conversation in our Board of Directors meetings yesterday, and it is startling as you may know, a very well-known rail rider [ph] has joined our board after retiring from CEO at Kansas City Southern. That term means a lot of different things to a lot of different people; it can mean service deterioration, it can mean more inefficiency rather than less of -- or it can mean less efficiency. It can mean a number of things, you can actually cause congestion and a requirement for more cars; so I don't share view that the current movement towards performance and efficiency -- it might mean a code word for a change in services sign or raising crisis. In our relationship with customers we have mixed reviews of this. I certainly think Union Pacific is a fine railroad and they will figure it out, they are loyal to their customers, and -- but I don't see it affecting in the forecast that we are looking at car demand other than making it a bit more complex.

Our next question comes from Matt Elkott from Cowen.

Staying on this precision scheduled railroading topic since it was asked; I know that one pillar of that approach is improving railcar utilization. Could this actually be a tailwind for the railcar industry in the intermediate term as some of the Class 1's try to homogenize their railcar fleets in order to use them to improve their utilization? I think, I remember [indiscernible] one saying that they had 60 different types of boxcars and they had been planning to reduce that number to something under 20; so could that actually be a tailwind for manufacturers in the next two or three years as people switch to a more uniform, that's more versatile type of railcar?

That's an interesting point and the answer is yes; yes it could. To the degree that they purge less productive cars and look at new designs as Union Pacific is indeed doing with -- the Trinity built boxcar -- mechanical refrigerated car, insulated car for the -- depending on how people look at it, that is a mechanical refrigerated car. They're going to try to get standardized higher capacity -- more vision equipment in their fleet, that -- that's a tactical playing it can affect us; for example, because we compete aggressively in that market. So homogenization is difficult to achieve in the rail industry and they always strive for it but the real lever there would be moving to higher capacity car. So what happens when you're talking about a more efficient railroad, you're talking about longer moves, black moves, and sometimes train schedules that are really for the convenience of the railroad as polished as it can be of the shipper. The real wildcard here is a sense -- railroads have increased their pricing by -- between 3% and 4% depending on the railroad this year. If they have a deteriorating service by concentrating trains and they have difficulty with feeder systems to get that concentrations; it actually can be negative for the railroad. So we're all living in this world and railroading where operating ratio is everything. I think that even [indiscernible] as much as he did -- she has actually seen the consequences of getting to do -- put on the heat and it really comes back to customers. If customers are not happy they're going to try to find an alternative or they're going to go to the government and see if they can find alternatives and try to do it with the regulation. So we want railroad to remain competitive as a shipping mode, so steps like precision railroading to the degree is successful, are not concerning to us if they succeed; in fact we hope they do succeed. As long as they don't -- as we have sometimes done occasionally, like in the repair business, forget the customer, the customer creates all the value. Why do railroads or shippers need cars to move freight? If you can't move the freight the trucks will take that business. So there is a limit to how much pricing and how much service deterioration you can have. It's an interesting question but it doesn't factor very much into our thinking at least over the next two years; we're watching it closely and we hope and wish those railroads we're launching there is a great success at it.

I wanted to ask about the tank car market; clearly, the enquiries for tank cars have spiked significantly in the last quarter or two. I wanted to kind of get your insights on what is the conversion rate from increase to orders? And are a lot of these orders very short-term in nature? And maybe require leasing the car out to someone on a short-term lease versus building the car and selling it to the end customer; if they're not willing to buy it and they want to take -- they want to do a very short-term lease, instead is this car going to end up getting built or are you guys being cautious in getting into this tank car build cycle in a big way?

Well, of course, all of this is driven by cheaper natural gas prices which has caused the migration to the United States for huge downstream activities; so you're seeing -- and just you asked a question -- somebody asked a question earlier about our order book, we had big wins for that quarter, where 800 tank cars for an energy company, 500 tank cars for another one for petroleum; these are standard operating type leases and certainly not short-team, we're not putting things out, but I am leasing in that market. This is driven by higher global -- strong dollar and higher dollar denominated oil prices; we continue to believe that oil prices remain high despite the day-to-day variations or more volatility in that marketplace. So I hope that answers your question. We don't see the -- we see the quality going up and demand for tank cars going up, driven a lot by the current drilling activity and so on.

If I could just add one small thing onto that; I think if part of the crux of your question is are we taking orders or maybe these cars won't get or we have great relationships with our customers, we make certain that before getting into a transaction with a customer, someone who is going to be there for the long-term, they do need these cars and these are longer live transactions.

Yes. If these folks don't really want to argue they want the car and they typically keep the cars at services; these big shippers they need the car to move the product. And as long as the railroads don't change the name of the game and are happy to have private cars in a tank car business, that's going to continue. So there is nothing temporary about it, we don't see any possibilities these guys are going to win it? They're allowing these orders, for example, if that was your question. They're making longer commitments. Actually in the tank car business, the average lease rate or term is a little longer than the typical operating general freight business. The other thing driving this is a change in the safer tank car now -- saying this now coming home to roost [ph], we have a lot of cars, particularly DOT1-11 [ph] cars that don't meet the safety standards. Big companies that are concerned about their public relations profile have moved to a newer, stronger design car; and they are -- a number of these cars will be evolving out as time goes by. So there is a replacement to end cycle going on here too. And finally B&SF [ph] and others are putting more stringent requirements on what kind of tank car can carry materials that are flammable.

Yes, I believe they are mandating the use of the DoT1-17J [ph] as opposed to the retrofitted variety on all new crude contracts; and it seems like CP may be moving in the same direction; so we'll have to see what -- this is for Bakken I guess but we'll have to see what Canadian crude will end up being. But thank you very much for all the insight, I appreciate it.

I think Canadian crude -- they move in pickups, they could get the capacity, it's a pretty tough situation they're facing. Almost $50 spread in one of their distribution prices but we're going to see that traffic increasing.

Are you guys hearing anything about potential new legislation up in Canada that will make it difficult to build pipeline actually?

We don't have -- we're not tracking that, we're of chatter but it doesn't seriously affect us in our perspective for the next two to three years of planning. We're looking at other things about that could address that demand in Canada such as green solutions.

Got it. Sorry, I think I may have had a technical glitch here, I thought I got disconnected, that's why I stopped. Thanks for the color.

Our next question comes from Willard [ph] from Seaport Global.

I wanted to go back and touch on pricing, if we could. Seeing the step-up in pricing on orders this quarter versus last quarter and I guess the overall pricing environment improving a little bit; can you help us think about maybe how these cars are priced with increasing input costs versus overall just demand driving prices higher? Can you try to parch those two things out from what we're seeing?

Well, it's a combination of both. Keep in mind that mix matters railcars, not to real cars. So looking at the total average sales price, it can change from quarter-to-quarter depending on how many tank cars you get in there, how many double-stack cars; we have had very dynamic and robust double-stack replacement cycle now next year, so we're getting a mix of those in there. And it's certainly we're along railroad strength to cover our costs with steel and other components that are going out. We're also trying to increase profitability in gross margin on the cars and we're succeeding at that -- on new orders.

And just a couple of questions for housekeeping and earnings; I know you mentioned that the earnings will be second half weighted, as we think about -- I guess the earnings associated with [indiscernible], are those going to have the same kind of waiting or is there anything special which we should think about when looking at the non-controlling line item?

I would assume it's a similar waiting at the -- kind of the deliveries and the overall earnings cadence, so it should -- it will be second half weighted.

We don't really talk about marine very often on these calls but you had a nice order in middle of the summer here. I'm just kind of curious of the backlog there and how we should think about revenue recognition on at least the first barge and I guess while we're [indiscernible]; when do you think I guess the point at which we could see the option on that second barge go into effect?

I don't want to change that [ph] but I'm optimistic that second barge will be there; also last night by coincidence ran into one of our other major barge customers, of course you understand that this is in the Gulf and Pacific Northwest for the Hawaii and Northwest trade and the last few trade. So they're waiting probably to get a slab of fairly flexible, so we've got that renewal -- we've got that option, we're pretty certain they're going to exercise the option, they've got a good price on that barge similar to large barges, give forth the largest barges we've ever built, a little less complicated than the ones we did for Kirby [ph] which were also quite large. So we're confident we will have been margins on it and we see visibility on the marine business which we should have highlighted, I'm glad you asked the question; we see that visibility now well into 2020 -- calendar 2020. So our job is going to be fitting new orders in there.

And as far as the backlog that's right now and what kind of revenue we should expect to see from the business contributing in fiscal year '19; do you have a number there?

I would face -- you know, probably in the same neighborhood what we've seen when we have more robust backlog $15 million to $18 million of revenue on a quarterly basis and we're expecting that to be pretty much evenly spaced through the fiscal year.

Our next question comes from Justin Long from Stephens.

So to start, I wanted to follow-up on the core pricing commentary because the demand environment in North America has really accelerated this year but the industry hasn't seen this flow-through to price in a meaningful way. Can you just talk about why you think that's the case? And looking ahead, what is your expectation for the progression of the North American pricing environment from here?

So I'll start out. I would say that Greenbrier worked really hard as we talked about over the last couple of years to lock-in and grow our backlog with the multi-year order; that kind of took us through a period of time when there was less robust activity and a challenging pricing environment. That is coming back up but there are a few of our peers in the North American market that still have space that they're looking to fill, so you have that balancing act of people that are looking to fill near-term production space and we've been able to be a bit more disciplined in that with the backlog that we have. We do see as you say, there is a robust improvement and demand and we would expect to pricing to continue to modestly improve.

Yes, I think I would agree with that. And we are blessed with a decent backlog of wide mix of cars that are currently in demand, so we've been successful in improving pricing. The factor there look as just basic supply and demand if the car building schedules, National still cars have done a very good job of reaching out and taking a significant market share, be at low prices, they always have more capacity it seems but even they are going to be faced with some challenges with the amount of demand they've got in Canada for some basic car types. So we don't see the pressure on the car builders to at least -- to continue to look at this as a buyers' market, in fact it's a seller's market and many buyers who hesitated and that didn't act are now being criticized and they're having to catch up; so that's a very significant feature. But the broad mix of cars required is an attractive thing in North America, we see that probably going into 2020. For example, the very robust loadings in intermodal has caused it to be difficult to assess how many cars to add to that because the mix has been different, but now there has been quite a flurry; in this fiscal year we've received significant orders for intermodal cars and we expect that to continue. So it depends on the mix and a lot of other things but I think we should be able to cover price increases from -- on components and add-on margin because of that supply-demand equation. I think all of us are showing a little more pricing discipline in this kind of environment.

And then secondly, maybe to go back to the guidance; Lorie, you mentioned about $40 million in gains on sale you're expecting this year. Could you give some more color on the cadence of that you're expecting just because it can really move the needle on the model? And also, could you share what you're making in for revenue from the wheels and part segment? I just know with the JV getting dissolved with Watco there may be some moving pieces there; so I want to make sure we get the models squared away.

So when it comes to gains on sale, we are -- as you know, it can be lumpy from quarter-to-quarter. I think it will be somewhat balanced; first half versus second half but it might be more heavily weighted in one quarter versus another. I don't know that we're going to get into the specific guidance on revenue for our repair business because it is part of the overall aftermarket segment, we can maybe take that up a little bit on our call down afterwards. We do expect -- obviously, it's a smaller scale what we've brought back into our business and what you would have seen as results from GBW. Right now in that operation we're focused on making certain that we've got a safe environment for our employees to work, that we're doing quality work for our customers and as Bill was talking about before as we cannot forget our customers and paying attention to their needs, and making certain that we're taking care of our employees and our customers. And with that we believe the financial results will come.

But we're optimistic that this will be much better model and that the second half of the year what we're used to drag -- there is going to be some frictional drag just for the transition. All of these shots were very profitable before, we try to scale for retrofits, it didn't occur, in the tank car business -- we have three tank car shops, and we have three shops pretty much dedicated to GTX business, and we have three general purpose shops. We expect that these will be made profitable and where our budget for the year is in the entire -- that entire unit including wheels parts, repair -- I think it is better than this year and we're expecting positive results from this move. We were -- as our goal there was to stop the bleeding, fix the problems; and it was just too large of a network for us to use the network as part of our integrated business model, very important for us to have space when you're managing 365,000 and 370,000 cars growing all the time; tank car retrofits or actual servicing has to come up every 10 years, there is a whole wave of those coming and we have to add shop space for that. But we have a fewer number of shops and we can always outsource with our partners at Watco if they can provide the service at their tank car shop. So this is a much better model for us because we can curl it, can control it, we can control the relationship with the customer, we can use our business model, our values and it's just not as unwieldy, and we think we'll have very positive financial results within this year.

Our next question comes from Bascome Majors from Susquehanna.

I was hoping you could talk a little bit more about manufacturing margins and the cadence you're expecting. If we slice this up on an operating margin basis in your manufacturing business; what are your expectations for G&A? What kind of range of operating margins should we expect to see? Is there anyway that you can translate that to kind of the second half better than the first half in operating margin terms for us and the same comments you made about gross margin?

I'll start out and I'm sure Bill will add a little bit of additional color. One of the reasons that we don't tend to focus on operating margin by segment is because we do operate an integrated business model; and so there is a lot of activity that goes on within SG&A and we do our best to conform to the SEC requirements that we break it up into segments. But that's not the area of focus for us, our focus is working with our customers, solving our customer's problems, and then focusing on growing the business whether it's with international development activities or talent pipeline. So I would say if you just think about consolidated SG&A, it's going to be fairly evenly paced across the fiscal year. So again, I gave the guidance of 205 to 210 for the full year, and I think you can just assume that it's evenly spread throughout the year. On the margin for manufacturing; first half because we're going to expect to have lower deliveries and a more general mix of cars that we're delivering. We expect margins to be double-digits towards the lower end, and as we move through the fiscal year deliveries are going to ramp up, we're going to be some additional efficiencies from the longer production runs and some improvements in AFP, and that's why we would expect it to be second half weighted on margin activity.

Do you think that the first fiscal quarter overall will be your weakest with a fairly linear progression or is it more about a stair-step at some point in the second half? I'm just trying to think, do you exit the year with your best quarter based on what you see today or is the second fairly even?

I will say we expect to exit 2019 with the best quarter. As you know, you've followed us for a very long time, we tend not get into quarter-to-quarter guidance because we've got a lot of different things that go along whether it's syndication activity, asset sales, timing of deliveries to customers; we're focused on those things, not necessarily hitting specific target for three months.

Just one on cash flow and cash uses, then I'll pass it on to the next person here. I believe you said at least $200 million in operating cash flow this year; what are the headwinds that you're seeing? It looks like cash taxes and working capital have been a bit of a drag; you just explain to us kind of what's going on there? And how that plays out going forward? And I think you said at least $200 million; does at least mean it could be well above or is kind of $200 million where should we start and hope for more?

I said at least $250 million.

She said $250 million. At least $250 million; look -- the company has considerable liquidity and cash resources, a strong new line of credit, we're trying to go for scale, there could be scale advantages, we're not counting any of those, so there is sarcastic event, this all operating cash flow and operating plan operating the way we are; but there could be surprises on the upside if we scale up and it depends on how we deploy capital. Our board is looking very hard at that, it's a remarkable year next year with that kind of a model. And our TSR is 3x of what some of our peers are, our cash flows are very good, we're projecting it'd be very good, and yet our multiples are half of what some of these other companies are. We are a leasing company, we have a platform that's remarkable where we manage 365,000 cars; at any time we could increase that lease fleet and we have chosen not to because we have a low cost model using our syndication model. So we think that an exciting growth in international is going to bring a lot of value, none of that is really baked into this but there is upside and optionality in those areas, particularly in Brazil, and in the Eurasian area, Middle East, there could be some shots. But we think that we're going to have a very positive cash flow for our base of our core business this coming year and it's going to be way above the $200 million number you mentioned. Lorie is a little cautious I think, it's going to be robust cash flow if everything falls away. It is, as we also think we're going to exceed our peers -- continue to exceed our peers, we're increasing our market share, everything about Greenbrier -- this stage is very exciting, it's a whole different company that was just a few years ago.

Bill, I appreciate it. You actually really kind of segued into what I was getting at here. I mean you've been in a net cash position for two years now, and clearly, things go as planned, you're going to generate a considerable amount of free cash flow this year. I mean what is the end game with that cash balance? I mean, I've realized that you were liquidity poor in the last recession, I imagine you don't want to experience that again. I mean, it's just a situation where you kind of ride out liquidity into the next downturn until the right opportunity comes around or is there some sizeable investment opportunity that we just haven't seen yet beyond the Saudi partnership you announced today or is there a plan where you just return more to equity holders here? Well, we have a balance cash -- capital plan; for an increased scale, we are going to have to -- we're going to have to deploy capital; if we deploy we're going to have return on it, and that would change our written profile substantially. We're being paid about deploying capital in efficient manner who will be -- certainly won't be rushed into unsound decisions for short-term results. Having said that looking at the volatility in the stock market, should there be an adjustment as material or we will adapt on a Greenbrier's biggest strengths is adapting. We now performed our peers in this regard; I think we deserve a better probable premium. And I think you'll see us using our cash wisely, and I think that will be more evident by the middle of the year.

Our last question comes from Mike Baudendistel from Stifel.

I just wanted to ask you, I mean the Saudi JV; I mean a lot of creativity there and you're providing $100 million of capital -- small in the context of a company that has $3 billion in sales; but just -- when you travel around the world, just how numerous are those type of opportunities from your perspective?

Well, the Saudi opportunity is very exciting, we've been working on that for over a year. We have invested quite a lot in educating ourselves on U.S. policy in the region, it's quite complex and it has a very high upside for the railroad, for the system because it's totally consistent with their 20-30 plan and their efforts to diversify away from energy. The big thing there is we're going to try to help them by creating a pool of cars and assisting them with intermodal and automotive and yards for military freight mobility that will assist their national plans, quite a complex situation there of course but very positive ones. The mining industry, they're putting billions and billions of reels into the northern projects that we've provided the molten sulfur and the phosphoric acid for [ph], while we will not have any exclusive on that business with a national provider and if we're assembling or otherwise acting to -- add content in radio, we will be the national Go-to's party. So yes, that could be scaled very rapidly with lots of opportunity but it's just going to be more like a pooling return, a very attractive return were sharing profits, we're getting baseline income for putting the cars in revenue service. One of the things about international is it gives a company optionality and it has -- each of these countries we're investing in are wealthy and interesting in their own right. Brazil is going through an interesting but it's got growth projected. We think if the election plays out, they'll still be following him but responsible economic policy. In Europe we're -- we have scaled in Europe, we have a foothold in Turkey and if you look at a map, we're clustering all of these activities in a range where we can support them with logistics services and I think that there is quite a bit of upside there, and none of that upside is being included in our 2019-2020 planning but I believe it will occur and give us a lift. So if you look at that and you look at the North American market, we're quite likely to have some pleasant surprises from what we're doing.

Can I just [indiscernible] real quick is? I think part of the thing that is hard for people to think about is creative transactions; there are a lot of them around the world and this is something that Greenbrier specializes in, this is such a part of our DNA and something that we've done since inception. And so Mike, I think part of the thing to bear in mind is it takes bake, it takes a while to understand it and be able to communicate it, but there is a lot of opportunity for creative transactions and that's what Greenbrier is really good at. So when we look at that deal, it's a structured financing transaction that has linked us with a national railroad in a way where we're part of the system and we are investing in infrastructure in a sense that we're helping communities develop and grow by providing basic transportation when it focused on intermodal cars, something we know quite well. They've let a contract now with the Chinese for land bridge, they're going to have rail links over the next three years between the Red Sea and the Gulf, and that will give Saudi Arabia a very interesting regional hub -- capability knocking out five days of ocean transit and avoiding the bottleneck that potentially can be there in the Gulf between Saudi Arabia and Iran. So there is lots of exciting things going on over there, of course everyone is reading the press and looking at the negatives; I just think that there is a lot more positive, we've been an ally of Saudi Arabia for 100 years, the people are good people, they're going to sort out their issues, and I think it's a very good place to invest because America needs the Kingdom and is going to support the Kingdom overtime and government-to-government they'll work out the issues that need to be worked out.

And then just one more for me; I'm not sure if I missed this but the railcars that are going to be delivered in 2019 [indiscernible] how are those price relative to the ones that were delivered in 2018?

Lori will answer that.

I think I'm going to look at Justin. I think that as we look across…

I would say that in 2018 we had a higher proportion of -- kind of finishing up our multi-year backlog from two or three years ago. We did have some [indiscernible] cars in 2019 but this is a year of more open market activity; so I would say that pricing is reflective of what we've seen over the last twelve months.

And would it be fair to say Justin that we expect to have more intermodal activity in 2019 than we did in 2018? I want AFP perspective as my brain sat down a bit.

Exactly, much more intermodal. By the way, I'd like to compliment Stifel and it's excellent analysis of that deal there and the models that you put in there. About GATX at Greenbrier and Trinity; but that's really good data and I think you had really some very interesting questions and issues in that document. We read that carefully and we read Bastion's [ph] analysis carefully before we came to the conference this morning but yours was that -- yours was very in-depth and quite interesting.

And we're showing no further questions at this time.

Excellent. Thank you everyone for your time this morning. We appreciate your interest in Greenbrier, and have a great weekend.

That concludes today's conference. Thank you for your participation. You may disconnect at this time.