Trinity Industries, Inc. (TRN) Q4 2018 Earnings Report, Transcript and Summary

Good day, everyone. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, and includes statements as to estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session. [Operator Instructions]. Please note, today's call maybe recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Ms. Jessica Greiner, Vice President Investor Relations and Communications. Please go ahead, ma'am.

Thank you, Erika. Good morning, everyone. Welcome to the Trinity Industries' Fourth Quarter 2018 Results Conference Call. I'm Jessica Greiner, Vice President of Investor Relations and Communications. Thank you for joining us today. This is the first quarterly earnings conference call following the spin-off of Trinity's infrastructure-related businesses, which was completed on November 1, 2018. Trinity Industries is now comprised of rail-related businesses that are leading providers of rail transportation products and services in North America as well as our highway products business and our logistics business. We have adjusted the format of the earnings conference calls to include the leadership team of the TrinityRail organization. We will begin our earnings call with a brief legal update from Sarah Teachout, Senior Vice President and Chief Legal Officer for Trinity Industries. Following her comments, Tim Wallace, Chairman, Chief Executive Officer and President of Trinity will lead off with his prepared remarks. Our business leaders will provide more commentary on the operational performance of the segments as well as our forward outlook. You will hear from Eric Marchetto, Chief Commercial Officer for TrinityRail; Brian Madison, President at Trinity Industries Leasing Company; and Paul Mauer, President of TrinityRail Products. Following their remarks, James Perry, Senior Vice President and Chief Financial Officer will provide a financial review of 2018; and Melendy Lovett, Senior Vice President and Chief Administrative Officer and our Incoming Officer and our Incoming Chief Financial Officer will provide the forward-looking guidance. Following the prepared remarks from the leadership team, we will move into the Q&A session. I will now turn the call over to Sarah Teachout.

Thank you, Jessica, and good morning, everyone. We’ve previously reported on the status of the Joshua Harman Federal False Claims Act lawsuit regarding the company's ET-Plus guardrail end terminal system. We’re pleased that last month on January 7th The United States Supreme Court denied Mr. Harman's request to review the Fifth Circuit Court of Appeals ruling that the company did not violate the False Claims Act. Since the onset of this case in 2013, the company has steadfastly maintained that it did not violate the False Claims Act. In September of 2017 the Fifth Circuit agreed ruling as a matter of law in favor of the company. The Supreme Court’s denial last month of Mr. Harman’s petition ends this case and further confirms the company's longstanding belief that no fraud was committed. In connection with the spin-off of Arcosa the company decided that the highway products business should remain as part of Trinity at this time. This provides continuity for ongoing litigation management as we work through the docket of remaining cases following the successful conclusion of the Federal False Claims Act case. The company continues to incur legal costs as we defend a number of lawsuits in multiple jurisdictions regarding the ET-Plus that were filed in awake of the original jury verdict in the Harman case. Certain of these cases have been stayed pending the outcome of the Harman appeal. As the previously stayed cases now begin moving forward, the company intends to vigorously contest these matters. We believe that the Fifth Circuit’s unanimous panel opinion in which the court recognized that the ET-Plus end terminal system meets all applicable federal safety standards and that the Federal Government has never wavered in its approval of the product supports our defense in the merits of these cases. For additional information regarding the False Claims Act case and the company's other litigation please see Note 18 to the financial statements in Trinity's Form 10-K for the period ended December 31, 2018, which will be filed later today. Additional information on the ET-Plus litigation and a copy of the Fifth Circuit's opinion can also be found at www.etplusfacts.com. I will now turn the call over to Tim.

Thank you, Sarah; and good morning, everyone. 2018 was an exciting and transformative year for Trinity Industries, and we expect 2019 to be a growth year. Last year, we successfully separated our company into the strong public companies Arcosa, Inc. and Trinity Industries Inc. I would like to thank everyone who contributed to the success of the separation. I'm very appreciative of everyone's hard work and the completion of the separation is attribute to all those who played a role. We are very pleased that the US Supreme Court rejected a request to hear the legal case that Sarah described. The ruling confirms our long-standing belief that no fraud was committed. We stood strong on our convictions and justice prevailed. Once the litigation is fully behind us, we will evaluate our strategic options for the highway products business, and determine the best course of action. This business contributes to our earnings and cash flow and is supported by a strong collaborative team of people. The long-term demand drivers for highway products in the US are fundamentally positive. During 2018, the railcar market in North America recovered at a brisk pace. Railcar fundamentals continued to improve as we progressed through the year, increasing demand for leased railcars and new railcar equipment and generating positive momentum. Our commercial services team was highly successful in renewing leases on railcars and assigning idle equipment with our owned and managed fleets. As utilization of railcars across the industry tightened during 2018, orders for new railcars accelerated. By the end of the year, we had received 123% more orders than in 2017. At the beginning of 2019, the value of our backlog of new railcars was 69% greater than it was at the start of the previous year. The recurring revenue associated with our leasing business and the strong backlog in our manufacturing businesses provides a solid foundation for our 2019 operations. Our earnings guidance for 2019 reflects a range of improvement year-over-year of between 64% and 93%. At this point, I'll provide some high level comments about the TrinityRail businesses. First, I'd like to say I'm very pleased and honored to be Chairman and CEO of Trinity. The railcar business is very special to me. I've been involved with the railcar industry for more than 40 years. Today we're well positioned-to serve the railcar industry through TrinityRail's integrated platform of products and services. Our vision for TrinityRail is to be the premier provider of railcar products and services in North America. TrinityRail serves a wide range of customers, including those with large railcar orders, as well as customers with specialized railcar needs. We continuously search for improvement in growth initiatives to add to our platform that will optimize the ownership and usage of railcars. The TrinityRail integrated platform fills an important role in the North America by providing railcar products and services that facilitate the transportation of bulk commodities and goods throughout the continent. Railcars are part of the infrastructure that supports the supply chain and our economy. They transport feed stock for companies and generate revenue for shippers by carrying goods from business-to-business. Railcars have a long lifespan and provide energy efficient way of delivering bulk products. We value the contribution railcars provide to the North American business eco share. We think and plan both short-term and long-term with the overwriting objectives of serving our customers better and improving our shareholder value and returns. We're constantly monitoring the markets and the industries we compete in. We monitor trends and try to conceptualize what could happen in the future as we search for growth opportunities. At the same time, we strive to use the company's resources in ways that make a positive contribution to our stockholders. We keep in mind the environmental and social impacts of our decisions and strive to protect the natural resources and the environment for the benefit of current and future generations. We have a number of short-term priorities. As an example, we're in the process of adding leverage -- more leverage to our portfolio of railcars. We want to optimize our balance sheet so it is more aligned with the typical leasing company. We expect to use the cash that’s generated to grow our leasing business, expand our integrated platform of railcar products and services, increase our railcar maintenance capacity and provide returns to shareholders through stock buybacks and dividends. We also have a process in place to optimize our post spin cost structure. We anticipate we will be able to reduce operating costs during the next few years. We're also assessing various initiatives that will strengthen the positioning of TrinityRail's platform of products and services within the railcar value chain. We will provide updates on our short-term initiatives as we progress through the year. Over the longer term, we're continuing to focus on growing our railcar leasing and management services business. As a point of reference in the early 2000s, the book value of our wholly-owned lease fleet fluctuated between $400 million and $600 million. At the beginning of 2019, the book value of our owned and partially owned fleet was approximately $6.8 billion. In addition, we managed fleets of leased railcar for investors with approximate book value of $2.2 billion, bringing the total of our owned and managed lease fleet to approximately $9 billion. By the end of 2019 we anticipate the value of this fleet will exceed $10 billion. As you can tell, we believe railcars with leases are great investments and we also place value on managing leased railcars for investors. It's a very exciting time to be part of Trinity Industries. While our portfolio of businesses has recently changed, our culture, strategies and commitment to excellence remain the same. A number of you have followed Trinity for years and know we have a long track record of attracting high quality skilled people to our company. We have a rich history of highly collaborative and flexible employees with unwavering integrity. This year as we begin our fresh start, I'm very pleased with the makeup and the quality of our senior executive leadership team and our Board of Directors. We are enthusiastic about focusing our resources on improving and growing TrinityRail's integrated platform of railcar products and services. We know railcars. Trinity has been in the railcar manufacturing industry for 50 years, the leasing business for 40 years and a market leader for 30 years. We've delivered more than a 0.5 million railcars in the last three decades. In my opinion, TrinityRail has a premier platform of railcar products and services supported by an incredible group of employees. I'm confident in our organization's ability to improve and grow in ways that will benefit our customers and increase shareholder value on a going forward basis. Now, I'll turn it over to Eric and you will have the opportunity to hear firsthand from some of the key members of the new executive team.

Thank you, Tim, and good morning, everyone. The commercial activity across the TrinityRail platform spans the North American railcar market and includes renewals and assignments of railcars in our leased fleet, secondary market transactions, including sales and purchases of leased railcars and new railcar orders. Our market view developed lease transactional insights positions the company to respond to customers’ rail transportation equipment needs with scale, speed and innovative solutions. This differentiates our business, solidifies our market position and creates value. 2018 was a dynamic year for TrinityRail's commercial team. We're active conducting transactions across our entire platform. Our commercial activity as defined above included transactions of 65,000 railcars which we believe demonstrates the strengths and capabilities of our integrated platform. North American rail traffic volumes maintained their positive trend with year-over-year growth of 3.4% in 2018. Thus far in 2019, the severe weather experienced across much of the country had a seasonal dampening effect on total carload volumes. We view this as a short-term situation as we believe growth in array of end markets will continue to drive increasing railcar traffic in the near-term. TrinityRail delivered a solid fourth quarter, achieving strong renewal success and assigning a number of idled railcars improving the lease fleet utilization from 97.6% to 98.5%. TrinityRail also received 8,045 new railcar orders valued over $1 billion during the quarter, bringing total orders for the year 2018 to approximately 28,800 railcars with a value of approximately $3.4 billion. Our railcar lease rates and new railcar orders throughout 2018 experienced sequential improvement in pricing and returns. Our fourth quarter orders were evenly distributed between third-party sales and customers of our wholly-owned leasing company. We were very pleased with the mix of railcars ordered in the fourth quarter, which included orders in all five of our market groups: agriculture, construction and metals, consumer, energy and refined products and chemicals. As 2018 came to an end, various geopolitical events, macroeconomic concerns and the federal government shutdown clouded the market outlook in the early stages of 2019. As we mentioned in our press release, this uncertainty in the extended backlog in our industry has created some hesitation on the part of your customers in placing new railcar orders. The recurring revenue for our lease fleet and our railcar backlog of 30,875 railcars provides us with a great deal of visibility in our 2019 plan, and the ability to be selective in pursuing additional orders and our production schedule. We observe various opinions among our customers regarding railroad performance related to the impact of Precision Scheduled Railroading or PSR. TrinityRail supports any improvements that enhance the attractiveness of rail transportation, so that longer term the amount of freight moving by rail will grow, and thus, increase the need for railcar products and services. We observe that if PSR is being implemented, network congestion increases as the railroads work through the kinks in the process of optimizing their lines. Train speeds begin to improve over time as the efficiencies of the network are realized. While railroads usually reduce the number of railcars available apart in their new lines, this does not necessarily or directly translates into an increase in railcars and storage. Instead, this exchange places more onus on the shippers to provide their own railcars, a great opportunity for a leasing company to fill this need. In closing, our platform provides broad participation across manufacturing, leasing, maintenance in secondary markets, while serving the full spectrum of end markets. This gives us strategic insight into market conditions. This insight positions TrinityRail to respond quickly and effectively to change the demand, ultimately delivering strong value to the company, our customers and our shareholders. TrinityRail is build to deliver for all of our stakeholders and we believe we are well-positioned for growth, as a result of the renewed concentration following the spin. I will now turn it over to Brain for his remarks.

Thank you, Eric, and good morning, everyone. It's great to be on today's call. Before beginning, given the new company profile post spin-off and increased focus on leasing. I thought it would be helpful to share a few of the terms and their meaning that we will use in our discussion today. Wholly-owned references the portfolio of leased railcars that are entirely owned by TrinityRail. Partially-owned references the portfolio of leased railcars we own in participation with an institutional lender. Managed is the term we use for the portfolio of railcars owned by institutional investors for whom TrinityRail provides turnkey services. Leveraging our operating capabilities enables them to receive the economic benefits of a full service operating lease, while foregoing the significant infrastructure investment that would be required to be a premier service provider. TrinityRail receives fee income and return for providing these services. Renewals our leases that upon receiving end of their term remain in service with the prior lessee at a newly negotiated lease rate reflective of the prevailing market at the time of the renewal. Assignments refers to leases that upon reaching end of their term results in the return of the railcars to TrinityRail and placement with another customer on a new lease at the then prevailing market rate. Originations are newly manufactured Trinity railcars with an attached lease and the term secondary market denotes an alternatives sourcing channel for assets made available for purchase by other railcar owners. Examples of other railcar owners would be other leasing companies, banks, institutional investors, industrial shippers, railroads, and so on. Hopefully defining these terms will provide some added clarity to my commentary today. Jumping in, let me start off by saying that TrinityRail leasing and management services made significant progress during 2018 and our pursuit of transformative growth of our railcar leased fleet. During 2018, we added more than 10,000 railcars to the wholly-owned and partially-owned fleet resulting in a growth rate of 12%. Our fleet now totals more than 120,000 leased railcars that are owned, partially-owned or managed by TrinityRail. Clearly the power of sourcing new railcars from our rail products business is a significant factor in the overall value provided by the integrated rail platform. At the same time, we added a highest number of railcars ever to our wholly-owned fleet through secondary market purchases. As a result of these activities, the combined book value of railcar assets on the leasing company’s wholly and partially-owned balance sheet, net of depreciation grew from just under $6 billion as of the beginning of 2018 to $6.8 billion as of the beginning of 2019, an increase of $829 million or 14%. Over the course of 2018, the leasing company implemented a number of strategic initiatives designed to prepare and scale the business for transformative growth. As a leasing organization, it is incumbent upon us to be strong stewards of our capital and the railcar assets we oversee. With our broad market view across the entire railcar equipment industry, TrinityRail is well-positioned to be a prudent and opportunistic buyer of railcars in the secondary market. I'm extremely pleased with the high quality, well executed integration plans the team implemented to seamlessly onboard the new customers and the railcar assets acquired. Other leasing strategic initiatives centered around the economics of the business, improving our returns, driving lease rates higher through value-added services and pricing methodologies and our continued focus on the customer experience, with the goal of deepening relationships to increase retention rates. I'm extremely pleased with the team's efforts in all of these areas. Most notably, we've implemented a proprietary customer feedback program to help ensure TrinityRail's service levels are best-in-class. And of course, we continue to innovate and make strides in our ability to leverage new technology and drive continuous improvement through numerous projects across every area of our business, from quoting and managing orders on through the railcar maintenance and regulatory compliance. We also made significant advancements in our ability to service our customers by leveraging technology, providing meaningful access to fleet and railcar data to help enable the optimization of their business. While our team is solidifying its reputation with their customers daily as premier servicers of railcar assets, I'm particularly pleased with the work of our superior portfolio management team to effectively manage risk exposure by commodity, end market, railcar type and customer concentration. The railcars in the wholly-owned, partially-owned and managed fleets are diversified across the five end markets we highlighted at the Investor Day and we transport over 900 different commodities carrying 270 different types of railcars. As a next step adding greater transparency, you'll see new diversification charge across the five defined commercial end markets in the 10-K report that the company we file today. We anticipate providing further detail on various fleet statistics in the company's new investor presentation that will be forthcoming. As we looked projections for 2019, we see about 13% of the wholly-owned and partially-owned leased railcar portfolio scheduled to be renewed or assigned. This implies approximately one-seventh of our portfolio rolls over each year and is consistent with the average remaining lease term of 3.5 years at the end of 2018. During 2018, our team achieved a renewal success rate of 75%, reflecting the strength of railcar demand and our ability to meet customer needs. Most of the railcars that did not renew were assigned to other customers on new leases, resulting in a 98.5% utilization rate at year-end. Lease rates for most end markets have continued to improve for both new railcar originations and remarketed railcars. As a result, our forecast for 2019 reflects a modest increase in the average lease rate across the owned and partially-owned portfolio. While this increase will positively impact the financial forecast for the year, the expected growth in total segment revenue and profit is primarily attributable to additions to the leased fleet. At the beginning of 2019 leasing held orders with firm lease contract commitments for approximately $1.6 billion of new railcar assets. This is almost double the $829 million backlog of firm lease contract commitments at the beginning of 2018. This growth continues on the path that TrinityRail maintained throughout 2018 and aligns with the transformative growth objective that the company has shared with its investors. Trinity owns, partially owned or manages approximately 120,000 of the 1.7 million railcars in North America. This leaves a huge market that we have yet to tap into whether as an owner or as a servicer of those railcars. Given this opportunity and the initiatives underway, TrinityRail is well-positioned via the integrated platform for new opportunities to significantly grow and scale for leasing business. Thank you. I'll now turn it over to Paul Mauer for his remarks.

Thank you, Brian, and good morning everyone. I'm pleased to provide an update this morning on the Rail Products Group, which now consists the TrinityRail products, TrinityRail maintenance services, Trinity heads and Trinity parts. TrinityRail products delivered slightly more than 20,000 railcars during 2018, an increase of approximately 9% over 2017. As demand for different railcars shifted and accelerated early in 2018, we implemented initiatives in the third quarter to rebalance our production lines with the goal of enhancing our margins in the fourth quarter. As the fourth quarter progressed, we continued to optimize our production lines generating operating leverage. The result of this activity was the 32% increase in deliveries and a 57% improvement in margin performance during the fourth quarter. We expect 2019 to be another growth year, a 22% increase year-over-year in our total railcar deliveries at the midpoint of our guidance. Our railcar backlog at the beginning of 2019 totaled 30,875 railcars with a value of $3.6 billion, an increase of 69% over the backlog at the beginning of 2018. We expect to deliver just shy of 65% of the backlog in 2019. This implies 80% of our production plan is already sold based on the midpoint of the delivery guidance range. This level of backlog visibility provides an opportunity to more effectively manage our production schedules and create operating leverage with incremental orders. We are projecting an increase in revenues during 2019 of between 35% and 40% as compared to 2018. We expect operating profit to increase between 72% and 75% for the same time period. This represents an increase of approximately $850 million in revenue and approximately $125 million in operating profit at the midpoint of our range. TrinityRail products works alongside Eric and his commercial service team to support their sales efforts. This collaboration helps us effectively position our production lines, turn higher margins and railcar deliveries and lengthen our production runs to generate better efficiencies that ultimately improve our returns. The Rail Products Group in collaboration with the Leasing Group benefits from engaging with customers throughout the railcar lifecycle. These interactions contribute value to product design and developments and lead to additional opportunity for new products and other product-related services that spans the entire lifecycle of the railcar asset. I am pleased to say that our product development team has four new products included in the 2019 operating plan, contributing over $250 million in revenue. TrinityRail products is in the middle of additional rebalancing designed to enhance production during 2019. We are investing more than $30 million to improve the flexibility of our production footprint and support our expected growth. As a result of the rebalancing, deliveries will decrease slightly in the first quarter as compared with the fourth quarter of 2018, albeit at slightly better margins. The deliveries will increase as we move through the year. We expect that increased efficiencies resulting from the rebalancing combined with delivery of higher margin railcars will contribute to the expected improvements in our operating margin. During 2018, TrinityRail maintenance services made tremendous strides in improving efficiencies within existing facilities to enhance financial performance and lower repair shop turn times, which we believe to be best-in-class within the railcar industry. Today, our maintenance service business handles roughly one-third of the leasing company's maintenance and compliance needs. This includes all tank car modifications to our fleet. Our goal for this business is to increase our current capacity to perform maintenance and compliance requirements in the near-term on one-half of our owned and managed leased railcar portfolio. We have a team of people evaluating opportunities for investments that will prepare this business to further scale later in 2019 and beyond. By bringing more of this work in-house TrinityRail expects to lower its overall maintenance costs and positively influence the customer experience. The rail products business segment brings value to the integrated platform and to our customers by delivering premier products through our design, manufacturing, modification and maintenance business. The TrinityRail integrated platform is built to deliver and the business as well-positioned to execute against our 2019 operating plan. I will now turn it over to James for his remarks.

Thank you Paul and good morning everyone. Let me start out by noting that all the figures provided in our press release and in today’s comments have been recast to reflect the composition of Trinity Industries after spinning off Arcosa to our shareholders on November 1st. The results related to Arcosa for the period before the spin off and the majority of the transaction costs associated with the spin-off are now part of our discontinued operations. The Form 10-K that we will file later today will provide you with a great deal of information to help you assess the financial performance of the post spin Trinity. I want to thank the hard working team of people, whose effort led to a successful spin-off and in putting together the financial reports for our investors. In yesterday's earnings release, we announced fourth quarter 2018 revenues of $735 million, up 19% year-over-year and diluted earnings per share from continuing operations of $0.19 per share. This EPS includes a one-time non-cash charge of $0.07 per share related to certain assets under our capital lease. Our effective tax rate was higher in the fourth quarter as adjustments were made to our tax provision related to the spin-off and loss of certain state tax benefits, as well as changes to the treatment of foreign taxes as a result of the Tax Act. For the full year, Trinity reported revenues of $2.5 billion and diluted EPS from continuing operations of $0.70 per year, which includes the $0.07 per share fourth quarter charge for the capital lease item mentioned previously. These figures compare to 2017’s totals of $2.4 billion of revenue and adjusted EPS of $0.79 in 2017, which excludes the one-time $3.06 benefit from the tax law change. Our leasing business revenues declined slightly year-over-year, mainly as growth in the number of railcars in the lease fleet offset lower lease rates for renewals and assigned railcars. These factors along with lower profit from the sales of leased railcars, and the one-time capital lease charge had an impact on the leasing segment operating profit declining 21% year-over-year. As compared to 2017, our Rail Products Group’s deliveries of new railcars was 9% higher, 20,105 railcars. And our railcar maintenance revenues more than doubled, resulting in total Rail Products Group revenue growth of 15%. Our operating profit declined compared to 2017, primarily due to lower margins on railcars delivered as many were priced during a challenging market environment. During the fourth quarter, we've included in the EPS calculation the mid November delivery of 12.9 million shares, representing approximately 80% of the shares expected to be purchased under the company's $350 million accelerated share repurchase program. We still expect for the program to be completed during the first quarter this year, which time the balance of the shares approximately 2.4 million shares at this time based on the recent stock price will be delivered to us and further reduce the share count for purposes of calculating Trinity's EPS going forward. At the time the shares are delivered to us we expect the shares outstanding to be approximately 131 million shares. At the end of the fourth quarter the loan-to-value on our wholly-owned lease fleet increased to 46.6%. This compares to 33.8% at the end of the third quarter and 25.4% at the end of 2017. This was positive progress toward our 60% to 65% leverage ratio target which reflects the capital structure more in-line with Trinity's business composition post spin and it lowers our cost of capital. Melendy Lovett, our Incoming CFO, will handle the guidance remarks for the company. So before that, I’d like to take a moment to thank Tim, the entire Trinity team, our former and current Board of Directors and senior business leaders, our investors, research analysts and financial partners for your support in my role as CFO for the last nearly nine years and as a member of the Trinity team for about 14 years. It's been a true honor to serve all of you during this time. I look forward to the Trinity team building on the firm foundation that’s been laid over many decades of hard work by thousands of dedicated people. The transition to Melendy as the new CFO has been very smooth. I've been pleased to work with her for the last five years as a colleague and wish her the very best in the new role. I'll now turn the call over to Melendy.

Thank you, James, and good morning, everyone. It is a great honor to transition into the role of CFO for Trinity Industries. And I admire and respect the leadership that James has shown during his time in the role. I've had the privilege to speak with many of you over the past couple of months, and I look forward to working with you all more closely in the days and weeks ahead. As you've heard from Tim and our team, we are excited about the positive fundamentals we see in our end markets and the opportunities that come along with our renewed concentration of focus and resources on our rail businesses. Our financial guidance reflects the priorities that Trinity provided at our Investor Day in October. Investing in value created business opportunities that grow the lease fleet, build out our fleet services businesses and enhance our manufacturing and maintenance footprint are important elements of our growth and capital allocation plans. Another important element of our capital allocation approach is to return capital to shareholders. We plan to accomplish these goals through opportunistically leveraging the balance sheet to finance investments, while at the same time optimizing the capital structure. As we've mentioned, the company's wholly-owned lease fleet loan-to-value target for the intermediate term is 60% to 65%. As we work toward this objective, we expect Trinity's overall cost of capital to decline. The timing of adding leverage to the balance sheet will depend on our investment opportunities and we are seeing numerous opportunities given recent events in the railcar industry. As we increase leverage, we're mindful of the need to balance our leverage ratios and debt service which impacts our credit ratings. In yesterday's press release, Trinity provided annual earnings per share from continuing operations guidance of $1.15 to $1.35 for 2019. This equates to a 64% to 93% growth year-over-year, primarily attributed to a higher level of railcar deliveries and growth of the lease fleet. We expect quarterly earnings from continuing operations to increase throughout the year, as we continue to add railcars to our lease fleet, ramp-up railcar unit deliveries and work through some of our rail manufacturing backlog that was priced in a more challenging market environment. We expect revenues from operations in the Railcar Leasing and Managed Services Group -- Management Services Group between $770 million and $785 million, and operating profit between $310 million and $320 million in 2019. The improvement in revenue and profit is mainly attributable to growth in the lease fleet and modestly improving average lease rates. In addition, we expect proceeds from sales of leased railcars from the fleet to RIV partners in the secondary market of $350 million, some of which will be included in segment revenue once the determination of assets is finalized. Additionally, in our guidance we have sales-type leases that are required to be accounted for as sales for the lease accounting rule and this adds an additional $150 million in revenue. The gain on all of these sales transactions will be attributed to the total leasing segment profit, and our EPS guidance range incorporates these assumptions. The timing of our leased railcar sales transactions to RIVs in the secondary market can be difficult to predict. For now, we anticipate these sales to primarily occur in the second and fourth quarters of the year. These transactions have become a regular part of our ongoing business activity and reflect normal course similar to other equipment leasing companies. They provide for important diversification and portfolio management of our wholly-owned lease fleet, and also provide a consistent opportunity to expand our commercial market presence through valued long-term partnerships with railcar investors. Investing in our lease fleet for transformative growth continues to be a strategic priority for the company. We expect capital expenditures for new leased fleet additions from rail products to be approximately $1 billion to $1.2 billion in 2019. We also plan to invest in the lease fleet through secondary market purchases, HM-251 modifications and capitalized betterments of the lease fleet. When combined with the proceeds from secondary market sales including sales to RIV partners and other financial institutions, we expect total net lease fleet investment of $1.2 billion to $1.4 billion in 2019. As a result, we forecast rail products and leasing revenue and profit eliminations of $1.4 billion and $160 million respectively reflecting the market-based transfer pricing for products and leasing intercompany transactions. We understand that the accounting for this business activity is complex and we are committed to helping investors and analysts understand the valuation and financial impact through our investor materials and conversations with the investment community. As Brian mentioned you’ll begin to see more detail than we historically provided about the competition of our lease fleet beginning with the 10-K that we will file later today. We'll continue to provide more information through our future filings and investor presentations with a goal of assisting investors to better understanding and valuing our lease fleet. Moving to the Rail Products Group, revenue and operating profit are expected to be $3.1 billion to $3.3 billion with a 9% to 9.5% operating margin. This includes railcar delivery units of 23,500 to 25,500 railcars. Our Rail Products Group margin reflects improving manufacturing efficiencies with higher unit deliveries and the broad demand for our products across the end markets. Our corporate expense guidance ranges from $115 million to $125 million, including elevated litigation-related expenses as we work to close out the follow-on lawsuits resulting from the federal qui tam litigation. The guidance for corporate expenses also includes transition and stranded costs related to the spin-off and separation of our process. We are working diligently to ensure that our corporate expenses are aligned with Trinity's go forward business model and we are taking steps to further optimize our expenses and to streamline our operations. And we will update you on our cost optimization progress in future earnings calls. You have heard us say that 2019 is planned as a growth year for Trinity. Earnings per share is expected to grow between 64% and 93%. 2019 consolidated revenue growth is forecasted at roughly 30% at the midpoint of our guidance. In addition to our planned $1.2 billion to $1.4 billion net lease fleet investment our manufacturing and corporate capital expenditures forecast is $90 million to $110 million, primarily made up of facility expansions and improvements to meet our product delivery commitments. We ended the fourth quarter with $179 million of cash and cash equivalents. This is an alignment with our stated goal of operating with a cash balance of between $100 million and $200 million following the spin-off, which means we will be more frequently using our corporate revolver and lease warehouse for short-term cash needs. New investment opportunities will be funded through the leverage available from our wholly-owned lease fleet, as well as our normal cash flows. Our capital structure and financial approach are aimed at moving Trinity in the direction to be seen by investors and the capital and debt markets as more of a leasing company. While a number of transitions are occurring as we become a rail focused company, Trinity maintains a rich history and strong corporate culture of integration and collaboration. This legacy combined with our valuable integrated platform of railcar products and services creates a firm foundation on which to continue to drive toward the company's vision of being a premier provider of rail transportation products and services. We are experiencing positive fundamentals in our markets and we have a commitment to investing our available capital for transformative growth by utilizing our cash flows and leverage. We have a deeply experienced leadership team with a concentration of focus. We are excited about our growth potential and look forward to sharing our progress with you along the way. Before we begin the Q&A session, Tim would like to provide a brief comment.

Thank you, Melendy. I’d like to take a moment for one last comment. Our long time CFO, James Perry is in the process of transitioning from his role of CFO. James has been Chief Financial Officer for the past nine years and has been with the company 14 years. I'd like to thank James for his dedication and service to Trinity. He's been an incredible asset and we all wish him well and his new endeavors as he transitions out of the company. Thank you, James. And I'll now turn it over for questions.

Thank you. [Operator Instructions]. And we'll go first to the line of Allison Poliniak from Wells Fargo. Please go ahead.

So on the secondary market, it sounds like there's a lot of opportunities for you guys there with concerns about the macro and storage and all the noise that's out there today, can you talk a little bit about valuations that you're seeing, have they pulled back at all from the peaks? Any color on that that you can provide?

Eric, you want to take that?

Sure, Allison, this is Eric. Let me -- there's certainly a number of factors going on. Interest rates have gone up that by itself would cause valuations to be challenged but at the same time we're seeing lease rates go up and so that has a positive impact on valuations. And as the markets continue to grow that has a positive impact. As we participate in the markets whether we're buying or selling the cars, I would characterize the market as still very healthy.

And then within the lease fleet on maintenance, anything unusual that we should be thinking about for '19 or I guess just maintenance events that are coming that we should be mindful of?

Allison, this is Brian Madison. I would say no, it's pretty much business as usual on the maintenance front for us as we look at it. We continue to actively manage the maintenance and ensure we've got a safe and compliant fleet. But nothing unusual to expect.

And then just one last question from me. I think, Brian, you had mentioned the modest increase in lease rates expected for this year. Could you kind of give us some perspective like where we are relative to maybe normalized lease rates for the average of your cars? I'm assuming we're still down from the peak, any color on that?

Allison, this is Brian again. What I would suggest is that as we look at the market, rates have been improving. And as we’ve stated, we see a modest increase, in particular rates are still coming off of market highs but they are better than they had been in prior periods. So feel like we're at a more normalized place and optimistic that we'll continue to see improvement.

And Allison, this Eric, I'll just add that as I mentioned in my prepared remarks, we've seen pricing improve both lease rate pricing and car pricing improve throughout the year. And that certainly has an impact. It's not all the markets are better, there are some that are down. But generally speaking, and on average they are trending upward. And that certainly has an impact. They're not at the level that they were in 2014 and in some of the markets or in many of the markets but generally speaking, they're at healthier levels.

Thank you. Well go next to the line of Justin Long with Stephens. Please go ahead.

Thanks and good morning and James best of luck, it's been great working with you.

Thank you.

So maybe to start with the guidance and the gains on sale commentary you outlined in the release last night 350 million from gains on railcar sales. Melendy, I think you mentioned another 160 million of sales. Could you just clarify that the all-in number we should be using is 510 million first of all? And then also as we look at the potential margin on these sales, is it reasonable to use that 20% or so that we've seen historically?

Good morning, Justin, it’s Melendy. And yes your 510 million all-in number is on the right track that would be the 350 million secondary market purchases and the 160 million sales type leases that I mentioned in my comments. And with regards to margin expectations on those I think your 20% is in the ballpark with regards to the secondary market purchases, we’re not planning to disclose the details around the margin on the sale type leases.

And then secondly on the Rail Product Group margins, in the fourth quarter, we were just over 6%, the guidance is for 9% to 9.5% in 2019. Can you help us think about the key drivers to that improvement, whether it's price mix something else and any color you could provide on the cadence -- quarterly cadence of those margins throughout the year would be helpful too?

So Justin I'll give it a start and then I'll turn it over to Paul for more color if needed. So the main drivers of our margin improvement are of course the increasing production volume that gives us efficiencies as well as improved pricing. We do see that margin building through the 2019 year.

Justin, this is Paul. As I mentioned, we've been working very closely with Eric and his commercial team. And we've been able to benefit from some long runs that we have in place now as we look into 2019, and we planned on efficiency gains in our 2019 performance, and that's reflected in our numbers. And as Melendy said that we’ll be building out throughout the year.

And Justin I want to be sure that I answered your question correctly on the sales, it's 350 million of secondary market sales and then the 160 million sales type leases is on top of that.

And then lastly on the share count, I think you mentioned it would be around 131 million pro forma for the ASR, is that roughly what you're assuming in the 2019 guidance or could you comment on additional buybacks getting factored into the outlook?

You do have the 131 million shares outstanding that we forecast based on the completion of the accelerated share repurchase, and at this point in time we’re not providing further commentary around potential share repurchases for the balance of the year. I'll remind you that the accelerated share repurchase uses up the complete share repurchase that we had authorized and so our Board will need to revisit that, and our normal practice would be to put a share repurchase plan in place, and of course, we’ve got this mapped into -- we've got this planned into the guidance that we provided to you.

Thank you. We'll go next to the line of Bascome Majors with Susquehanna. Please go ahead.

Brian, since the lease portfolio returns can be a bit noisy for us to decipher through the intercompany accounting, can you guys share clean number of what returns on assets and returns on equity TrinityRail or the wholly-owned lease portfolio in 2018? And may be extending that to 2019, is this 1 billion plus in railcars you plan to add to the fleet, do you think that's accretive or dilutive to the returns you earned last year? Thanks.

Bascome, it’s Melendy. I appreciate your question and we're not prepared to answer it directly today. But what I will tell you is that as I mentioned, and as Brian mentioned, we're going to be providing further disclosures on the fleet as we move through the year, through our investor presentations and our future filings. So again, appreciate the question and we look forward to discussing it with you further, as we move through the year.

Understood. Should we expect to see a target range or an optimal range or even kind of a cyclical band of returns that you expect earn on the fleet at different points in the cycle? Just try to set investor expectations?

I really can't comment on it further, except to say that we will be providing you with more return metrics than we do now and we'll carry you through that as we progress through the year.

Understood. And one for Tim here. You've literally spent your entire life involved with Trinity. You’ve just steered the company through one of the biggest changes in its history. I appreciate your prepared remarks discussing to bench strength of the company, but when James officially departs in the coming days here your three top guys from 18 months ago are no longer going to be with Trinity. So can you share your thoughts and the Board's thought on the strategy and timeline for transitioning the leadership to the next generation of management, and any other thoughts you'd like to add about the bench and internal, external candidates, kind of how that process should evolve and investors should expect it here over the next few years? Thank you.

Sure. Over my career with being with the company we've had numerous positions at a variety of executive levels that we've been able to replace with internal candidates. And so we have a fairly rigorous process of people that are moving through the company and right now we have multiple levels of generations of people that are playing key roles in the company and we've been very successful filling jobs with outside candidates, as well as filling jobs with internal candidates. We tend to attract people that fit in our culture. And once they're engaged in the culture, they take on projects. As an example when James first came to the company, he took special projects for about a year to year and a half. And then James took the role of Treasurer and played in that role -- participated in that role for three, four years, three to four years. And then when we felt like it was time for Bill McWhirter, who was in that role before to get some business unit experience, Bill went to the business unit experience and James moved into the CFO role. But that is -- and Bill had joined the company prior to that as -- originally as an accountant and moved through a variety of roles. So we try to give our people as much exposure as they can to the various businesses. Now that we have a concentration of focus on the businesses that we have in our portfolio, this will be a little bit easier because it's more specialized, it’s there. As you see, we've got a broader group of people now participating in the conference call and that was an attempt to let the investment community know that we have strength and to provide better transparency and let you have a chance to talk to the people who are walking the talk, so to speak. So I don't really have any concerns about succession in our Company.

Understood. And we appreciate the exposure to a much broader set of managers of the company and I hope you guys will continue that. Can you speak more specifically to the timeline in the Board's thought process on succession. I mean is it -- anything you can add to that, so investors can have a little visibility about the management of the company over the next three, five years, would be helpful? Thank you.

Absolutely. We have a succession planning process and we have a person in our Company who heads that up. She's the Vice President of our organizational development and we chart all of our key positions and she reviews those with the Board on a periodic basis and then the Board's give their thoughts and opinions, and we take succession at the -- planning at the Board level, very important. And there has been quite a bit of conversations with the Board members that our current Board members that have been with us for the last several years. And then we've already had conversations and plan on having more conversations with the new Board members that we have.

Thank you. We'll go next to the line of Gordon Johnson with Vertical Group. Please go ahead.

Hey, guys. Thanks for taking the question. I guess a more broad based question, when we think about this year, I guess, a two-part question. To the upside, can you guys talk about what some of the puts and takes are that could potentially push fundamentals for you guys higher. And then when we look at, I guess, the current state of affairs, when I look at like the Baltic Dry Index, I look at your stock price and how they've track and how the Baltic Dry Index has been weak and I look at things like the Fed Loan Officer opinion survey, which is suggesting or indicating we potentially maybe headed into recession. Can you talk about maybe some of the potential downside factors that you see out there and how you guys plan to navigate those? Thank you.

Thanks for your question, Gordon, and I'll get started and then invite Eric to comment further. So, certainly, we have opportunity to improve from a top-line perspective, as we see pricing improved throughout the year. And we're also, as Brian mentioned, we've got 13% of our fleet that's renewing this year. We have an opportunity to improve our forecast based on how those renewals turn out as well. And I mentioned in my prepared comments that we're continuing to optimize costs and that includes Paul's work on utilization and efficiencies in manufacturing. We're also want -- looking to rely more on ourselves for our maintenance services business and reduce our corporate -- better manage our -- better optimize our corporate costs as well. So those are kind of the upside opportunities. We feel relatively good about the downside on it because we've got 80% of our manufacturing backlog firm at this time, which Paul mentioned, and then 13% of the lease fleet renewing in 2019. That gives us good visibility to our forecasted plan for 2019. Certainly, the company is GDP -- North America GDP Company. So in the event that -- to the extent that changes, we could certainly see impact. Eric, do you have further comments.

Sure, Melendy. Gordon, let me add, just to your question as picked up in a lot of our prepared comments that we are seeing different factors in the market. But underlying all of that, we do see economic growth this year, albeit at a lower rate of growth than we saw in 2018 and we expect railcar loadings to continue a positive trend made up at -- albeit at a lower rate than perhaps in 2018 as well. So we're prepared for that. To the upside, obviously, if the economic activity continues, we would expect to see lease rates and pricing on existing and new railcars to continue their positive momentum and that would enhance the profitability of what is yet to be sold in on our expirations as they expire. The downside as Melendy said there is -- we feel very good about our plans for 2019.

This is Tim responding and I'll talk about the downside challenges that we have. Paul and his team have a full plate this year with new products coming out of the production lines, as well as the rebalancing and the capital program that he has, and it's always difficult for us to predict and project the level of operating leverage that we may achieve and the group has historically surprised me, and but at the same time, there is a very dynamic environment occurring in our railcar manufacturing environment.

Thank you. We'll go next to Matt Elkott from Cowen. Please go ahead.

Thank you for taking my question. I want get back to the manufacturing margin question. So over the last couple of quarters we have seen an uptick in tank car orders. So I think it would be reasonable to think that tank cars at least in the back half of this year, the production deliveries of tank cars should go up. And I think, Melendy, you mentioned that overall railcar pricing has improved and then we have a significant increase in production in 2019 and your margin guidance is 9.5% at the high end. The last time you guys did what you expected to do in production this year was in 2013 and the margin was 17%. So given all these favorable dynamics this year, I -- just I'm thinking what is, if you're putting a lid on the margin improvement potential?

Yes.

This is Tim.

Okay. Tim?

Let me comment one quick thing, when you go back to the last time that we had a surge in tank cars and the profitability that was related to the shipment of oil and crude, and pricing on those cars moved rapidly in the positive direction and the orders, Eric, that you received last year were not to support one particular commodity. Talk about that a little bit.

That's right. Matt, what we've seen is, as we mentioned, we've seen more broad based demand across all of our market segments versus in 2014 it was concentrated. Now that -- I think, fundamentally in 2014, the value of a railcar with earlier delivery was much greater than it is today and that's simply because of the spread that people are able to make. They value that early delivery and we were able to price it in. Today you have numerous factors including replacement of cars into the -- from the 111 standard to the 117 standard and it's just not -- there is not the spread in the underlying commodities or the value of earlier delivery and the broad based nature of it, it's just we don't have the pricing power that we did in 2014.

I see. I mean, I was referring to 2013 actually, 2013 is when you did 24,335, which is around the midpoint of the guidance range for 2019 and the margin then was 17%. I didn't think 2013 was a big tank car delivery year, I think, 2014 and 2015 must have been, no?

It was all -- the years went together a little bit in fairness. But, yes, in 2013, you had -- it started the ramp up into -- it started then...

We made space available in 2013 right at the end of the year that really made a big difference, as I recall.

Okay. But you guys wouldn't be shocked if you exceeded the margin targets this year?

I'd love to be shocked.

Okay. All right. That's fair enough. Thanks for the color. My -- I have a one more question more strategic in nature, about the lease fleet. So everybody was doing the math when you guys first announced the LTV, the new LTV targets last year. And ballpark it was $1.5 billion of new debt capital raised. But as you guys start to execute on this strategy and do you get the benefit of accretion from the new railcars. There is kind of a multiplier effect. So potentially it could raise a lot more capital over the longer term. So my question is, are you targeting an optimal fleet size or do you have any specific goals, do you want to be the largest lessors in North America, for instance?

This is Tim. We don't have a specific goal and target other than we are going to be aggressively growing the Leasing business as best we can. And as Brian said, he has put a lot of the systems and the processes in place that gives us the flexibility to be able to respond to opportunities that are out there. And Brian, you've been with the company...

Just under three years.

Under three years and the first year he arrived, one of the things that we asked him to focus on is making sure that we had the ability to scale the lease -- Leasing business and that's why he's giving a report that he's so pleased that that's been a lot of his initiatives that he's had in place has positioned us to where we have the confidence that we have the structure to support aggressive growth. And so we love the Railcar Leasing business and we will continue to place a priority on growing it, as I said in my prepared remarks.

Okay. And do you guys have a preference, if all things equal, do you have a preference on whether to go after existing fleets with leases attached or to grow the lease fleet from your manufacturing operation. I know your profit elimination guidance was pretty sizable, so that implies that you are giving yourself the option to grow from within. But would you -- do you have a preference on whether to grow it from the manufacturing business or go after existing fleets through -- in the secondary market?

The simple answer is yes. We like both of them.

Okay.

And we'll pursue both of them when the opportunities are there, and as Brian said, we've got 120,000 cars in our owned and managed fleet now, and there's 1.7 billion cars in the fleet and so there is a pretty good size space of opportunity there for us.

Matt, this is Eric. Let me just add one further picking on your words a little bit. You mentioned existing railcars on lease, that -- the railcars we purchased in the secondary market don't necessarily have to be on lease. Many of the cars we bought in 2018 did not have a lease attached to them and that's where we think our platform can create value by buying assets at attractive prices and put it in our system and market them and creating value. So it's -- any of those we see opportunities, it's -- we will -- we are prepared to act on.

Okay. And then quickly on just overall market demand front, you mentioned that lease rates have been trending in the right direction and inquiries for new railcars are still solid, but they're not translating into orders at the same rate as last year. Have you guys received any orders this year?

Eric?

I don't think I'd be on the call if we had no orders. So, yes, we have received orders and it's just coming off of an 8,000 car quarter and we are halfway through this quarter. So we -- our comments were measured in that regard. But, yes, we are still receiving business. Inquiries are still at healthy levels and we expect more orders to come.

Is there any more specificity you can give us on the drop-off in the inquiry to order translation ratio, if there is such a think, I think, I just made it up.

You made it up. I can't answer it. No more color on that.

Thank you. We'll go next to the line of Matt Brooklier from Buckingham Research. Please go ahead.

Hey. Thanks. Good afternoon. Sort of a follow-up question on PSR. I think that there was some commentary shared that potentially it could create an opportunity maybe with shippers as cars are put onto the shippers responsibility and therefore maybe they would look to lease cars and choose not to manage them. So, I guess, what my question is, I wanted a little bit more detail in terms of kind of how that process works? If you do think it is a real potential benefit? And then on the flip side, if there are any challenges that you foresee for the next 12 months to 24 months with a number of rail is going through this PSR initiatives, maybe you could talk to some of those potential challenges as well?

Sure, Matt. This is Eric. I'll take a shot at that. In terms of the rotation that we talked about and we've seen a number of railroads -- railroads supply equipment for certain markets and as they implemented PSR, there's -- you certainly hear a lot of the headlines and moving railcars offer their system or reducing the number of railcars on their lines and that comes a lot of different -- in a lot of different forms. One of which is that we've seen and heard from our customers is railroads that used to supply equipment for certain markets now have put that burden on their shippers. And so that may mean an example of a railroad may have existing cars and they may try and sell them to a shipper or sell them to a leasing Company and those cars still stay in the service, in the same service, but the ownership changes or the shipper may have to go out and get other cars elsewhere as the railroads decide not to supply that equipment. That's some of the things we're seeing there. In terms of over the next two years or over the next 12 months to 24 months. All the railroads are implemented at different paces. There's not one standard implementation on PSR. I think, what we said in the prepared remarks is accurate in that, this should free up capacity and allow the railroads to grow and if they grow and makes rail -- the rail mode of transportation more competitive versus other modes of moving bulk goods, then it will be very good for our industry long-term. There will be -- there is going to be a lot of noise between now and then to get there. But PSR should -- who's to argue about a business being -- becoming more efficient.

Okay. That's great color. And I'd assume if the rails are looking to sell some cars into the market that Trinity would be potentially interested in betting those cars for potential purchase?

That's a good assumption and we have -- we purchased railcars in that manner.

Yes.

As Brian described the secondary market earlier.

Okay. Great. And then just one final one, you talk to targeting doing 50% of the maintenance on your lease fleet in-house. I think it's currently at like a 33% number. Could you talk to the timeframe in terms of getting to that 50% target? And then, what's the delta in terms of the potential cost savings if you do in fact get there?

Paul?

This is Paul. We don't have necessarily a timeframe targeted. As I mentioned, we have teams that are looking at the opportunity right now and -- but we do think that if you try to peg a time it would be somewhere in the next one to two years that we'd be looking at to get up to that 50% number.

And as far as the cost savings go, we, of course, would keep that margin internally as opposed to paying an outsource provider for it. But we also can turn our cars more quickly in our own shops and that helps us get the car back on lease more quickly instead of it being on abatement.

Thank you. And we'll go next to the line of Steve Barger from KeyBanc Capital Markets.

Hey. Thanks for holding the call over. James, first of all, thanks for all the help over the years and best of luck.

Thanks, Steve.

Just thinking about the comments on the leasing and management market opportunity for the 1.6 million railcars that you don't touch right now, obviously, really competitive out there. Just any more detail you can give us on how your business model is differentiated versus competitors or how your go-to-market strategy will change to allow for share gains that you haven't gotten in the past?

Eric, you want to talk about that and I will just fill in.

Steve, this is Eric. When we talk about our differentiated model. First of all, obviously, it's the integrated model, being the large leasing Company, the large products Company and our growing maintenance business. We think, one, that gives us views of the market that we can respond too quickly. Two, we think from a differentiation standpoint, service, we think we can differentiate on service and ease of doing business being responsive and whether it's that we just talked about in the previous question, maintenance -- keeping more of that maintenance business in-house improves our service profile, improves our out-of-service times, our customers have their railcars for longer times. And then on the -- the other part of differentiation is our product differentiation. We are the premier builder of railcar products. We are -- Paul mentioned, the new products that we've brought on line this year. We're going to continue to offer new products and we are looking to offer products in the marketplace that our rail customers value and that should allow us to grow.

Yes. And this is Tim. The way I look at it, the connection between our Leasing business and then all of our manufacturing and service businesses is one that is very unique. There's not many manufacturers of heavy equipment that end up being engaged with their equipment for the life cycle of the equipment. And then can feed all that data back into your system and then improve the next-generation of the equipment based on the feedback that you get. And that's what our leasing Company does for us is it connects all the loop really finally between all of the manufacturing and service business right back through the entire life cycle of the railcar and when a railcar has a 35-year to 50-year life cycle, it becomes a long-term relationship and you achieve better designs and better manufacturing and better maintenance and better parts selections and a lot of that. So the platform we have is very robust and then you couple that with the integrated aspect that we have with the collaboration that occurs in our company. And there is constantly people talking about positive ways that they can enrich the services and the value propositions that we offer our customers that ultimately will get translated into shareholder value.

Understood. That's good detail. Thank you. And then just maybe a related follow-up on your PSR comments. When a railroad is implementing the program, over what time period this congestion increase typically before train speeds start to increase? And do you think PSR initiatives from the Class Is will actually be a benefit to you in 2019?

I think, as far as timing -- this is Tim. As far as timing with PSR you're going to have to talk to the railroads, they keep that type of data and statistics, it's not something we have a way of really measuring.

Okay. Well, I think, there was a comment about shippers understanding that the onus will shift to them over time. I guess, do they fully understand that and do you think that's actually driven lease fleet orders to you so far in 2018?

No. I do not think it's driven additional orders to us yet in a material way. I do think that it will take time for all that shift work its way through the system. I think, right now, PSR, as we talk to customers, we get various responses in terms of whether it's good or bad. I think overall that creates some uncertainty as customers look to change the size of their fleet or at least add cars to the fleet, because there is a wait and see of what -- when train speeds do increase, if I'm not shipping any more product, it will result in lower cars. If the modes of transportation and shippers have choices not just from a rail standpoint, they have other modes of transportation, that all goes in account, but long-term we view it as a favorable trend for the industry.

Okay.

Yes. This is Tim, again. I view PSR as kind of a cousin to lean manufacturing and companies across the globe for years have been implementing lean manufacturing and ultimately they become more competitive and they increase their market share and it's better for the manufacturing Company and that's the same type of approach that PSR is going in and saying, how can we eliminate duplication and waste and let's look at what we're doing and how can we do it better. So, what Eric says is, once we achieve something in lean manufacturing and we become -- we reduced our cost and eliminate waste, then that makes us more competitive and we can go out and obtain more business and that's the same type of methodology that we think will -- that happens to the railroads.

Okay. Got it. Thank you. And then just one last modeling question for Melendy, if you think about the $225 million in interest expense guidance. How do you expect that to ramp through the year or if you get to your hoped for leverage level what would the quarterly run rate be as you exit 4Q 2019?

We aren't prepared at this point to offer any commentary there, that number -- the interest rate expense is indicative of our leverage plans as we work toward getting to our 60% to 65% LTV ratio.

So it does ramp through the year then, but you don't have a point estimate for 4Q?

Correct. It's going -- remember that our borrowing will be dependent on the our opportunities. And so the timing of that interest expense actually ramping up will depend on the timing of us getting the debt and allocating it based on the opportunities.

Thank you. And we have no further questions at this time.

Thank you, Erika. That concludes today's conference call. A replay of today's call will be available after 1 o'clock Eastern Standard Time through midnight on March 1, 2019. The access number is 402-220-0464. The replay will also be available under the Events and Presentations page on our website located at www.trin.net. We look forward to visiting you -- with you again on our next conference call. Thank you for joining us this morning.

I'd like to thank everybody for their participation. Please feel free to disconnect your phone line at any time.