Greenbrier (NYSE:GBX) reports sales below analyst estimates in Q2 results, shares fall

Rail Transportation Company Greenbrier (NYSE:GBX) did not meet analysts’ expectations in Q2 CY2024, with revenue down 21% year-over-year to $820.2 million. On the other hand, the company’s full-year outlook was in line with analyst estimates, with revenue of $3.55 billion at the midpoint. GAAP earnings came in at $1.06 per share, an improvement from earnings of $0.63 per share in the same quarter last year.

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“Greenbrier continued its positive momentum in the third quarter of fiscal 2024,” said Lorie L. Tekorius, CEO and president.

Greenbrier (NYSE:GBX), which designed the industry’s first double-decker railcar in the 1980s, provides railcars and related services to the freight transportation industry.

Heavy transport equipment

Heavy-haul equipment companies are investing in automated vehicles that increase efficiency and connected machines that collect useful data. Some are also developing electric vehicles and mobility solutions to address customer concerns about carbon emissions, creating new sales opportunities. They are also increasingly offering automated equipment that increases efficiency and connected machines that collect useful data. On the other hand, heavy-haul equipment companies are dependent on economic cycles. For example, interest rates can have a big impact on construction and transportation volumes, which drive demand for their offerings.

Increase in sales

The long-term performance of a company is an indicator of its overall business quality. While any company can experience short-term success, the best performing ones enjoy steady growth over many years. Unfortunately, Greenbrier’s 4.6% annual revenue growth over the past five years has been slow. This shows that it has failed to grow in any significant way, and it is a rough starting point for our analysis.

Long-term growth is key, but in an industry, a half-decade of historical perspectives can fail to account for new industry trends or demand cycles. Greenbrier’s 15.6% annual revenue growth over the past two years exceeds the five-year trend, suggesting demand has recently accelerated.

Greenbrier also reports sales volumes, which reached 6,300 in the latest quarter. Over the past two years, Greenbrier’s sales volumes have averaged 22.9% year-over-year growth. Since this number is better than revenue growth, we can see that the company’s average selling price has declined.

Greenbrier missed Wall Street estimates for the quarter, posting a rather uninspiring 21% year-over-year revenue decline, generating $820.2 million in revenue. Looking ahead, Wall Street expects sales to grow 2.4% over the next 12 months, an acceleration from the quarter.

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Operating margin

Greenbrier has been profitable for the past five years, but it has been held back by its large expense base. It has been showing poor profitability for an industrial company, averaging an operating margin of 5.3%. That’s not all that surprising, given its low gross margin as a starting point.

Looking at the company’s profitability trends, Greenbrier’s annual operating margin may have seen some fluctuations but has generally held steady over the past five years, which does not favor its position.

In Q2, Greenbrier generated an operating profit margin of 8.8%, up 3.9 percentage points year-over-year. This growth was encouraging, and since the company’s operating margin increased more than its gross margin, we can conclude that it has been more efficient recently in terms of overhead expenses such as sales, marketing, and administrative costs.

EPS

We track long-term earnings per share (EPS) growth for the same reason we track long-term revenue growth. However, when compared to revenue, EPS highlights whether a company’s growth has been profitable.

Greenbrier’s earnings per share have grown at an impressive 13.2% compound annual growth rate over the past five years, higher than its 4.6% annual revenue growth rate. However, that alone tells us little about its day-to-day operations, since its operating margin has not improved.

A dive into the quality of Greenbrier’s earnings can give us a better understanding of its performance. The five-year view shows that Greenbrier repurchased its shares, reducing its share count by 3.5%. This tells us that its EPS outpaced revenue not because of increased operating efficiency, but because of financial engineering, as share repurchases increase behind stock profits.

As with revenue, we also look at EPS over a shorter period to see if we’ve missed a turnaround in the business. In the case of Greenbrier, the two-year annual EPS growth of 49.5% was higher than the five-year trend. We love it when earnings growth accelerates, especially when it accelerates from an already high base.

Greenbrier reported $1.06 EPS in Q2, down from $0.63 in the same quarter last year. Despite the year-over-year increase, this print fell short of analyst estimates, but we care more about long-term EPS growth than short-term changes. Over the next 12 months, Wall Street expects Greenbrier to grow its earnings. Analysts are forecasting EPS of $3.76 last year to increase 15.4% to $4.34.

Greenbrier Q2 Results Highlights

Unfortunately, Greenbrier’s revenue fell short of expectations, with EPS falling below Wall Street estimates. The company also lowered its full-year revenue guidance midway through the year, which is never a good sign. Overall, it was a bad quarter for Greenbrier. Shares fell 6.3% to $45.50 immediately after the report.

Greenbrier may have had a tough quarter, but does that really present an opportunity to invest now? When making such a decision, it is important to consider valuation, business characteristics, as well as what happened in the last quarter. We discuss this in our full research report, which you can read here, it is free.