Despite economic headwinds, FreightCar America is looking for market opportunities

FreightCar America executives expressed optimism about the market environment for new rail vehicles despite macroeconomic uncertainties, based on their comments during Tuesday’s third-quarter 2022 earnings conference call with transportation analysts.

“The environment for rail vehicles is more than positive,” said Jim Meyer, President and CEO of FreightCar America. “The more positive aspect comes from what we are seeing in terms of industry fundamentals as well as sales and inquiries. Our caution [is] in relation to broader macroeconomic uncertainties, including high inflation and ongoing supply chain challenges.”

According to Matt Tonn, FreightCar America’s chief commercial officer, these positive signals include third-quarter industry orders that aligned with the industry demand cycle to replace railcars, customer feedback pointing to strong utilization rates for leased railcars and high scrap prices. Although scrap prices have fallen from their peak in March, railcar scrapping has outpaced railcar shipments for nearly three years, Tonn said.

Customers also appear to be focused on replacing their aging rolling stock, Tonn said.

“Our sales funnel includes a diverse mix of new and existing customers whose rail vehicle needs are well aligned with FreightCar America’s product portfolio,” said Tonn.

Meyer pointed out that the rail vehicle manufacturer’s new production hall has now been completed and will be connected to the grid in the third quarter. The company also completed the expansion of its wheel and axle shop, which has industry certification that will allow FreightCar America to manufacture axles in-house.

The third production line at FreightCar America’s Castanos plant in Mexico has been commissioned, with a fourth production line expected to be commissioned in the first half of 2023.

“These additions will bring significant efficiencies in addition to the benefits of further scaling and production of more units,” Meyer said.

Financial results Q3 2022

FreightCar America experienced a net loss of $17.8 million, or a loss of 69 cents per diluted share, in the third quarter of 2022, compared to net income of $731 million, or 3 cents per diluted share, in the third quarter of 2021.

On an adjusted basis, the company posted a net loss of $5.4 million, or a loss of 21 cents per diluted share, according to a release Monday.

Despite the annual loss, third-quarter revenue rose 47.1% to $85.7 million. Deliveries in the third quarter increased by 55% to a total of 783 wagons.

Meyer attributed the quarter’s “subdued” results to a legacy order that resulted in a lower margin as well as increased costs.

“These items weighed on our profitability and weighed on our gross margin, which had been in double digits for the prior two quarters,” Meyer said. “We expect these legacy orders to be completed before the end of the year and for our margin profile to improve starting in the fourth quarter. … We are actively exploring alternative freight strategies with the goal of reducing these costs.”

Manufacturing operating income was $3.1 million compared to $163,000 in the third quarter of 2021.

“Looking ahead, we will continue to be cautious and realistic about the potential impact of a slowing market and continued supply chain headwinds,” he said. “However, as our plans continue to bear fruit, we expect to be able to benefit more from the next round of rail vehicle market recovery.”

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