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Why Is GATX Up 7.6% Since Its Last Earnings Report?

It has been about a month since the last earnings report for GATX Corporation GATX. Shares have added about 7.6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to its next earnings release, or is GATX due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Fourth Quarter Earnings

GATX's earnings of 68 cents per share (excluding $8.15 per share from non-recurring items) fell short of the Zacks Consensus Estimate of 72 cents. However, revenues of $352.8 million surpassed the Zacks Consensus Estimate of $346.1 million.

In the quarter, both earnings and revenues declined on a year-over-year basis, reflecting challenging market conditions. While the bottom line contracted 40.4%, revenues declined 2.6%.
 
Segment-Wise Results

Profits at the Rail North America segment improved to $61.2 million from $48.5 million a year ago. The uptick was mainly due to higher revenues. In the fourth quarter, the renewal lease rate change of the company’s Lease Price Index (LPI) was -32.4%. Additionally, average lease renewal term for cars included in the LPI was 36 months compared with 29 months in the year-ago quarter.

Rail North America’s wholly owned fleet had approximately 120,000 rail cars at the end of the reported quarter. Fleet utilization came in at 98.2% compared with 98.9% at the end of 2016.

Profits at the Rail International segment increased 32.6% year over year to $18.7 million. The upside was owing to lower maintenance expenses apart from the increase in railcars on lease at GATX Rail Europe.

Moreover, GATX Rail Europe’s fleet totaled approximately 23,000 rail cars at the end of 2017. Fleet utilization was 96.8% compared with 95.6% at the end of 2016.

Profits at the Portfolio Management unit were $6.1 million in the quarter, which compared favorably to the year-ago loss of $2.8 million. The favorable performance can be attributed to increased operational efficiency apart from an uptick pertaining to tonnage. However, the American Steamship segment's profit of $9 million in the same quarter compared unfavorably with the year-ago profit of $17.7 million. Lower contributions from the marine portfolio led to the downturn.

Liquidity

GATX exited the 2017 with cash and cash equivalents of $296.5 million compared with $307.5 million at the end of 2016. Restricted cash was $3.2 million compared with $3.6 million at the end of 2016.

Outlook for 2018

The company expects 2018 earnings per share in the range of $4.55-$4.75. The projection incorporates an impact to the tune of roughly 20 cents share due to the new tax law (Tax Cuts and Jobs Act). 

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last month as none of them issued any earnings estimate revisions.

VGM Scores

At this time, GATX has a poor Growth Score of F, however its Momentum is doing a bit better with a D. The stock was also allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value investors based on our style scores.

Outlook

GATX has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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