The Greenbrier Companies, Inc. (GBX) Q1 2013 Earnings Report, Transcript and Summary

Hello and welcome to The Greenbrier Companies' first quarter of fiscal year 2013 earnings conference call. Following today's presentation, we will conduct a question-and-answer session. 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 Ms. Lorie Leeson, Senior Vice President and Treasurer. Ms. Leeson, you may begin.

Thank you, and good morning, and everyone welcome to our fiscal 2013 first quarter conference call. With me on today's call is Greenbrier's Chief Executive Office, Bill Furman and Mark Rittenbaum, our Chief Financial Officer. Please note, that we have included on the IR section of our corporate website, www.gbrx.com, some additional financial information to our earnings press release as well as some slides that contains supplemental financial information that we encourage everyone to take a look at. Also note, that we will no longer be discussing quarterly results and relevant comparisons to prior period. That information as well as key factors for the changes in the figures have been captures in the financial slides of our earnings presentation. Lastly, as always, 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 2013 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier. With that, I would now like to turn the call over to Bill Furman, our CEO. Bill?

Thank you, Lorie and welcome everyone to today's call. This morning, I would like to take a few minutes to walk all of you through some recent events of our company, talk a bit about Greenbrier's stock valuation, our outlook for 2013 and beyond. This is partly in response to questions we received from shareholders and analysts community following the dialog with Carl Icahn and other matters. As most of you are aware, Greenbrier's board of directors recently turned down a conditional proposal from Carl Icahn regarding an acquisition of Greenbrier by American Railcar Industries for $22 per share. We believe that proposal undervalued the company and was not in the best interest of our stockholders. While a combination of Greenbrier and American Railcar might be beneficial to both companies and the respective shareholders, our board decided it cannot support a transaction that undervalues our company and the potential benefits to American Railcar over that matter one which might overvalue American Railcar if there were ever were a merger transaction involving an exchange of stock irrespective of which company might be the acquirer. Our response to Mr. Icahn's conditional proposal is already accessible on our corporate website. To provide more color and what we meant by undervaluing Greenbrier, we believe that Mr. Icahn's proposal did not reflect the significant value inherent in our unique and aggregate business model, diversified product portfolio and outstanding position in the railway supply industry, all of which enables Greenbrier to deliver customized solutions to customers and to enhance shareholder value. Neither does the proposal reflect the sizeable synergies of possible combination nor the complexities of putting together two competitors with a conditional proposal with such a low cash price. Further beyond failing to share synergies, the proposal overlooked an appropriate premium that would be implied…

Thank you, Bill. I will take a few minutes to summarize our first quarter financial performance at a high level and add some additional color. As you have seen reported today, our first quarter revenue was $415.4 million and we realized net earnings for the quarter of $10.4 million or $0.35 per diluted share and our EBITDA for the quarter was $31.8 million, or 7.6% of revenue. We have delivered 2,900 new railcars in Q1, a solid start to the year. As we have stated before, our business ramps up in the second half of the year and we expect deliveries to be more heavily weighted in the third and fourth quarters of fiscal '13. Our new railcar manufacturing backlog as of November 30 was 9,700 units with an estimated value of $1.11 billion. This is the eighth consecutive quarter that our per unit sales price and backlog increased. It is now $114,000 per unit, up 2% sequentially. Since September 1, the beginning of our year, as Bill noted, we have received orders for 4,200 new railcar units valued at over $430 million, 1,400 of those units were received during the first quarter and 2,800 units were received subsequent to quarter end. In addition we received order for two barges and as noted on many previous occasions, the recovery of Marine has significant upside to our manufacturing segment. Our wheel, refurbishment and parts segment is also showing margin improvement due to better performance and the repair and refurbishment work and in parts and improved mix of business and improved labor efficiencies. Wheel volumes are still down which can be attributed to the sluggishness in coal but we are encouraged by our progress and continue to work on enhancing margins in this segment. At the quarter-end, we were also awarded a…

Thank you. (Operator Instructions). Our first question comes from J.B. Groh of D.A. Davidson.

I noticed a little bit of a pickup in the barge activity in terms of orders, and having been there few weeks ago, I noticed that there's a couple end process. Was there any barge revenue booked in the quarter and can you talk about sort of the trends and it looks like what's smaller barges and I am assuming that these 15 LOI for $60 million is in addition to the ones that you got the LOI for last quarter?

No. The $60 million is the same coal contract that is pending permitting on the Columbia River. Sorry for having a confusion about that. As the release indicated, we received two smaller orders since the last public release, so we have a total of four in process when you go over there, you saw one of the first two.

So, Mark, how much barge revenue booked in the quarter?

That was a very small amount. Less than $5 million and we expect that, and that's partially because the completed contract method of accounting for the barges. We expect that that will grow throughout the year and be more meaningful.

Okay. Then one of the things I noticed about the orders that you announced earlier in the week, it seemed like that the demand was fairly broad based relative to all the buzz about tank auto. You got a lot of orders from some other car types. Can you sort of talk about, Bill, what you see in there? I mean, is this is a momentary thing or do you think it's a general pickup in the market with the economy.

I think the thing I'd just say so interesting about this last quarter is, orders just how diverse they were while there was concentration in two major categories that we focused on in the release, we had a substantial number of gondola cars for metals movement over 500 I believe. We are seeing some pickup in ferrous products. There is strong interest in boxcars and we have some inquiry activity on with intermodal as well. We didn't book any intermodal orders during the quarter, both in the marine market and in the intermodal market though we see some signs of life for the year, so it is a fairly broad based situation and we are pleased to see that.

Is the customer type, is it consistent with what we would view as sort of the ownership of the overall market or is there, are the Class Is being more active than leasing companies or can you give us any indication there?

Well, it's a mix again of leasing companies and Class Is, in recent years following the pattern of other builders, we are developing good relationships with shippers and we had some very solid shipper orders during the quarter.

Brad Delco of Stephens, you may ask your question.

I guess, Bill, to kind of touch on your comments about enhancing shareholder value and seeing basically improvements in profitability and margin, is there any way you can kind of give us some targets now that you had eight consecutive quarters of higher value railcars go into the backlog, where you can see on the manufacturing side margins getting to what you kind of get through the production ramps, or maybe this is for you Mark, targets on sort of capital returns that you guys are sort of targeting that would essentially showcase the internal initiatives or improvements you guys are targeting?

You know, Brad, that's a great question. In connection with focusing our minds, because with recent activity in our stock and kind of the wild ride we have had over the last few months. We have very much focused on communications from and with shareholders. We have received a lot of input from shareholder both old and new and the analyst community. We are not going to comment overly much about this today but we expect over the next few months we are going to get very granular about our targets and about how we are going to move in the three areas that I talked about, capital efficiency, margin improvement and areas that improvement as far as efficiency is concerned.

Got you, well maybe more I can ask it another way. We saw the manufacturing margins tick down on a sequential basis which you set the stage for on the last quarterly call but can you put a dollar figure on what items there were in the first quarter in terms of how much it cost for the production ramp to see what really was impacting margins in this quarter relative to the last?

Well, I will provide some qualitative pieces to it that might be harder to put a dollar value but we are ramping up and as you know, we are ramping up production at our tank cars, at our GIMSA facility. We are also adding production build out at our Concarril facility at our second plant there. While we are doing that we do have both some learning curve and efficiencies that we would expect that of course when fully ramped would go away and we would also have overhead absorption that would occur during quarter as we both add on people and we bring on fixed cost that we are fully ramped up on the production. So both of those would have a drag on margins. At the same time we noted that we would expect in the second half of the year, for instance that intermodal rail cars, where we would be slowing down production rates earlier in the year, as compared to the second hlf of the year with that, so we have in Mexico, where we are ramping up production and in some other product lines, we would be slowing down production and the net of those, in the short run, would be a drag on margin, but in the longer run, would all be positive to margins.

One of the big positives to margin is just the difference in the 2012 and the current run rate on tanks and the run rate we will approach in the second half of our fiscal year and then the second half of the calendar year. That and the margins embedded in the mix of new orders which are higher will be helpful. But I would also point out that we are really putting human resources in to efficiencies on the cost side as well and I think that the addition of Martin Graham will very helpful to Alejandro Centurion. You look at the growth in our manufacturing segment and ramping in fiscal year '10, from that period on, we have had a 143% average growth rate, a little over 2,000, close to 2,500 cars built in 2010 and then moving up to 15,000 in 2012. So we still have a plateau to reach on operating efficiency and the diversification can affect the efficiencies as we ramp. So it is a slow ramp. We have got to speed it up. We are really focused on it on both the cost side and on the revenue side.

Brad, to quantitatively, perhaps close the loop on this, with this would mean that we would expect in the second quarter that our margins would look more similar to the first quarter, whereas we would expect in the second half of the year that our margins would look more similar to Q4 of last year which again was in the mid 11s that you referred to.

Allison Poliniak of Wells Fargo, you may ask your question.

Bill, you talked a little bit about inquiries on the intermodal side. Is that more on the domestic intermodal or are we starting to finally see some international interest there? International car interest?

The ones I am referring to are principally domestic.

Okay, if anywhere you would be at the end of tunnel in terms internationally or you are still on the sidelines right now?

I would say, its very murky. It swings back and forth. There is a velocity issue that's going on in the rail industry both, from efficiencies, but in terms of coal being so down, it clears a lot of freight car traffic off the railroads. That affects our rail business but also affects the velocity of intermodal cars. As that becomes more normalized and it's not going to be a growth story, but it should at some point plateau out. We expect that to affect the intermodal demand, but we do expect second half of the year to show some intermodal as a build up for the Chinese New Year comes, we do expect to see some intermodal activities as Mark mentioned.

Okay. That makes (Inaudible) to team us a bit, but I guess in your presentation your objectives and focus, you talked about seeking diversification and growth opportunities in the marketplace, is that sort of just in line with what you are doing or is there something else there that we should think about?

I am just talking about the basic strategy of low cost facilities, very flexible facilities that can change over quickly from one car type to another, but concentrating on longer production range, efficiencies and diversity of product in terms of product portfolio offerings. An example would be moving into as we did swiftly without a lot of [fan fare] in the automotive side witness the recent orders and we all believe in the industry that there will be more demand for derivative products like plastic pellet cars following on the tail of the current tank car boom.

Tom Albrecht of BB&T. You may ask your question. Tom Albrecht - BB&T: I just want to review a couple of basic things and then ask a little bigger question, so Bill, do you have one or two tank lines at this point? I forgot. My notes from last quarter, I can't read my writing.

Problem, we are completing the second line and that will be during the second half, and it just started up, but it will take a couple of more weeks for the production to fill that line, so we have two lines currently operating. Just finished the one line. Tom Albrecht - BB&T: Okay. And then you have how many lines across the entire network. Is it seven right now? Seven or eight?

We have two at Gunderson, three at Gimsa and four at Concarril currently operating one box, one gond, one covered hopper, one automotive line. Tom Albrecht - BB&T: Okay. that's helpful. Okay. Then as marine comes back, is it fair to say that Gunderson was breakeven or money loser, but could become a profit contributor in the second half of the year?

In terms of the effect on the consolidated results, it would not be contributor, because as we noted earlier, it would not be a contributor in the quarter that just ended because as we noted today and on our prior call wherein that producing intermodal railcars specifically in anticipation of orders later in the year. So, what is actually an external sales is not big contributor. It's also building refrigerated box cars or third-party sales. We would expect that to reverse again in the second half of the year as well as marine coming on, so that would be a big swing to the numbers.

And not to correct, Mark, but I would say that we are leasing those intermodal cars with expectation that will convert to sales in a subsequent period. Tom Albrecht - BB&T: Then lastly, I know Brad tried to ask this question and maybe if I were to ask not so much guidance or even targets, but just as you think about margins you've got now a lean guy attacking some things, you're going to be comfortable with your mix within another quarter or so in your production runs. Where do you think manufacturing gross margins might be able to get to over the next couple of years assuming fairly stable production, or if you don't want to talk about that, how about consolidated EBIT margin? Again, not guidance, but just a discussion, you know, your EBIT margin hangs out around 6%. We know what the manufacturing gross margin is, what's possible for this company? We have seen what's happen at one of your competitors based out of St. Louis. Can you just chat about that a little bit?

Okay, I will try to restrain myself with you guys ganging up on us like that. It is very difficult to answer it without getting granular about it because every car type has a different demand profile and supply profile. Tank cars today, and I would say today, are wildly profitable. You have to look at the longer term and the longer term strategy. We are obtaining market share in tank cars today and we are achieving very attractive mid-teens and upper-teens margins on them. But we don’t have enough tanks in our total mix to make it wildly exciting as some of our other peers, especially the one you mentioned, which is a nice company but it's principally making all that money on tank cars. The problem that we have all seen in this industry is that things change and it is better to have a diversified platform and product mix than it is to be a single car producer. Greenbrier has in the past been a single type car producer, intermodal and forest products If you read the press about it, you will see the intermodal car company but we are much more than that today and so when you look at margins, you have to look at the mix across the board. But I think in getting in stride, certainly 12% to 13% margins as a goal are not across the mix of products as we hit our stride, shouldn’t be out of the question and we should be able to shoot for more than that. This is an industry and so has considerable competition and it is difficult to sustain 20% margins in any product because of capacity additions and so on. So it’s a moving target. Tom, I know you focused on manufacturing but we would certainly echo in our wheel services business that we are focused on execution and enhancing our margins and efficiencies there too. So certainly through the cycle we have loftier goals than what we are currently realizing in that segment.

I can appreciate that but I think the question is focused on manufacturing because that’s ultimately the tail that wags the dog for our earnings upside and why people get interested in your stock and I appreciate the effort to try to answer that Bill in a volatile market. The last thing I would ask and I will move on, if we look at a couple of years and we continue to see this housing recovery, what kind of production in terms of annual units might a lumber car, forest products be able to do? Since you were able to kind of give us a run rate on the tanks by the end of this calendar year, I am not even thinking of the end of the calendar year, I am just saying, what kind of volumes can you get? Is it a couple of thousand cars, 5,000 cars? Just humor us a little bit?

Well, two things. First, that while forest products is recovering, every week it seems that you are reading about housing improvements and particularly construction residential apartments, dwellings and so on but its off a fairly low base. But I would say that in more normalized times, if the housing marker fully recovers, 5,000 to 6,000 on the upside is not out of the question. We had years where we have run from 2,000 to 4,000 cars for forest products. But it's going to be a time before all of the units are in, especially center beam cars are worked off. But it's very to see some positive movement in forest products and its helping us in the box car side, particularly now. And I will see other car types also responding. The other area that we don’t think about so much is hopper cars for cement and other construction and I think that might be part of the reason why we are seeing more strength in the gondola market.

Peter Nesvold of Jefferies & Company, you may ask your question. Peter Nesvold - Jefferies & Company: I guess if I just limit the questions to the quarter, the leasing and services gross margins, I mean, they were off the charts. I think it was 57%, which without gain on sale in there, I don't think I have ever seen that high. So, what drove that in the quarter and is this some kind of new normal?

It's a good question, Peter, and it's partly related to our management services business as well as to maintenance contract and the expiration of that contract and some maintenance reserves. So, it was a very good quarter there. I don't know that I would consider it a new normal going forward. I think that something closer to the 50% area is the margin is what we would expect in the quarters ahead here. Peter Nesvold - Jefferies & Company: Okay. Then my follow-up question, as you are expanding production capacity in Gimsa, the minority interest line. I mean, should that continue to sort of widen from current levels, and I know it's a bit of a modeling question, but just to make sure that I am getting that right.

You are getting it right. The one thing that can, and directionally that's absolutely true. It can be a little volatile from quarter-to-quarter depending on when we syndicate railcars and that's what's reparative as railcars for sale, and until those cars are sold the course hung up on the balance sheet and where we don't recognize the margin, but directionally you are correct. That should grow as we ramp our production.

Art Hatfield of Raymond James, you may ask your question.

Just a couple of things, a follow-up on Peter's question about the maintenance accruals, Mark, to clarify, that's not a change in how you are accruing for maintenance on cars that you own. It was related to a specific contract with regards to a management contract. Is that correct?

That is correct, Art.

Okay. That contract ended, so that was the true-up related to that? Is that fair?

That's correct.

Just a couple of other things on, your lease fully statistics, sequentially the number of owned cars went down at 1,000, and I can't remember how you do this or have done this in the past, but when you have cars that are being held for syndication, are they historically have they been counted as part of the own fleet?

Yes. They have. I think the other thing, Art, is we are going to need to start rounding to 100s rather than 1000s, because if we have 10,600 in one quarter and 10,100 in the next quarter, then we are rounding to 1000s and it looks like the movement as the small fleet is a lot bigger than it is.

Thank you. That was my follow-up question. That explains a lot, so.

Yes, and that's exactly the kind of the magnitude of things there, so I think we'll start rounding to 100s in the future.

That's very helpful. Thanks. Then finally, just back to the tank car production build. Have you mentioned and I apologize if you did answer this, but I was pulled off the call for a sec. Did you mention how many tank cars you manufactured in Q1?

I don't believe I did. No.

Could you give us that number?

We didn't disclose that. What we did say is that, we've been building on one line and where we were on the one line that we have earlier said that we were ramping up to eight a day, and by the end of the year that we would have the capacity at the end of the calendar year that we would be operating with two lines closer to 16 a day.

Got it. That helps. Then just another question on this as I kind of think about and try and warp my head around the modeling for myself with regards to gross profit margin. You've been asked a lot of questions and answered a lot questions, but just one other thing on that. As you ramp up tank, is there anything that you can foresee that you maybe would be concerned about with regards that could create a hiccup, maybe something with the ability to get enough employees, or maybe what's your supply chain look like? Are you fully set up with regards to all the components and other raw materials that you need. Is there anything that we should think about that could be something that may pop up down the road?

Well, you sound like you have been summer operations meetings, Art. We are in good shape on components. It's just the execution, execution, execution. Tanks are not the easiest car in the world to build. We have ramped heavily at between six and eight cars per day in this quarter. So we just have keep doing it and we have to do it efficiently and continue to maintain the margins and the backlog.

And you have no problem getting the needed employees to ramp up?

We don’t have a problem getting employees at the current rate. But we have a lot of execution issues we are working with every day. So I don’t mean to be cautious about it but its just an operations issue that sensible people concern themselves about everyday.

Absolutely, but you don’t have an issue where you are at with turnover, anything like that, just the normal vicissitude?

No, it's all normal. Just normal operating stuff but it is still a very significant thing to take a facility like this, add an additional line. That’s not the cost of adding the line because the facility footprint was there. It is the execution of the additional throughput. We have been running two other lines there, covered hopper car lines. We are now down to one line of covered hopper and two of tanks, and transferred the covered hopper over to Concarril. So we are, I think, in a good sound position to reach our goals but we have to execute and that’s where the margin efficiency comes in.

One follow-up to that. You mentioned today in our release on your call that prior to day, you had been talking about getting up to 3,000 car run rate. Now you are at 3,800. Given that, I know in the grand scheme of things, and incrementally 800 cars isn’t much but do you worry that maybe if too much supply gets on to the market, that it may have an impact on pricing ultimately and may have an impact on the margins that you hope to get down the road?

I don’t worry about it because it’s a really small part of my total portfolio. Others should worry about it. If I were only building tank cars, I would worry about late 2014 and 2015.

So you are not saying that because you are going to go out and wreck the market with the pricing and that doesn’t worry you, right?

We are pricing to get orders and if others aren’t following that, they are not going to get the orders that are out there. We have been getting orders. I think though that our margins in tanks are excellent and everybody else's margins in tanks are excellent or super-excellent. They just have a lot more of them than we do.

Good enough, thank you. Thanks for your time. sorry for all the questions.

Not at all. Just one point, though, following up on your questions. Don’t overlook on margins. Some of the questions, a ton of the questions on margins. The relative drag that the lack of intermodal orders for sale has been on the average manufacturing margin. As that intermodal market does come back on the sale side that will be the solid contributor to the margins and it will help us step to those ranges that Mark mentioned for the second half of the year.

Salvatore Vitale of Sterne Agee, you may as your question.

So, the first question I have is on, sorry to beat a dead horse, but on the manufacturing margin. If I looked at the step down sequentially, it was 11.8% last quarter, 9.4% this quarter. If I look at the deliveries, it was down from 3,500 to 2,900. So can you provide some color on the size of the operating leverage impact of having fewer cars? What else was going on that caused the margin to decline by close to 250 basis points.

So part of it is mix. Again we did not have any external sales of intermodal cars this quarter than we did the prior quarter part of it as well as we are bringing on capacity so it does in part relate to your fixed overhead and ramp up cost. So we have been bringing on capacity at our two Mexican facilities and we have the fixed cost associated with the build out of those production lines and training new personnel with related order, so that is a drag without the related not orders, but without related deliveries, because we do have orders for all of those lines, so we have the under absorbed overhead and then just the learning curve, so it's a matter of mix that fixed overhead that is associated with those additional lines and then the learning curve and the ramp up of those facilities.

Okay. Can you give any color without being or rather be specific as you can be. Those start up costs and learning curve, how much would say that was a contributor?

Well, I think it sounds like you are on a similar thread as the prior question, and I think the best way that I could answer, because everything is at a facility is so integrated, I think the best way you can look at it is to say that in the second half of the year we would expect our margins to be much closer to what they were in Q4, when we are ramped up at these facilities and as well as have intermodal as Bill mentioned, but for the second quarter we would expect our margins to be closer to the first quarter.

Okay. That makes sense. Then just one question, I guess, a clarification on the guidance. So, you increased the deliveries' guidance from range of 13,500 to 15,000 and yet you left your EPS guidance unchanged, while the EPS guidance was roughly flat with last year. So, are we to read anything into that, because you would think that if the deliveries are increasing that your guidance would be a little bit better than what it was, is it just some conservatism built in there or is there may be one of the other sectors, one of the other segments that's going to be a little bit lower than you had originally expected?

Sal, I think just to correct the numbers, I think we gave a range of deliveries and I think the upper end of the range was 11,500 to 13,000, and I think we.

Right. My numbers were wrong. You are right. I am sorry. I apologize.

…to 13,000, and just put a stake on it around the 13,000 to make it simple. We are still this complex business with three moving parts, including leasing and repair and refurbishment we expect significant developments in both of those other businesses and we are focusing mainly today on manufacturing from the questions and fair enough. It's the major portion of the dog, if not the entire dog and the tail, but the point though that is that we were influenced in that earlier quarter by the overall economic tone in the economy, the global economy. I think that while the improvement is marginal, it's still a significant improvement. We are feeling more optimistic about the year. We've received some additional indication in the marketplace for solid orders filled in remaining holes in our order book for 2013 and into 2014 and tanks for all the way throughout 2014 are capacity that I have announced, so we are in good shape. We are happy about that, so it's just today. Just execution, execution, execution and addressing some of the concerns that all of you folks have told us we need to pay more attention to and we've been trying, but it's we are really getting to it.

Right. I appreciate your response, but I was just curious if you increased essentially your guidance on the delivery side, why your guidance on the earnings and revenue and EBITDA is not also inching up a little bit.

It would be clear Sal, and the previous guidance we gave was that deliveries of 11,500 to 13,000 cars and at the upper end of that range is the 13,000 range that we expected our EBITDA and earnings to be similar to 2012.

Okay. That makes more sense. All right. Sorry, I missed. Sorry about that.

I think you said a very important word. We tend to sometimes be conservative and we've seen the consequence as being overly conservative. We do need to be more clear and we are going to try to be much more clear on these calls and on other communications with the street, so thank you for your question. I think it was a valuable question.

Okay. Just one follow-up if I could. The tank orders that you received in 1Q, when are they expected for delivery? Should we expect that to be calendar '14 delivery?

The bulk of them would be calendar '14. We don’t want to be too specific in terms of the total orders. Over a third would be in 2013 and probably not more detail than that. But most of the tanks would have been in calendar 2014.

Ken Hoexter of BofA-Merrill Lynch, you may ask your question.

It is actually Wilson sitting in for Ken. Can you touch on just the tank cars a little bit more? Not to get ahead of myself but have you started to receive any indications for order levels going beyond fiscal '14? Or even any indications of interest? Just trying to get a sense for the sustainability of it. Obviously you have given a lot of thought and we appreciate that but just any visibility or any comment you might have going into 2015?

I think in general, the market is still considered to be very hot. There are a lot of people interested in booking capacity and it's just difficult to interpret this beyond 2015. I think the major thing is to look at pipelines, look at the supply side. How much capacity has been added to the industry and when you got past 2014, look at whether the demand would continue for transportation at the same pace it is today for oil tanks. So it’s a very interesting and complex market that needs to be studies very carefully to interpret it. We are talking about calendar, we are out through 2014 and we are restricting most of our focus on the calendar 2014 period. Now, having said all that, I think there is going to be a very solid demand for tank cars throughout the rest of the decade. But I think its just history demonstrates that it is not a good thing to believe that something that is blowing up like a balloon is going to last forever and I think its not going to be a pace that it is in 2013 and 2014, for sure.

Great, I think we all share that concern to a degree, more or less. If I would ask, just who are the major buyers from you at the moment for the tank cars? Are they mostly the rails themselves or are they shippers or leasing companies? Could you give a little bit more color on that side?

We have talked briefly about that earlier and don’t supply a specific customer information but the mix was a fairly even mix of railroads, shippers and leasing companies for all of the cars. In the case of the tanks it would be principally shippers.

If I were to switch gears a little bit on that main contract that you referenced in your earlier comments, the $12 million. Is that a new contract that is going to be incremental to the current rate for the maintenance segment or was that replacing an old contract there? Any kind of color on that?

We are seeing solid demand for our maintenance business and I think we have to pay attention in that business to margins, pricing and other things. You will see that the margins and repair in that business, well lease and the repair side of that business, we are seeing good demand. So the incremental nature of the business, Mark, do you want to do that?

So that is a new contract. We would fulfill that contract in our existing facilities. So its part of our existing footprint but it gets back to really mix of business for our repair business and it’s a good type of business for us to have as part of our footprint and as part of our base.

Understood and just lastly, a modeling question. The tax rate, obviously is going to fluctuate depending on where railcars are coming from and giving you free tax jurisdictions. As we think about, just more of the capacity going low cost in Mexico,directionally, where do you think the tax rate goes from say about 20% that you guys did this quarter? Is it kind of more downward considering the production lines that are coming online. Gimsa and Concarril or you kind of expect it to be flat kind of throughout the year?

Yes. We would anticipate it to be about 34% for the balance of the year based on the mix of business and where we are producing it. That's in our forecast though.

Our final question today comes from Matt Brooklier, Longbow Research.

First for you on your lease feet utilization that actually I believe improved sequentially versus going the other way in the prior two quarters, I am just curious if you could provide some color on what drove that improvement.

Yes. We produced some cars in Q4 for lease fleet that were on their way to the customer, so they were not considered on lease in Q4. They were placed in service in Q1, and that's the reason for the increase in the utilization rate. And that statistic it can be a bit volatile as we are going through transition in intermodal. We think there is a deep market for intermodal growth statistics look good, but the same intermodal comment was made earlier as we are leasing some of those intermodal cars and as we put them out production into service we could have that bounce around a bit.

Okay. So, all things being held, I guess, constant the lease fleet utilization and the move there was more a function of units and syndication versus the absolute utilization levels.

Can you repeat that?

If we exclude some of the moving parts in the cars held in fiscal fourth quarter and we remove that impact, I am just looking at the fleet utilization if that was the predominance of the change and the improvement in the current quarter.

Correct.

Okay. I know that coal railcars were a headwind in the prior two quarters. Just curious if you could give us an update in terms of your coal rail car lease fleet and then maybe just general overall color on the industry.

I'll speak to lease fleet and piece of it. In our owned lease fleet, we only have a very small rail or coal exposure less than 500 cars and most of those cars are on lease, but indeed the delta between the 95% and 100% utilization is due to some coal cars, principally due to some coal cars being off lease. We do as part of the WLR, GBX fleet that we have economic interest in and that we manage that fleet have a more significant exposure to coal and again we have very high utilization rates there, but the lease rates still remain depressed in that car type and our strategy is to put equipment out on a shorter term leases until the market improves and as far as the overall market for coal, I don't know if you have anything else to add, Bill.

The only thing I would add is that natural gas prices if those firm up more coal should have some relief from its more open position. Certainly coal is not dead, but it certainly has very bad coal or maybe something more serious than that, and I think that just one has to be patient, but we don't expect growth in that market. Best one could hope for would be solid replacement demand over time in the coal market, which should firm up lease rates over time, but it's going to be a long slog I think.

Okay, and with respect to recent railcar orders outside of anything I guess tank or energy or petrochemical related, where has there been the biggest change within the railcar industry just trying to get a sense for were there incremental opportunity over the next 12 months for both, Greenbrier and the industry to produce more railcars.

Two things that just are really simple principles, cars follow specific need, so if you look at where the growth (Inaudible) look where the growth is in loadings and the growth at loadings is in automotive and in other chemicals and other certain oil and other certain commodities. Intermodal is strong and actually loadings in general if you take out grain and coal are up 5.5% for November. So, I think you just have to look at the specific loadings. Automotive is clearly one that we think through 2015 is going to be just as exciting in its own way as the story for tank cars, because there are fewer participants in that market.

Thank you, operator, and with that we'll consider this any concluding remarks that we might want to make, Mark?

No. I would, just as always, will be available after today's call to answer questions and thank you for your participation in today's call. Have a good day. Thank you.

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