Prepared remarks
Hello. And welcome to The Greenbrier Company's Third Quarter Fiscal '26 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 Company, this conference call is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Travis Williams, Head of Investor Relations. Mr. Williams, you may begin.
Thank you, operator. Good afternoon, everyone, and welcome to our third quarter fiscal '26 conference call. Today, I am joined by Lorie L. Tekorius, Greenbrier's CEO and President; Brian Comstock, Executive Vice President and President of The Americas; Michael J. Donfris, Senior Vice President and CFO. Following our update on Greenbrier's third quarter performance and our outlook for fiscal 2026, we will open the call for questions. Our earnings release and supplemental slides can be found on the Investor Relations section of our website. 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 for 2026 and beyond to differ materially from those expressed in the forward-looking statements made by or on behalf of Greenbrier. We will refer to recurring revenue throughout our comments today. Recurring revenue is defined as leasing and management services revenue, excluding the impact of syndication transactions. With that, I will turn it over to Lorie.
Thank you, Travis, and good afternoon, everyone. We appreciate you joining us today. Greenbrier delivered solid commercial, operational and financial results in the third quarter. Global macroeconomic conditions in our markets support freight railcar lease rates and utilization, where Greenbrier is further strengthening as we serve our shipper customers. Those same conditions pressure demand for new freight railcars, though maintenance and replacement needs continue and provide a foundation for future orders. This combination of market dynamics and a dedicated focus on operational efficiency led to sequentially improved gross margin and earnings. The improvements that have been made across Greenbrier over the last several years are yielding benefits and, combined with operating discipline, cost control and commercial excellence, create a more resilient earnings profile through cycles. In other words, we are demonstrating our ability to deliver higher lows across the cycle due to the strength of our business platform.
Our commercial team continues to expand Greenbrier's market reach adding new customers, while strengthening relationships with longstanding partners supported by our lease origination capabilities. These proficiencies leverage our integrated go-to-market model across direct sales, leasing partnerships and syndication. Turning to the market, in our core North American market, railcar deliveries have averaged about 35,000 per year since 2020. The current industry forecasts indicate less than 25,000 new railcars for calendar 2026, which will be the lowest level recorded since 2010. And the projection for calendar 2027 shows an increase to over 34,000 deliveries. Rail loading trends are up in several key commodity categories including grain, petroleum products, chemicals and intermodal. Although intermodal activity is uneven, as some commodities are shifting towards trucking to navigate service-related friction in the rail network.
And while the uptick in freight rail modal share is uneven, we believe the longer-term outlook is positive. Our experience tells us it is a matter of when, not if, new railcar demand will increase. Activity coming out of a trough tends to arrive sooner and more robustly than anticipated. In Europe, wagon deliveries are expected to be around 9,000 units for calendar 2026 and the next several years. We are utilizing our lease origination capabilities strategically in this market as well to serve our customers while managing productivity and reducing costs. Our Manufacturing segment, which includes maintenance, wheels and parts activity in North America, executed well in the third quarter. Operating efficiency, cost discipline, and solid program and maintenance work help drive the overall performance in the current macro environment. Our lease origination capabilities provide key flexibility to manage new car production and support utilization across our manufacturing footprint.
In addition, our insourcing investment is delivering broad-based sustained efficiency gains that will further improve earnings power as demand grows. In Leasing and Fleet Management, we saw significant expansion of our owned lease fleet with continued high utilization. We remain focused on growing this platform and doubling our recurring revenue base by 2028 through both our own manufacturing operations and secondary market opportunities as they arise. The enterprise-wide improvements that have been made at Greenbrier are supported by a strong financial foundation. A healthy and well-capitalized balance sheet and ample liquidity provides flexibility to support operations, invest in the business, return capital to shareholders, and execute our strategy. As we look ahead, our focus remains squarely on operational execution, commercial discipline, capital allocation, and ongoing enhancement of through-cycle performance.
You can expect Greenbrier's solid results across the cycle to continue driving long-term shareholder value. Finally, I want to thank our employees for their focus, commitment, and execution. Each and every one of their efforts demonstrates the strength of Greenbrier's culture, and the durability of the platform that we have built. And with that, I will turn the call over to Brian to discuss our operations in more detail.
Thanks, Lorie, and good afternoon, everyone. Starting with commercial activity, we received orders for 2,200 railcars during the quarter, valued at $340 million. Demand was led by tank cars and covered hoppers with additional activity in gondolas, open-top hoppers, and heavy-duty flats. In addition to constructive rail loading trends, it is also worth noting the significant increases in trucking spot rates driven by driver shortages, elevated fuel costs, and carrier attrition. While this alone does not signal a broad-based freight demand recovery, sustained higher truck rates would improve the relative competitiveness of rail and intermodal service. Turning to backlog, we ended the quarter with 13,800 railcars valued at $2 billion. Our commercial team remains highly engaged with customers across North America, Europe, and Brazil. And we are seeing solid activity across several car types.
As Lorie noted, our lease origination capabilities were a prominent feature of the quarter. Lease originations represented 60% of total global orders, including 71% of North American awards and 53% of European awards. This highlights the value of our commercial model, flexible production capacity, and our ability to respond to customer needs. The Leasing and Fleet Management segment delivered another strong quarter. We expanded the owned lease fleet to 20,600 railcars and utilization remained exceptionally strong at 99%. Renewal rates were healthy, reflecting both the quality of our fleet and the depth of our customer relationships. During the quarter, we continued to pursue disciplined fleet growth through secondary market acquisitions of approximately 4,400 railcars and remain active in evaluating additional opportunities. These are strategic investments that support lease fleet growth, recurring revenue, and long-term value creation.
Moving to our manufacturing segment, production rates were aligned with current demand levels, consistent with our proactive management of the business. Headcount continues to be adjusted in line with our production plans. Our teams remain focused on maintaining operational efficiency as market conditions evolve. At these production levels, operating performance and margin progression improved reflecting the benefits of our insourcing strategy and focus on cost competitiveness. Recent capital investments are yielding strong returns even at current production levels. Wheelset shipments exceeded expectations, the maintenance team sustained steady throughput and we continue to see progress in cycle time execution. We also are taking actions to sharpen the focus and efficiency of our maintenance service network. In Europe, demand remains muted, but we are making progress following recent footprint actions.
With the facility consolidation complete, the team has focused on streamlining the production process, reducing inventory, and improving quality and production rates. We are also seeing encouraging trends and traction in the European leasing market. In Brazil, Greenbrier-Maxion delivered another quarter of strong operational performance driven by demand in the agriculture and biodiesel sectors. Financial performance exceeded expectations supported by disciplined cost control, operating efficiency, and improved pricing. Our capital markets team continued to support the integrated model through strong monetization activity, expanded investor relationships and secondary market activity. These activities generate profitable transaction recognition and fee income, they provide liquidity, support lease fleet growth, and reinforce the benefits of the vertically integrated platform. In summary, we continue to align production with customer demand, execute with discipline across the platform, expand our leasing capabilities and advance key initiatives that support margin performance. And with that, I will turn the call over to Michael to review our financial results in a bit more detail.
Thanks, Brian, and good afternoon, everyone. Total revenue for the quarter was $577 million. Leasing and Fleet Management revenue was $47 million, up 3% from Q2, primarily reflecting the addition of leased railcars. Manufacturing revenue was $529 million, down about 2% sequentially, primarily due to fewer new railcar deliveries, partially offset by higher maintenance program revenue. Aggregate gross margin was 14.1%, within our long-term target range and improved from Q2. This performance demonstrates the strength of our integrated business model and the impact of our continued cost discipline. Earnings from operations were $32 million or about 6% of revenue. These results reflect solid execution at current production volumes and our continued focus on the areas within our control. Our effective tax rate was about 20%, primarily driven by discrete items related to foreign exchange impacts largely from the strengthening of the Mexican peso.
Diluted earnings per share were $0.60 and EBITDA was $69 million or about 12% of revenue. Overall, results benefited from stronger margins, favorable foreign exchange, lower net interest expense in leasing and fleet management, and a lower effective tax rate. Turning to the balance sheet, we ended the quarter with total liquidity of approximately $887 million representing $274 million in cash and $613 million of available borrowing capacity. Operating cash flow for the quarter reflects $227 million of investment, primarily for leased railcars purchased in the secondary market. This investment supports our strategy to grow the lease fleet, increase recurring revenue, and generate tax-advantaged cash flows while maintaining strong asset quality and enhancing long-term earnings power. Over time, we expect to finance a portion of the newly acquired fleet, preserving balance sheet flexibility.
We also refinanced our leasing term loan with a new $300 million facility extending the maturity by six years, improving credit terms, and adding a delayed draw that provides up to $125 million of additional capacity to support future growth. Our capital allocation remains disciplined and balanced. We continue to invest in opportunities that generate attractive returns while also returning capital to shareholders through dividends and share repurchases. Greenbrier's Board of Directors declared a dividend of $0.34 per share, marking our 49th consecutive quarterly dividend. At quarter end, approximately $65 million remained available under our share repurchase authorization. We will continue to use that capacity opportunistically guided by market conditions and our broader capital allocation priorities. Turning to guidance. Our fiscal 2026 outlook is based on our latest view of fourth quarter manufacturing margins and delivery timing, reflecting that some activity is moving into fiscal 2027.
While near-term market conditions remain dynamic, customer engagement is strong, and we are encouraged by the business activity developing for 2027. For fiscal 2026, we continue to expect total revenue of $2.4 billion to $2.5 billion and are narrowing our expected EPS range to $3.00 to $3.15 per share. Additional details are included in the earnings release and accompanying slides. In summary, Greenbrier delivered solid third quarter results supported by disciplined execution, resilient aggregate gross margins, and continued strength in leasing and fleet management. We remain focused on the priorities that create value: serving our customers, managing costs, increasing recurring revenue, and deploying capital with discipline. We believe these actions position Greenbrier to deliver attractive, through-cycle returns and create long-term shareholder value. With that, we will open the call up for questions.
Questions and answers
Thank you. We will now begin the question-and-answer session. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press *2. At this time, we will pause momentarily to assemble the roster. The first question will come from Andrzej Tomczyk with Goldman Sachs. Please go ahead.
Hey, good evening, everyone, and thanks for taking my questions. Just curious if we could start off on the tariff front. Just to get a little more clarity there. Our understanding is recent amendments to Section 301 investigations could be imposing a tariff on the full value of tank cars coming out of Mexico into the U.S. Maybe if you could just speak a little more to your current understanding of that tariff situation and what is Greenbrier's current tank car backlog mix? And then maybe just on that, if you guys are incurring any tariffs there to start, that would be helpful. Thank you.
Sure, Andrzej, thanks. I will start out and I am sure that my colleagues here will jump in and fill in if there is anything that I am missing. Let me start at the beginning. We are not currently entering tank cars or paying a tariff for equipment that is coming from Mexico into the United States. As you stated, there have been some recent pronouncements and determinations that have industry-wide implications. We and our industry partners are seeking guidance from Customs and Border Protection on how best to navigate that. So right now, it is a situation where there have been some pronouncements made, but it is a change to what has been industry-wide practice. We and our partners, whether they are the Class I railroads, the short lines, or other manufacturers, are seeking clarification from CBP on how to be compliant with the communications we have received.
Understood. And then maybe if we could get a sense for the mix of tank cars that you guys have in the backlog, that would be helpful. And then, I guess, two follow-ups. Maybe if it ended up that those tariffs were applied to the tank cars, is there then a risk of retroactive payments just to sort of be clear there? And then separately, are there discussions with customers that there could be potential price escalations if that were to be the case? Just trying to get a sense for if you guys could actually pass through those excess costs. Thanks.
Sure. I will start with the last question first. Yes, we believe that any adjustments associated with tariffs would be passed through to our customers. If there are retroactive obligations, right now that is unclear. Again, this is where we are seeking clarification from CBP on what some of the language in their rulings means and how we as an industry need to be compliant. To answer the question on percentage of backlog, the backlog that Brian talked about, about 20% of that is tank cars.
Yeah, I would just add, Lorie, that while it is 20% today, I think we are seeing the mix shift in the market pivot away from tank cars. That mix is quickly diminishing. And Lorie's right, we have provisions in all of our contracts to pass through tariffs and duties as appropriate.
And just to highlight because sometimes folks in our industry tend to forget, we build tank cars not only in Mexico with U.S.-sourced steel and other U.S.-sourced components, but we are also building tank cars in Arkansas, at our Marmaduke facility.
Interesting point. And just on that, if I could, what is the capability of shifting production there to the Arkansas facility? Is that something feasible at a later date?
Absolutely. We are building tank cars there right now and we are evaluating how much we could shift. A lot of this comes down to getting employees to be in our shops. I think this is a struggle for many industries in the United States. It is about finding, retraining and retaining a skilled workforce.
Maybe just adding on, it is Brian again. At the end of the day, we are increasing production at our U.S. facilities. We have the capability to take on quite a bit of that capacity if need be.
Okay. Thanks. Appreciate that color. Maybe just shifting to the core business with the ISM now over 50 for half a year now. Are you seeing any of that expectations or optimism from your customers creep into conversations? Or do you think that the positive ISM readings are more a reflection of other areas of the economy at the moment? I am trying to get a sense for when the broader ISM positivity might translate into improving new railcar backlogs and deliveries.
I will come in at a high level and Brian can speak to what he is hearing from our customers. What I continue to hear, and have been hearing for the last several months, is a lot of desire from our customers for additional railcars. The interesting point though is, as the macro environment continues to shift, sometimes it is creating a delay in when they want to execute on an investment in these long-lived assets. This is part of what Brian was speaking to before about trucking. We are seeing some temporary shifts over to trucking if a shipper customer is trying to evaluate how best they navigate for their business, whether they are a farmer or a chemical company or otherwise. But we do think there is quite a bit of pent-up demand for new equipment. We just need the broader economy to settle down a bit so people can make those long-term investment decisions. Brian?
I'll add on what Lorie said. Directionally, we have been watching the inquiries and the backlog, and while it's been fairly stable over the last few quarters, the pent-up demand is really beginning to rise. You are seeing it on heavy-duty infrastructure required for certain segments. When you look at orders-to-production type ratios, one anomaly is some of these specialty cars we are taking in have three to five times the number of labor hours as a tank car or covered hopper. So it is not a one-for-one trade; it is more like a four or five to one trade. We are also seeing significant improvement in the steel side of the industry where a lot of cars are trading out. And as Lorie said, with driver service rules and what is happening in the industry, intermodal is feeling pressure for growth as well. The pent-up demand is real. It is not if, it is when. We are starting to see signs of that here in this quarter already.
Got it. And maybe just one more for me before I hop back in the queue. Just a little bit more specific in terms of the manufacturing this quarter versus last was a nice uplift. Just curious if you could share whether mix was a positive this quarter and then maybe how you are thinking about core price versus mix dynamics here into the year-end?
As always, mix plays a role. But Lorie touched on it in her comments, and I mentioned it briefly earlier: the insourcing initiatives we took a couple years ago are starting to pay off. It is not just the insourcing investment on manufacturing primary parts, but also our focus on labor efficiency, overhead, and variable costs associated with production. Those initiatives are paying off. You can look back in time at Greenbrier—I have been here a long time—and we have never had these kinds of margins at this level of production. So we are excited about the opportunity if the market rises back up.
Understood. Thanks, everyone. I will hop back in the queue here.
The next question will come from Harrison Bauer with Susquehanna. Please go ahead.
Great. Thanks for taking my questions. Maybe to ask your sense of demand in a different way. How much of some of the regulatory backdrop on both the Section 32 proclamation on tank cars as well as your outstanding coupler CBP case is eating into customer demand and sentiment, with customers waiting for some clarity before going forward on some higher order amounts?
That's a great question, Harrison. Quite honestly, that is not the bigger thing holding back our customers from making those decisions to invest in long-lived assets. It is more the broader macroeconomic situation. Customers are figuring out how to either put existing equipment through a program and run it longer, or maybe if they have spot demand they can ship that via trucking. That is really where we are seeing the holdup: the macroeconomic situation, not the tariffs or coupler issues.
I'll tag on to that. Keep in mind there are a lot of Canadian customers that buy assets from us as well, and those tariff issues do not apply to cars being moved into Canada. We continue to see demand from oil and chemical producers in Canada. Generally speaking, U.S. customers are not holding back because of any uncertainty at this point. We are seeing a shift in mix to more covered hopper cars, flat cars, special-purpose assets, and overall higher-value backlog for Greenbrier.
Okay. Thank you for that. And maybe sticking with the regulatory environment and on the coupler case, could you give us an update on where you are at with the CBP determination? I know you are waiting to appeal this case. I know it is a specific office within CBP, but any color on where you are at in the coupler case and what your opportunities are, in an adverse ruling, to shift some of the coupler procurement to U.S.-sourced suppliers?
Sure. Today, we filed our administrative appeal. We have begun that process. I want to take a step back and say that the CBP determination letter does have industry-wide implications. It impacts everyone building cars that are bringing them into the United States from Canada or Mexico. Their determination letter included a change in practice, and like with the Section 301 matters, we and our industry partners are seeking guidance and clarification on how best to navigate the ruling and be compliant. That said, we have a very agile industry and a history of working together to figure out how best to navigate through various landscapes, whether it is fluctuations in demand, high steel prices, or sourcing couplers. I have no doubt that as an industry we will find a way to navigate this and continue serving our freight rail customers.
Maybe I'll point out that while these are serious issues, the financial impact of couplers is fairly small on a per-unit basis relative to the total cost of a railcar. It is probably less than 1% of the total impact. So from a customer perspective, it generally does not have a significant impact.
Good point, Brian. Thanks.
Okay. Thanks for that. Maybe moving to the leasing side of things, the substantial step-up in your lease fleet quarter over quarter. Can you walk through how you are thinking about building for your own fleet versus buying in the secondary market to grow that fleet over time? How much of the step-up in leasing CapEx is related to producing more versus buying more in the secondary market?
It is really a quarter-by-quarter call because we look at concentration, covenants within our debt financing agreements, and how we balance these things. As opportunities come to market, we evaluate whether they fit our overall strategy from concentration and risk perspectives and from a commercial customer perspective. Then we weigh that against what we are building internally. That will shift quarter to quarter depending on the market, but it is about managing the fleet in a prudent and disciplined way.
Discipline is spot on. We look at what we are building and what opportunities exist to invest, whether in cars we build or cars others put on the market, to improve the quality and diversification of our on-balance-sheet fleet.
Harrison, I would add that as we mentioned a number of years ago, our target is to invest up to $300 million a year in the lease fleet.
So is there a target size of fleet that you would want to get to by the end of fiscal '27? And maybe some thoughts on the secondary market as a seller and where you would expect gains to land in the fourth quarter and what might be embedded in your guide? Any early look on gains on sale into next year?
We have stated publicly and continue to follow the rule that we will invest about $300 million a year. Do we have an ultimate fleet size goal? No. We want to transform the company so that recurring revenue from leasing is as substantial as manufacturing income. What that means in precise numbers depends on mix. It also depends on how many of the new cars go into the fleet versus how many we acquire in the secondary market. It's not about overall fleet numbers as much as the quality of assets and the earning power of each asset.
That's something we talk about a lot internally. We do not want to spend money just to say we grew a fleet if it is not quality. I'm proud of the team's focus over the last couple of years on growing a quality fleet, which you can see from the first half of our fiscal year where we have had substantial gains on sale. My recollection is gains on sale for the rest of the fiscal year will probably be fairly modest, but Michael can respond to that.
Right. We will continue to look across the fleet and determine what makes sense as we think about concentration and opportunistic sales. You will probably see gains on sale wind down in the fourth quarter. As for 2027, it is a bit early for us to be specific, but we are going into planning and will be ready to talk about that when the time comes.
I think that's why having the liquidity Michael highlighted is so important. We want to be able to take advantage of whatever situations arise. We do not have a crystal ball on when other asset owners might put fleets on the market, so we want strong liquidity to execute when it makes sense for our fleet.
Lorie, Brian, Michael, thank you all for the time today. Thank you. Harrison.
The next question will come from Bank of America. Please go ahead.
Hi. It is Adam Ragozzino on for Ken Hoexter. Thanks for taking my question. Maybe just starting on the guidance. No change to the revenue outlook, but lowering the midpoint of deliveries and gross margin and EPS. With revenue flat, is that implying higher selling price per car? Is there more maintenance revenue kind of baked into that? Maybe help on how should we interpret it from a mix (products/production/leasing) standpoint as well? Thanks.
That's a really good question. As we get through the fourth quarter, we get closer to what is actually happening. As we look across what we see, some activity is moving into 2027 and also how much we were going to ramp up in Q4. We just have not had the need to do that, so a little bit of activity moving into next fiscal year is impacting the guidance. I would not read too deeply into it; we are just getting much closer to being able to call the year.
I would point out that while the range did not change, it is still a $100 million band. There is still enough variability there.
Thanks for that. Maybe just getting to 2027. How much visibility do you have into your production schedules? You called out industry forecasts to 34,000 from 25,000, a roughly 30% increase. Is that the right baseline to think about the step-up into next year? Any thoughts around that?
We are not prepared to give explicit guidance on 2027 yet. We are happy with the pipeline we have and believe our customers will convert these into orders; it's just the timing that is difficult to predict in the current environment. Also, a quick reminder: some of the numbers I mentioned were calendar year and our fiscal year begins on September 1st, so there can be a mismatch in framing.
When thinking about fiscal 2027 and the visibility we have, I tend to think in terms of backlog. Backlog is around 13,800 cars as we disclosed. We continue to renew across quarters. If we produce historically along similar lines, we have visibility for the first several months into the year. That visibility often goes further out, but there are different gaps and timing nuances. Those gaps can be beneficial, because they sometimes allow activity toward the end of a calendar year when customers finalize spending decisions. Also, from a network perspective, one proxy we have used historically is velocity: for every mile-per-hour degradation in network velocity or gain, it correlates roughly to a 40,000-car demand change network-wide. So degradation of velocity could increase demand for new cars in some segments.
Appreciate the time. Thank you.
Again, if you have a question, please press *1. Showing no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Lorie Tekorius for any closing remarks.
I just want to say thank you, everyone, for your attention and for your time learning and understanding more about Greenbrier, and I wish everyone a safe and happy Fourth of July.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.