Prepared remarks
Good day, and welcome to the Trinity Industries Second Quarter ended June 30, 2026 Results Conference Call. Please note, today's event is being recorded. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain business issues and risks, a change in any of which would cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. I would now like to turn the conference over to Leigh Anne Mann, Vice President of Investor Relations.
Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's second quarter 2026 financial results conference call. Our prepared remarks will include comments from Jean Savage, Trinity's Chief Executive Officer and President; and Eric Marchetto, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the quarterly investor slides, which are accessible on our Investor Relations website at www.trin.net. These slides are under the Events and Presentations portion of the website, along with the second quarter earnings conference call EventLink. A replay of today's call will be available after 10:30 a.m. Eastern Time through midnight on August 6, 2026. Replay information is available under the Events and Presentations page on our Investor Relations website. It is now my pleasure to turn the call over to Jean.
Thank you, Leigh Anne Mann, and good morning, everyone. Second quarter earnings per share from continuing operations came in at $1.25, reflecting the successful completion of our Napier Park partnership transaction alongside execution headwinds in Rail Products that are specific and transitional. The Napier gain was $132 million pretax and demonstrates the embedded value we have been building in our fleet. It is also proof of what this platform was designed to do, perform profitably through the cycle and convert hard asset value into shareholder returns. Rail Products came in below expectations at a 1.3% operating margin, driven by two specific items we quantify at 270 basis points. Leasing continued to perform. Fleet utilization held at 97.3%. Lease rates moved higher. Rail Products ended the quarter with a $1.6 billion backlog and a book-to-bill just below 1x. The demand signal is there.
And on the last 12 months basis, our adjusted return on equity expanded to 32.4%, reflecting the impacts of the work completed on the business and the Napier Park and secondary market transaction in the last 12 months. Now let me walk you through what we're seeing in the market. The market is turning, not all at once and not without friction, but the direction is clear. The PMI manufacturing index has been positive for six consecutive months. Industrial production improved year-over-year. Carload growth is materializing across agriculture, energy and industrial construction segments where rail has a natural advantage. In particular, agricultural carloads have shown the most strength due to soybean strength and a steady increase in ethanol. Railcars in storage have been below 20% for the last four months. Inquiry levels for new railcars are strong, reflecting growing customer conviction that the cycle has turned, and demand-side signals continue to be stronger than supply-side signals.
Rail structural advantages are playing to our favor as well. Fuel efficiency relative to trucking, capacity constraints in the over-the-road network and increasing pressure on supply chains to reduce carbon footprints are all driving freight toward rail. These are durable trends. And when I look at the core indicators—PMI, industrial production, carloads and inquiry levels—the trajectory is constructive and gaining momentum. We enter the second half of 2026 with growing confidence. I'll take you through both segments, starting with leasing and services. Leasing performed. Utilization held at 97.3%. Renewal success rates improved to 75%, up from 60% in the first quarter. The future lease rate differential moved to a positive 3.5%, up from 1.2% in the first quarter. That is a meaningful acceleration and FLRD has now been positive for 20 consecutive quarters, a forward indicator that lease rates should continue to grow as renewals convert.
These are the metrics that tell us the fleet is healthy and the market is supporting our pricing. Leasing revenues were down year-over-year and the reason is structural. We closed railcar partnership transactions in Q2 2026 and Q4 2025 that reduced our own fleet. For context, in the second quarter of 2025, the revenue contribution from the consolidated Napier Park fleet was about $30 million. We are growing our overall platform while monetizing embedded fleet value and simplifying the balance sheet. As of June 30, our wholly-owned railcar fleet stands at 96,280 railcars and our investor-owned fleet count, which we manage, is 50,650. Higher lease rates and stronger external repair pricing partially offset the revenue impact of the smaller consolidated fleet. Leasing segment operating margin was 79.8%, including the $132 million non-cash gain from the Napier Park transaction. Excluding that gain, the leasing and services margin was 33%, reflecting higher maintenance and depreciation costs and the mix impact of a smaller consolidated fleet.
Additionally, we incurred disposal charges related to the exit of certain logistics solutions locations in the quarter. On the portfolio management side, we completed $31 million of lease portfolio sales in the quarter, generating $8 million in gains. The secondary market remains active, and we continue to use it as a capital allocation tool. In the Rail Products segment, we received orders for 1,560 new railcars and delivered 1,570 railcars in the quarter, ending the quarter with a backlog of $1.6 billion. We currently hold just under half of the industry backlog. Revenues were down slightly year-over-year, driven by lower deliveries. Rail Products operating profit margin came in at 1.3%. Two items drove roughly 270 basis points of that shortfall: an unplanned production interruption at our Longview manufacturing facility and temporary realignment expenses tied to our Mexico manufacturing footprint.
Excluding those items, underlying margin was in the 4% range, still below the annual trajectory we are targeting. Additionally, the mix of deliveries in the second quarter was less favorable than the first quarter. Last year, we initiated a significant consolidation and automation initiative at our Longview operations, transitioning from two facilities to one. While we are excited about the long-term operational improvements this project will deliver, it can affect our productivity while it is ongoing. We expect this project to reach completion early in 2027. The full year Rail Products margin is expected to land at the low end of our 5% to 6% range as production normalizes in the second half and mix improves in Q3 and Q4. The structural work we have done on automation, rightsizing and breakeven reduction is intact and performing. The second quarter results do not reflect that progress, but the full year will.
Before I turn the call to Eric, I want to highlight a strategic development for Trinity. In June, we acquired a 32% interest in Touax Texmaco Railcar Leasing Private Limited, or TTRL, which is a railcar leasing company in India. This is a joint venture with Touax Group, a global asset management company, and Texmaco Rail & Engineering Limited, a rail solutions provider in India. We are contributing our leasing expertise while gaining meaningful exposure to India, a growing rail market. While we do not expect material P&L contribution in 2026 as the joint venture completes its additional fleet build-out, we are excited about this JV's ability to generate solid returns and meaningful growth. In summary, we delivered strong EPS growth, closed a significant transaction that demonstrates the value embedded in our fleet and maintain the leasing metrics that matter most: utilization, renewal success and FLRD.
Rail Products had a difficult quarter on margin, but inquiries are growing and our full year expectations are unchanged. The market environment is improving, and Trinity is built to capture that improvement. I'm proud of how this team is executing, closing significant transactions, navigating a complex operating environment and accelerating into a strengthening market. The platform is sound, the leasing business is strong. The strategic moves we are making are the right ones, and the team is focused on delivering in the second half. I'll now turn the call over to Eric, who will take you through the financials and our updated guidance.
Thank you, Jean, and good morning, everyone. Before we go through the financial statements, I wanted to quickly talk through the second quarter railcar partnership transaction with Napier Park. As you will recall, we completed the first piece of this transaction in the fourth quarter, moving the TRP 2021 fleet to wholly owned and the Triumph fleet into our managed fleet and recording a non-cash gain on that exchange. In the second quarter, we contributed our remaining membership interest in the Tribute partially owned fleet for an 11.2% limited partnership interest in Napier Park SPE Holdings. The Tribute fleet is now part of our managed fleet, and we no longer have direct ownership interest in TRIP Holdings. Because the book value of this fleet was well below the market value, we recorded a non-cash pretax gain of $132 million in the second quarter. It is worth noting that while these transactions have simplified our financial statements and have allowed us to unlock significant value in our railcars, there are other notable impacts to our financial statements, especially in comparisons to prior periods.
Starting with the income statement. Revenues for the quarter were $485 million, down slightly both sequentially and year-over-year, reflecting the deconsolidation of the partially owned leasing subsidiaries as these railcars move into the managed fleet, the partially-owned railcar count and minority interest goes to zero, both expected outcomes of the partnership structure. Earnings per share in the quarter were $1.25, up both sequentially and year-over-year as a result of the $132 million railcar partnership gain. We also recorded a gain of $8 million in the quarter from lease portfolio sales. Moving to the cash flow statement. Year-to-date cash flow from continuing operations was $172 million. We've returned $71 million this year to shareholders through dividends paid and shares repurchased. Year-to-date net fleet investment was $126 million. Cash flow from operations with net gains on lease portfolio sales was $81 million in the quarter and $203 million year-to-date, reflecting significant cash generation even in a slower delivery environment.
Turning to our balance sheet. We continue to work to strengthen and improve our financial position. We have liquidity of $1 billion. Our second quarter balance sheet now reflects the deconsolidation of all balances related to TRIP Holdings, both on the asset side with a lower property, plant and equipment balance and the removal of the associated partially owned debt from our balance sheet. Furthermore, the other assets line item includes our new equity method investment in the Napier Park railcar fleet. Additionally, in the quarter, we amended and extended our $600 million corporate revolver to provide more flexibility and issued TRL 2025, Series 2026-1 secured railcar equipment notes to redeem in full the Series 2019-1 notes. The financing increased the loan-to-value on our wholly owned lease fleet to 70.8%, which is slightly above our targeted range. The higher advance rate on the fleet reflects the increased market value supported by higher lease rates on our fleet.
Our unencumbered fleet is approximately $900 million, giving us financial and operational flexibility. And now I'd like to give some thoughts on guidance for the rest of the year. We continue to expect 25,000 industry deliveries this year, well below replacement levels as customers manage through cost uncertainty and economic headwinds. Despite the softer delivery environment, we are maintaining capital discipline. We are slightly lowering our net lease fleet investment to a range of $300 million to $400 million with gains of $160 million to $180 million. Year-to-date, we have booked $162 million in gains, which means our guidance contemplates limited secondary market sales in the back half of the year. We are also holding our full year EPS guidance of $2.20 to $2.40 and expect Rail Products Group full year segment margin to be in the 5% to 6% range. This means we expect the Rail Products operating margin to normalize in the second half of the year as the headwinds we experienced in the quarter clear.
Additionally, we expect Rail Products deliveries in the second half to be higher than the first half, which brings meaningful operating leverage on our cost base and supports the full year margin trajectory. To summarize, the balance sheet is stronger, liquidity stands at $1 billion and our capital allocation priorities are unchanged: disciplined fleet investment, active portfolio management and returning capital to shareholders. The financial foundation is sound. The recovery drivers are in place, and we are holding guidance. We look forward to demonstrating that in the second half of 2026. Operator, we are now ready for our first question.
Questions and answers
Our first question comes from Andrzej Tomczyk with Goldman Sachs.
Just curious if we could start off on the tariffs just to get a little more clarity there. Our understanding is that the recent amendments to Section 232 investigations are imposing a tariff of up to 25% on the full value of tank cars imported into the U.S. Maybe if you guys could just speak a little more to your current understanding of the tariff situation, what's Trinity's current tank car backlog mix? And just sort of broad thoughts on how this might filter through the system. Appreciate it.
Thank you, Andrzej. I'll start with that. Our tank cars are manufactured in North America under USMCA. We continue to engage with U.S. Customs and Border Protection. We filed a formal ruling request with the CBP, asserting our Section 232 exemption. Our legal basis is different from other builders who rely on an exemption known as the International Instrument of Trade. We believe that our exemption is well-grounded and will not have an effect, but we are waiting for the CBP to respond. We also have flexibility. Our Longview facility produces rail tank cars, and we believe we produce more than any other builder in the U.S., so we can move production around if needed. The impact so far with the Section 232 activity has slowed the order rate for new tank cars, and we are seeing that. We're working with our customers to make sure that even under USMCA, if we do end up with any tariffs, it would be at the lower 10% rate.
But we are building flexibility for our customers. I also want to clarify the couplers situation because people are confusing the issues. There is an evasion case with a different builder related to railcars with non-U.S.-produced couplers. We are not subject to that investigation. We have a long-standing relationship with a U.S. manufacturer for those couplers and have been purchasing them domestically for years. So those are two distinct matters and the coupler issue does not apply to us.
Understood. I appreciate the distinction there as well. Maybe just a quick follow-up. If the tariffs are deemed to be put in place after the fact on a going-forward basis, would you escalate that in your contracts? And are you expressing that with customers currently in conversations?
Absolutely. Those discussions are happening as contracts are built. The majority of our contracts include escalation provisions. So any applicable tariffs would be passed on according to those contract terms.
Great. And maybe just touching on the quarter a little bit. You talked about the impact on Rail Products margins, the 270 basis points, those two pieces— the unplanned production interruption and the temporary line realignment in Mexico. Could you split out the two? What was the impact of the production interruption versus the Mexico realignment, and what drove those events? And going forward, any thoughts on how the tank car order mix might impact margins relative to your guidance?
First, we are deeply saddened by the tragic loss of one of our colleagues, and our thoughts remain with that employee's family, friends and coworkers. The safety of our people is our highest priority, and any workplace fatality is upsetting to everyone at Trinity. Consistent with our prior practices, we have taken steps to reinforce our safety programs and identify opportunities to strengthen our processes. While I won't discuss the specifics of the incidents, we remain committed to continuously improving our safety culture and ensuring our employees have the training, resources and support they need to work safely every day. That is the largest portion of the 270 basis points, but we also had some realignment of work in Mexico. Some of that was related to tank cars. As we look forward, the biggest impact and the reason we're saying we'll be at the lower end of the 5% to 6% range is that we see a significant increase in deliveries for the second half of the year versus the first half. That operating leverage will allow us to regain some of the efficiencies that were lost earlier in the year. We don't expect a repeat of the incidents from the first half to occur. I think that explains the majority of the 270 basis points for you.
Yes, Andrzej, I'll just add that as you think about the rest of the year, we have very good visibility into the back two quarters of scheduled production. The guidance range anticipates the tank freight mix, and we don't expect that to change materially. As Jean mentioned, the tariffs affecting tank car decision-making are likely to impact 2027 more than the back half of 2026.
Great. That's great color. And then just on that margin trajectory into the back half with the improvement in deliveries, is there any contemplation of the third quarter versus the fourth quarter in terms of production ramp cadence? I know last year manufacturing margins were higher in the third quarter. Should we expect a similar pattern, or any thoughts on cadence?
We're already set to make the production ramp that we need to do, and I wouldn't expect large swings quarter-to-quarter.
Great. And then maybe just on the FLRD, it looked like a nice change in the prior downward trend. It rose to 3.5% this quarter. Can you talk about what's driving that and expectations for FLRD going forward?
All of the metrics we follow that support that FLRD are positive: utilization remains high and the renewal rate rose to 75%. Inflation remains elevated and material costs continue to rise. All of those give us headroom to continue raising lease rates and support the FLRD. A lot of what you saw in Q1 was driven by the mix of car types, and that had some impact in Q2 as well. Mix will continue to impact the rate, but we see headroom for lease rates going forward.
Our next question comes from Harrison Bauer with Susquehanna.
I want to extend my condolences to your colleagues. Sorry to hear about that. I'm glad you're taking steps on safety going forward. Maybe moving to a couple of quick follow-ups on the quarter more specifically. You mentioned the disruption and the effect on margins. Were there any delivery or shipment accounts affected in the quarter, or was that strictly a cost issue? And then thoughts on how the India JV will flow through the P&L — will it be reflected in your total lease fleet? I know you've taken steps on the NCI line, so how should we expect the new JV to be presented on the financial statements next year?
We did have delays of some deliveries due to the disruptions in the second quarter, but we didn't lose those deliveries; you'll see them flow into later quarters. I'll let Eric talk about how the India JV will be reflected.
Harrison, the India JV is accounted for under the equity method. It will appear as an investment in other assets on our balance sheet and any results will come through below the segment line in other income. It will not be consolidated into our total lease fleet like the TRIP transactions used to be. We don't expect much of an impact in 2026; the capital we provided is growth capital for the business. Long term, we think India is a very good market and we approached it by partnering to prove the model and grow with local partners.
Okay. Maybe touching on the unchanged guidance. You left EPS guidance at $2.20 to $2.40. It sounds like the Napier Park transaction was largely in line with expectations, but after the second quarter Rail Products profits came in a little lower than expected. Can you walk us through what's keeping the guidance unchanged, particularly with the margin outlook in that segment lowered for the balance of the year? Why wasn't the guidance trimmed on the higher end or lowered?
The basis for maintaining guidance comes down to our expectations for Rail Products and the significant increase in deliveries we anticipate in the second half of the year versus the first half. That operating leverage will allow us to regain efficiency and margin. We are maintaining the 5% to 6% full-year range for Rail Products; we are guiding to the lower part of that range. Leasing continues to operate well and we expect that to continue. We do have some gains in the back half of the year from secondary market sales, but they're not significant. So the primary driver for holding EPS guidance is the expected recovery in Rail Products as deliveries pick up and operating leverage improves.
Can you offer further color on what's driving the delay of inquiry conversion into firm orders? How much are tariff uncertainties around tank cars influencing that? And is there a way to split orders between freight cars and tank cars so we can see how the mix is building into next year?
In the first month of the third quarter we've seen a pickup in new car orders; it's noticeable compared to the second quarter. The majority of new orders are on the freight car side, but we are receiving tank car orders as well. Uncertainty, including tariff concerns, has been delaying some customers from placing tank car orders as they time replacement and scrapping decisions. Material costs continuing to rise also affect timing. But overall, it's encouraging to see orders picking up in the early third quarter.
Any thoughts on backlog visibility into 2027? What do you need to see in order levels for the balance of the year to start filling production white space? I know you have a long-term supply agreement that runs through 2028. Any color on how 2027 capacity might be filled and when we might expect re-ups or additional agreements?
As for 2027, our backlog represents roughly half the industry. Part of that includes multiyear agreements such as our agreement with GATX that runs through 2028 and is fairly evenly spread. We still need additional orders to fill 2027. We feel this year will be around 25,000 units and expect a step-up to around 35,000 units for next year. That implies order activity needs to pick up between now and year-end. We see improving fundamentals—rail traffic, PMI indexes, and fleet balance—and believe momentum is coming. The tariff uncertainty is a headwind causing pauses, but we expect clarity sooner rather than later, which will support order volume.
On the leasing side, you reduced net fleet investment guidance. Can you walk through the proceeds or gains assumptions embedded in your guidance? How are you thinking about net fleet investment between building new railcars and buying used cars, given opportunities in the secondary market?
We are actively participating in both the direct origination market (new cars) and the secondary market. The primary market remains a focus, but with lower industry volumes we see attractive opportunities in the secondary market as well. Our guidance still targets $160 million to $180 million in gains, which contemplates both buying and selling activity. This aligns with our three-year targets of $750 million to $1 billion of gains. We feel good about that target and our platform's ability to originate lease content whether through new builds or secondary market purchases, and we'll continue to allocate capital accordingly to create shareholder value.
This concludes our question-and-answer session. I would like to turn the conference back over to Jean Savage for any closing remarks.
Well, thank you for joining us today. Our second quarter results reflect the strengthening leasing business and specific transitional headwinds in Rail Products that we've quantified and are working through. We closed the Napier Park transaction as signaled. We're holding our full year guidance and the platform is positioned to deliver in the second half. Thank you for your continued interest in Trinity.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.