GATX Corporation 2026 Q3 Earnings Call

Good morning, and thank you for joining GATX's 2026 third quarter earnings call. I'm joined today by Bob Lyons, President and Chief Executive Officer, Tom Ellman, Executive Vice President and Chief Financial Officer, and Paul Titterton, Executive Vice President and President of Rail North America. As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10-K for 2025 and our other filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Earlier today, GATX reported 2026 third quarter diluted earnings per share of $2.92, compared to $2.25 in the third quarter of 2025.

For the first nine months of 2026, GATX delivered diluted earnings per share of $8.11 compared to $6.46 for the same period in 2025. The 2025 third quarter and year-to-date results include a net positive impact of $0.15 per diluted share from tax adjustments and other items. These items are detailed in the supplemental information section of our earnings release. I'll briefly address each of our business segments. After that, we'll open the call up for questions. At Rail North America, market conditions remain positive. Leasing fundamentals benefited from a favorable supply-demand environment and strong interest in existing fleet assets. These conditions continue to support attractive renewal economics and secondary market opportunities across the fleet. The renewal success rate was strong at 86.1%, and fleet utilization increased to 98.4% at quarter end.

The renewal rate change of GATX's lease price index was positive 12.4%, with an average renewal term of 52 months. We continue to successfully place new railcars under our committed supply agreement with a diverse customer base. We've placed about 10,300 railcars under our 2022 Trinity supply agreement. Our earliest available scheduled delivery under this agreement is in the second quarter of 2027. Demand for our railcars in the secondary market remained exceptionally strong during the quarter. Net gains on asset dispositions in Rail North America were $50.3 million in the quarter and $167.8 million year to date. Additionally, we continue to realize benefits from the acquisition of Wells Fargo's rail assets. Integration efforts have progressed well, and we are leveraging GATX's scale, customer relationships, and portfolio management capabilities across the larger fleet.

We also benefited from higher management fee income during the quarter, driven in part by asset sale activity within the Brookfield-owned portfolio. Turning to Rail International, performance was solid in the quarter. GATX Rail Europe's fleet utilization improved to 96.1% at quarter end, and we continued pushing up renewal lease rates for various car types. In India, we further expanded the fleet during the quarter while maintaining full utilization. Across Rail International, we continue to see attractive opportunities for investment and growth. Engine leasing delivered excellent results during the quarter. Portfolio performance remained strong as healthy global air travel activity continued to support high utilization and attractive lease rates. At RRPF, we continue to deploy capital into attractive opportunities, with investment volume at the joint venture approaching $1 billion year to date. During the quarter, GATX repurchased approximately 442,000 shares for $78.5 million.

Year to date, we have repurchased more than 732,000 shares for approximately $130 million. Finally, we now expect 2026 full year earnings to modestly exceed the upper end of our previously announced guidance range of $9.90 to $10.30 per diluted share. This guidance excludes any impact from tax adjustments and other items. That concludes our prepared remarks. I will hand it back to the operator so we can open the line for questions.

Good morning, Ben. This is Paul speaking. Happy to answer that question, and I think Bob will probably chime in as well. Broadly speaking, I think it's important to understand with our LPI, it's done on a trailing 12-month basis. One thing that's happening over the course of this year is each successive quarter is incorporating another quarter of GABX. By the end of this year, we'll have GABX fully incorporated. Or I should say the former Wells Fargo fleet, which is known as GABX. As well, I would say you have that going on, you have mix, and then you do have the continued impact of the sand cars. Really all three of those things are impacting the LPI.

I will say broadly, when we think about sequential pricing in the fleet, we are actually seeing across most of the fleet, flat to slightly up sequential pricing. Certainly the pricing climate for our fleet overall is, I would say, becoming increasingly favorable. Although the LPI, as you pointed out, has been lower for the reasons I just described.

Ben, it's Bob. Thank you for the question. I just wanted to add, regarding the LPI, just doing a little back of the envelope math. The difference between, call it a 12% LPI and a 17% LPI in a given year is less than $5 million of revenue on an annual basis, and that's off our revenue base of about $2.4 billion. When you really pencil out the impact of the LPI, the variance in any given year, the impact on our revenue line is de minimis. Now, obviously that accumulates over time and gives you a different answer, but in the present year, in 2027, for example, it's not that material.

Yeah, Ben. I'll try to take both parts of those questions. One, you alluded to it in your question, but just so that everyone is totally clear. GATX earns two different types of management fees related to the Wells Fargo rail transaction. First, we earn a fee, and this is what you were referring to, for managing the long-term lease portfolio, which is wholly owned by Brookfield. Second, we earn a fee for managing the operating lease portfolio joint venture with Brookfield. Today we own 33.5% of that JV. As you noted, the first fee is what's up sequentially this quarter. For the first two quarters, we earned about $2.8 million in fees in each quarter. This quarter it was almost $15 million. So a meaningful increase. That increase was driven by the fact that under certain conditions, GATX earns additional fees for asset sales out of that portfolio.