Trinity Industries, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, operator.

Good morning, everyone. We appreciate you joining us for the company's third 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 third quarter earnings conference call event link. A replay of today's call will be available after 10:30 A.M. Eastern Time through midnight on November 5, 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, and good morning, everyone. We delivered a solid third quarter with momentum building across the business, and Trinity is well-positioned as we move toward year-end. Our leasing fundamentals remain strong. Our manufacturing volumes are improving, and our cash generation continues to support disciplined capital allocation. Our last 12 months adjusted return on equity was 31.8%, helped by transaction gains and operational improvements. I will start by walking you through what we are seeing in the market. Macro dynamics are very supportive of future growth in railcar orders. We have seen year-over-year carload volume increase by 3%, and this is across a variety of categories. Scrap rates are also elevated, and the industry is on track to scrap approximately 40,000 railcars in 2026, well above expected new railcar production.

Railcars in storage continue to decline and currently stand at 18%, the lowest reading since May 2023. This metric measures the share of railcars that have not made a revenue move in 60 days or more. October also marked the 17th consecutive month of fleet contraction, a trend that continues across a wide variety of car types. Against that backdrop, it is encouraging to see demand firming, with Trinity order rates up 40% quarter over quarter and inquiries remaining strong. We see the market from both sides. What customers order for new railcar deliveries and about 20,000 lease renewals and 5,000 railcar assignments each year. That insight allows us to adjust rates as conditions evolve and continue to expand or spread over our cost of capital. I will take you through both segments, starting with leasing and services.

Our leasing and services business performed well in the third quarter. Core leasing revenue was down year over year, reflecting a smaller consolidated fleet following the railcar partnership transactions we completed over the last year. The decrease was partially offset by higher rents, higher management fees, and the fleet investment we have made over the last year. Our lease fleet utilization was 97%, and our renewal success rate was 89%, with renewal rates 4.1% above expiring rates. The future lease rate differential, or FLRD, was essentially flat this quarter, driven by higher expiring rates and a less favorable renewal mix, largely the result of having repriced nearly our entire fleet into a higher rate environment. Lease rates have not yet kept pace with asset values and inflation.

We are focused on maximizing the yield on our assets, and the environment remains favorable for continued lease rate increases. Our leasing and services segment operating margin of 34.2% reflects a higher percentage of segment activity coming from lower margin businesses, such as maintenance and services, as those areas continue to grow. Over the last few years, we have improved the performance of our maintenance network to navigate the increase in tank car compliance work. As this work moderates, we announced plans to repurpose our Jonesboro maintenance facility to a storage and mobile repair facility. Current and expected volumes can be efficiently supported across our remaining four facilities, which allows us to improve utilization across the network. Working with local and state resources, we are supporting our affected employees to help identify alternative opportunities.

Net fleet investment in the quarter was $115 million, bringing our year-to-date total to $241 million. The secondary market remains very active and strong, and we continue to participate as both a buyer and a seller. I also want to highlight a small acquisition we completed in October. We acquired the assets of Rubber Lining Specialists, LLC, an Orange, Texas-based provider of specialized rubber lining, corrosion and abrasion protection, inspection, and repair services. This acquisition expands our capabilities in supporting and servicing rubber-lined railcars. In Rail Products, we are encouraged by the momentum in the market. We increased deliveries by 29% sequentially and still recorded a book-to-bill above one times, with orders of 2,190 and deliveries of 2,030 in the quarter. We also completed 355 railcar conversions. Higher steel prices should support more conversions in the future. Segment revenue reflects the higher delivery volumes.

Segment margin in the quarter was 9%, which benefited from a gain on the sale of a portion of our Longview facility. Without the $13.4 million gain, segment margin would have been 5.1%, a significant step up from the second quarter. We continue to expect a full-year segment margin between 5% and 6%. This business benefits from significant operating leverage, and we would expect to see the margin improve as volumes rise. As we discussed last quarter, we are undertaking a large project to modernize and consolidate our Longview tank car facility. This project is ongoing and progressing well. It reflects our strategic decision made a year ago to expand our U.S. manufacturing footprint, a decision we especially value given today's uncertain trade policy environment.

Before turning the call to Eric, I want to address the antidumping and countervailing duty petition filed by Union Tank Car, a wholly-owned subsidiary of Berkshire Hathaway Incorporated, with the U.S. Department of Commerce and the U.S. International Trade Commission, targeting imports of railway tank cars from Mexico. Our Monclova, Mexico, facility has been an integral part of our North American railcar manufacturing network since 1998, and Trinity has also produced more than 73,000 tank cars in the United States over the last 15 years. Our U.S. and Mexico facilities produce high-quality tank cars to meet our customers' needs. Trinity is a significant purchaser of American-made steel, which we ship to our facilities in Mexico for incorporation into the tank cars that Union Tank Car alleges to be dumped and subsidized. Our facilities serve customer demand across North America as part of a fully integrated supply chain.

We disagree with the petition's allegations and are vigorously defending our position, and we will fully cooperate with Commerce and ITC as they complete their review of the facts. Let me leave you with three points. First, our cash generation has let us grow the fleet, invest in our U.S. manufacturing footprint, and return capital to shareholders. Second, the market is tightening. Orders are up, scrapping is running well ahead of new deliveries, and we believe 2026 is a cyclical low for industry deliveries. Third, we are focused on delivering for our customers across North America. I want to take a moment to thank our team members for their hard work this quarter and for keeping customers first. Now, I'll turn it over to Eric.

Thank you, Gene, and good morning, everyone. Starting with the income statement, revenues were up 18% year-over-year, driven up by an increase in external deliveries and a higher mix of external repairs in our maintenance business, partially offset by the reduction in the size of our consolidated lease fleet following the Napier Park transactions. Operating profit was $96 million, down 19% from prior year. This was driven by lower gains on lease portfolio sales, higher SG&A expense, and a reduction in operating profit contribution from the partially owned lease fleets as a result of the railcar partnership transactions. These reductions were partially offset by a $13.4 million gain on the sale of a manufacturing facility in the Rail Products Group.