GATX 2026 Q2 Earnings Call

Good morning, and thank you for joining GATX Corporation's 2026 second quarter earnings conference call. I'm joined today by Robert Lyons, President and Chief Executive Officer, Thomas 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 second quarter diluted earnings per share of $2.84.

This compares to 2025 second quarter diluted earnings per share of $2.06. Year to date 2026, GATX delivered diluted earnings per share of $5.19, compared to $4.21 for the same period in 2025. I'll briefly touch on each of our business segments, and then we'll open the line for questions. In Rail North America, market conditions remain constructive. Fleet utilization remained high at 98%, and our renewal success rate was strong at 82.6%. The renewal rate change of GATX's lease price index was 16.8%, with an average renewal term of 54 months. Leasing fundamentals, driven by favorable supply-demand dynamics, continue to support attractive renewal economics across most car types. We also continue to realize benefits from the Wells Fargo Rail acquisition as integration efforts progressed, and the combined fleet continued to perform well.

Additionally, we continue to successfully place new rail cars from our committed supply agreement with a diverse customer base. We've placed around 9,500 rail cars from our 2022 Trinity supply agreement. Our earliest available scheduled delivery under this supply agreement is in the first quarter of 2027. We capitalized on strong demand for rail cars in the secondary market during the quarter, resulting in meaningful asset remarketing activity. Our gains on asset dispositions was $67.7 million in the quarter and totaled $117.5 million year to date. Outside North America, GATX Rail Europe delivered a solid performance, achieving 95.3% fleet utilization at quarter end, despite challenging economic conditions. At GATX Rail India, demand for rail cars remained robust, and the fleet was fully utilized.

Rail International's investment volume was approximately $46 million during the quarter, reflecting continued fleet growth as we took delivery of new cars in Europe and India to meet customer needs. Turning to engine leasing, the segment delivered excellent results in the second quarter, supported by favorable market fundamentals and continual air travel trends, which drove strong demand for aircraft spare engines. We also identified attractive investment opportunities through our 50/50 joint venture with Rolls-Royce. Finally, as we noted in our earnings release, we are raising our 2026 earnings guidance to a range of $9.90 to $10.30, reflecting our strong year-to-date performance, healthy leasing fundamentals in the Rail North America and engine leasing markets, the benefits from the Wells Fargo Rail acquisition, and the positive outlook for our businesses. With that overview, Jillian, let's open the line for questions.

Ben, it's Robert Lyons. We don't plan to go through line by line like we did at the beginning of the year. What I can tell you is at mid-year, we're essentially very close or slightly above the guidance that we provided almost across the board on line by line. Slightly ahead on remarketing income, slightly ahead on segment profit, at Rail North America and at Engine Leasing. Those are really driving the guidance change. If I look whether it's revenue, SG&A, some of the key line items, we're still right where we thought we'd be. The $200 million of remarketing income split $130 between GATX and $70 at the joint venture still is in line with our expectations.

Ben, this is Paul speaking. I'm going to comment just qualitatively on that. As you know, we don't do car type specific breakouts in terms of the components of LPI, just as a matter of policy. Qualitatively, what I'll say is this. When we took on the Wells Fargo portfolio, we knew what the portfolio was. We knew we were getting sand exposure. Really everything going on in sand, first of all, is consistent with our expectations. Beyond that, we did have an outsized remarketing quarter for sand, which explains the impact for that. We will have more sand exposure for the remainder of the year, but again, overall, what I'll say is it's consistent with our expectations and consistent. We valued those sand cars appropriately. While obviously the rates are low, they're not concerning from that standpoint.

Yeah. Ben, it's Bob. I'd add, too, that there's a bit of an anomaly there because the actual level of renewals, just the pure level of renewals was higher than we anticipated. We actually expected to get some of those cars back. When you get them back, they come out of the LPI entirely. We actually renewed more than anticipated, which is a good thing economically for the shareholder, good thing for P&L long term, but a negative on LPI. A bit of an unusual element to the number this quarter.

Ben, this is Tom. From time to time, we collect maintenance reserves from customers to ensure that funds are available for required maintenance when those events become necessary. If it ever becomes evident that these funds are no longer required for maintenance, they're taken into income. Typically, this happens as part of an end of lease activity. Given the nature of how maintenance reserves releases are recognized, they tend to be lumpy. Q2 happened to be a particularly significant quarter for this type of activity, so we wouldn't expect that level to necessarily persist quarter to quarter. Over longer periods of time, it is fairly predictable, and this kind of activity regularly happens within the JV portfolio, and we expect it to regularly happen within the wholly owned portfolio as well, but to be a bit lumpy in nature.