A photograph of a railcar in a yard.

FreightCar America seeks market opportunities despite economic headwinds

FreightCar America executives were optimistic about the new car market environment despite macroeconomic uncertainties, based on their comments during Tuesday’s third-quarter 2022 earnings conference call with transportation analysts.

“The car environment is more positive than not,” said Jim Meyer, president and CEO of FreightCar America. “The most positive aspect comes both from what we see in terms of industry fundamentals and sales and queries. Our caution [is] regarding global macroeconomic uncertainties, including high inflation and ongoing supply chain challenges.

These positive signals include industry orders in the third quarter that were consistent with the industry demand cycle to replace railcars, customer feedback suggesting high utilization rates for leased railcars and high prices for scrap, according to Matt Tonn, chief commercial officer of FreightCar America. Even though scrap metal prices have fallen since their peak in March, railcar scrapping has exceeded railcar deliveries for nearly three years, Tonn said.

Customers also seem to be focused on replacing their aging wagons, Tonn said.

“Our sales funnel includes a diverse mix of new and existing customers whose car needs fit well with FreightCar America’s product portfolio,” Tonn said.

Meyer noted that the wagon maker’s new fabrication shop is now complete and will come online in the third quarter. The company also wrapped up the expansion of its wheel and axle shop, which has industry certification that will allow FreightCar America to manufacture axles in-house.

The third production line at FreightCar America’s Castanos plant in Mexico has started, and a fourth production line is expected to start in the first half of 2023.

“These additions will bring significant efficiencies, in addition to the benefits of further scaling and producing more units,” Meyer said.

Q3 2022 financial results

FreightCar America suffered a net loss of $17.8 million, or a loss of 69 cents per diluted share, in the third quarter of 2022, compared to net income of $731 million, or 3 cents per diluted share, in the third quarter 2021.

On an adjusted basis, the company reported a net loss of $5.4 million, or a loss of 21 cents per diluted share, according to a Monday announcement.

Despite the year-over-year loss, third-quarter revenue was up 47.1% at $85.7 million. Q3 deliveries increased by 55%, totaling 783 cars.

Meyer attributed the quarter’s “muted” results to an old order that led to a lower margin as well as high costs.

“These items put downward pressure on our profitability and dampened our gross margin, which had been in double digits for the previous two quarters,” Meyer said. “We expect these legacy orders to be finalized before the end of the year and our margin profile will strengthen from the fourth quarter. … We are actively exploring alternative freight strategies in an effort to reduce these costs.

Manufacturing operating profit was $3.1 million, compared to $163,000 in the third quarter of 2021.

“Looking forward, we will continue to be cautious and realistic about the potential impacts of a slowing market and continued supply chain headwinds,” he said. “However, as our plans continue to materialize, we expect to be able to further capitalize on the next phase of the railcar market recovery.”

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