GATX (GATX) Q2 2025 earnings call transcript

Shari Hellerman: Thank you, Erik. Good morning and thank you for joining GATX's 2025 Second-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 2024 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 2025 second- quarter net income of $75.5 million or $2.06 per diluted share. This compares to 2024 second- quarter net income of $44.4 million or $1.21 per diluted share. The 2024 second-quarter results include a net negative impact of $8 million or $0.22 per diluted share from Tax Adjustments and Other Items. Year-to-date 2025, net income was $154.1 million or $4.21 per diluted share. This compares to $118.7 million or $3.25 per diluted share for the same period in 2024. The 2024 year-to-date results include a net negative impact of $7.4 million or $0.20 per diluted share from Tax Adjustments and Other Items. These items are detailed in the Supplemental Information section of our earnings release.

Now I'll briefly address each of our business segments. And after that, we'll open the call up for questions. At GATX Rail North America, we continue to experience stable demand for railcars. Our fleet utilization was 99.2% at quarter end. And our renewal success rate was strong at 84.2%. We continue to achieve strong renewal lease rate increases while successfully extending term. The renewal rate change of GATX's Lease Price Index was positive 24.2% for the quarter, and the average renewal term was 60 months. Additionally, we continue to successfully place new railcars from our committed supply agreement with a diverse customer base. We have placed over 6,500 railcars from our 2022 Trinity Supply Agreement. Our earliest available scheduled delivery under this supply agreement is in the first quarter of 2026.

The secondary market in North America remains robust. We generated over $34 million in remarketing income during the quarter, bringing the year-to-date total to approximately $65 million. Turning to Rail International, GATX Rail Europe utilization was 93.3% at quarter end. As noted in the release, the business environment in Europe is challenging and uncertain relative to either North America or India. Given macro headwinds and slower GDP in Germany, some customers are delaying their fleet planning decisions, which is impacting fleet utilization. Despite current conditions, we maintain a positive long-term outlook on the European railcar leasing market, and we'll continue to look for attractive investment opportunities there. In India, freight volume continues to benefit from the country's ongoing infrastructure investments.

As such, we continue to see strong demand for railcars in India. GATX Rail India’s fleet utilization remained high at 99.6% at quarter end. Within Engine Leasing, our joint venture with Rolls-Royce and our wholly owned engine portfolio produced excellent second-quarter results, as strong global air passenger volume 2 2Q25 Conference Call continues to drive robust demand for aircraft spare engines. We're seeing very strong demand across engine types from global air carriers, and the secondary market for engine sales is healthy.

Regarding the pending Wells Fargo Rail transaction announced at the end of May, we're excited about the opportunities it offers. But due to the customary regulatory reviews, all of which are underway, at this stage, we're limited in what we can say beyond what we've already disclosed.

Finally, reflecting our year-to-date performance and outlook for the balance of the year, we are increasing our 2025 full-year earnings guidance to a range of $8.50 to $8.90 per diluted share. This guidance excludes the impact of Tax Adjustments and Other Items and excludes any impact from the Wells Fargo transaction. And those are our prepared remarks. I'll hand it back to the operator, so we can open it up for Q&A.

Bob Lyons: Andrzej, this is Bob Lyons. Yeah, I mean given the fact that the announcement was just made this morning, it's difficult to assess, particularly given the timing, uncertainty, and conditions that may be put on the parties to the merger. So right now, very difficult to assess. Longer term, greater efficiency on the rails, more product moving by rail, more carload traffic, all of those are, long-term, good things for railcar lessors.

Paul Titterton: So, this is Paul Titterton speaking, and thanks for the question. Yeah, I mean, broadly speaking, what I would say is the market for existing railcars remains pretty similar to how it's been in the last few quarters, which is to say that pricing remains relatively strong. And of course, we've got expirations coming off of a weaker pricing environment. And so that has continued to provide a pretty strong LPI result. At this point, I would say, in the absence of any stimulus, positive or negative, we continue to see kind of more of the same from a pricing standpoint. So, either up or down, there would have to be some external catalyst to really change that environment.

And at this point, we don't really see that catalyst. So, I would say the best predictor in terms of absolute lease rates is probably more of the same right now.

Bob Lyons: Yeah, and I would just add, Andrzej too, that many -- all of the elements of the supply-led recovery that we've talked about now for many quarters in a row, very much remain intact.

3 2Q25 Conference Call Paul Titterton: Yeah, I would say flattish is probably pretty reasonable. That's what we've been seeing for quite some time now.

Bob Lyons: No, nothing unusual about that particular filing or the response from the EU Commission. So, everything is tracking as planned in terms of filing and timelines. So real -- no change in our Q1 2026 or earlier estimate from prior.

Bob Lyons: Thank you.

Tom Ellman: Yeah, thank you for the question, this is Tom. Just for the -- to give you the numbers for the second quarter, operating income was about 85% of the total and remarketing was about 15%. So year to date, we're around 70/30 operating income to remarketing activity. As we mentioned in the press release, the key reason that we're taking up guidance is the performance at -- in the engine leasing business. So, we expect that to be strong through the rest of the year. And one of the things that I think you'll see is, over time, the remarketing side of that should probably get to be a little bit higher of a total percentage.

Tom Ellman: Yeah, there really isn't a whole lot of trending as far as that goes. It's always very lumpy. And what we can say is that it remains very strong. There's a lot of demand for those engines in the secondary market. So, a lot of remarketing activity available. What really is the question is the timing, when does it occur?

Bob Lyons: And Brendan, I'd just add to that, too. It's a bit amplified at RRPF within our own engine leasing business, just given the sheer magnitude of each asset, the net book value, whereas in Rail we're selling hundreds of cars for nice gains. In the engine leasing business, it's a few engines sold here and there for much more sizable gains. So, kind of the magnitude of the shift from quarter to quarter can be a bit more amplified.

Tom Ellman: Yeah, so, I'll start, and then I'll let Bob add to it. Kind of repeating our last answer, that side of the business is also pretty lumpy for the same reason because each engine is such a material investment in and of itself. We certainly expect to see some investment volume in the second half of the year. And coming into the year, we had said we thought it would be kind of in that - - a range similar to the last couple of years, but I'll let Bob add to that.

Bob Lyons: Sure, and kind of take it in two parts. So, the $200 million number you mentioned, certainly still within reason. It may be a little less than that just based on, as you said, where Rolls- Royce has its needs and where it allocates its engine sales. But we expect a pretty healthy investment level activity in the second half of the year. I'd also add that at the joint venture level at RRPF, we came into the year, I think, expecting somewhere in the range of $800 million total investment volume for the year. It will be north of that for sure. So still seeing very good investment activity overall in the engine portfolio. The mix may change a little bit, whether it's directly owned or at RRPF.

We participate either way so that it's all good on that front.

Bob Lyons: Thank you.

All: Good morning.

And really kind of going back to some of Brendan's questions, the reason for that range is because of the scale of each of those remarketing events; it's difficult to really pinpoint the timing. And the same is true, quite honestly, in Rail North America, where one of the big pieces of uncertainty is the timing of those various gains that we'll get on the remarketing of the railcars. So that's really why the range is where it's at.

Justin, this is Paul, and I'll answer that question. And the answer is no. There's been no slowdown at all. And we really don't think while obviously, the announced merger is very significant for the rail industry, overall. In terms of the railcar secondary market, we don't see any impact at all. I mean, really what's driving the railcar secondary market is there's still a lot of capital that wants to invest in railcars and because new car volume is down and is expected to stay down for some time, that capital really wants to flow into the secondary market. So quite honestly, secondary market is robust, and we expect it to remain robust.

You just think that that's trumped by the demand for capital flowing into this space? Bob Lyons: Yeah, and historically and looking forward, Justin -- it's Bob. Railcars, through cycles, through time, over decades, have proven to be tremendous stores of value and capital flows into the market, accordingly. And it's always been an asset class that people have been interested in investing and continuing to grow their portfolios. We don't see any change in that. The other thing I would mention, too, is I don't know the stated or unstated period for regulatory approval for that transaction announced this morning, but it's likely to be protracted. So -- and then you add integration on top of that it's a pretty extended period.

So, we're not anticipating any near-term impacts on demands in our portfolio or the secondary market.

And then lastly, strong international performance from a profitability point of view -- any way you can help me decompose that a little bit further beyond, I guess, what was called out in the press release. I noticed the Other Revenue ticked up, but just strong segment profit there sequentially and year on year. Tom Ellman: Yeah, you’ve got to look a little deeper at some of those Rail International numbers. So, when we came into the year, Bob indicated that the Rail International business would be up between about $5 million and $15 million from a segment profit standpoint. And for the first half of the year, we're kind of tracking with that. We're at the lower end of the range, but some of that is - - most of that actually, is driven by exchange rates.

If you correct for that, the segment profit is roughly equal to what we had for the first six months of last year, which is a little bit below expectations. And the reason for that is, some of the challenges that we've seen in the intermodal market in Europe have expanded a little bit to a couple of other car types. You probably saw the utilization drop a little bit in the Rail International segment. We're still tracking, like I said, similar to last year, but that will be a little bit down absent FX from what we expected coming into the year.

Bob Lyons: Thank you.

Bob Lyons: Sure, Bascome. I'll just go back to a comment, I believe I made on the conference call a couple of months ago at the end of May when we announced the transaction -- that given the length of time, we were structuring the transaction and in dialogue with Wells Fargo and going through the due diligence. By the time we announced the transaction at the end of May, there was very little left for us to do in terms of due diligence. The heavy lifting had been done. And Wells Fargo had been very forthcoming and building out an exhaustive data room that had virtually everything, by and large, we would need to complete due diligence. So, we didn't anticipate finding any surprises post- announcement, and we haven't.

I won't comment much more beyond that, given that we're still not the rightful owner of the portfolio. We look forward to closing on it. All of the assumptions we had coming into the transaction and the announcement date are holding very firm, and we feel really very, very positive about the transaction.

Bob Lyons: Yeah, we didn't really get into much detail at the time of the announcement. We said it would be accretive, but we hadn't provided much detail on that and won't until we get to closing of the transaction, which we expect Q1 2026 or sooner. When we get to that point, and we're at the closing, we can be much more forthcoming with those synergies and the outlook for the portfolio and for the integration with our business.

Bob Lyons: Thank you.

Shari Hellerman: I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Have a great day. Thank you.