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GATX Corp.'s Q1 income plunges, but beats Wall Street's estimates

by Catherine Ngai
April 22, 2010

General American Transportation Corp., also known as GATX Corp., the Chicago-based transportation leasing company, reported better-than-expected earnings, beating Wall Street’s expectations. The relatively good news sent its stock up 4 percent.

The company posted net income of $18.7 million, or 40 cents per diluted share, in the first quarter, down 32.2 percent from $27.6 million, or 56 cents per diluted share, in 2009. Management at GATX said the reduction of income was a result of the inconsistent economy and revenue pressure.

Revenue was flat at $263.6 million, compared with $262.9 million last year.

One sign of recovery is the approximately 1,300 rail cars sold in the quarter, compared to the two sold last quarter. However, Robert Lyons, chief financial officer at GATX, warned in a conference call that this number could readily change in the next quarter because of the volatile market.

“Ideally, we’re going to grow in this market,” said Lyons. “As capital markets have improved, some people make decisions about their fleets as we consider long-term orders. We want to grow the fleet in this environment. That’s not necessarily great for accounting results, but it’ll result in great economic results, and better for our shareholders.”

Analysts expressed interest in GATX’s expenses related to an industrywide mandate from the Association of American Railroads this quarter. Executives explained that they would need to speed up the retirement of a fleet of 350 aluminum-copper cars dating from 1980. That led to a $5 million write down.

Although, the market for transportation equipment is slow, analysts are optimistic.

“Things are going to sequentially improve, at least in GATX’s business, albeit at a pretty slow pace,” said Paul Bodner, a research analyst at Longbow Research in Cleveland, in an interview. “When you’re in equipment leasing, it’s normally a slow move.”

Bodner said that GATX has a lot of options for the future, such as improving its asset sales and re-leasing its portfolio.

“The improving credit markets give them the ability to do more deals,” Bodner said. “It’s definitely a leader in the industry; they did a good job for prepping from the downturn.”

Steve Barger, an analyst at KeyBanc Capital Markets Inc., rated the company a “hold” in his research note because of a “cautiously optimistic view on the pace of a domestic recovery.”

The transportation industry has been slammed by the recession, according to Patti Reilly, president of communications at the railroad association in Washington, D.C.

“I like to say, if people are not building or buying the rail industry isn’t moving,” she said.

The association publishes a monthly statistic on railroad car storage. In April, 25 percent of railroad cars were in storage, compared with 26.9 percent last month. This number has been slowly declining since July.

“We’re one of the first indicators that things are turning positive. That’s when movement starts. And when it starts, we start,” Reilly said.

GATX stock closed at $35.32 Thursday, up $1.37.