GATX Corporation (NYSE: GMT) leases railcars to companies in the railroad industry and owns and operates a fleet of self-loading cargo ships. GATX's Rail segment (70% of 2008 revenue) purchases railcars from manufacturers like Trinity Industries, Union Tank Car Company, and Freight Car America and leases the railcars in both North America and Europe.
GATX's revenue grew by 7.2% in 2008, compared to a 9.5% growth in 2007. This decline in growth can be attributed to factors such as high oil prices and a struggling overall economy in 2008. However, conditions became more stable in 2009, thanks to factors such as decreasing oil prices (which lowers the costs of transportation for companies in the railroad and shipping industries), although the struggling overall economy counteracts these somewhat. From Q1 to Q2 2009, GATX experienced a 9% increase in revenue, thanks primarily to the inclusion of the ASC segment (it does not operate in Q1). Q2 2009 revenue of $288.1 million, a 23.1% decrease from its Q2 2008 revenue.
In summer of 2009, the House of Representatives passed a bill putting President Obama's new bill to increase railway infrastructure funding, setting into motion a plan that makes the long-term prospects of the railway industry (and GATX Rail along with it) look stronger, which is important to GATX because of the 23.1% decrease it suffered in Q2 revenue from 2008 to 2009.
GATX operates in the rail, marine and industrial equipment markets, performing tasks such as leasing railcars and operating shipping vessels. The company also invests in several joint ventures, such as GATX's 50% investment in Southern Capital Corporation. GATX operates in three primary segments: Rail, ASC (American Steamship Company), and Specialty. Its Rail segment is the primary means by which it obtains its revenue, accounting for 70% of its 2008 revenue.
|Segment (Year ending Dec. 31)||2008||2007||2006|
|Number Railcars (wholly-owned and leased, in thousands)||132.70||131.88||128.95|
GATX's net revenue increased by 7.2% in 2008, up to $1.44 billion. It's operating income increased by 4.3% and net income decreased by 3.8% in 2008, to $269.6 million and $196.0 million, respectively. GATX is split up into three segments that make up its entire revenue: Rail, ASC, and Specialty. Before fiscal 2007, GATX had an Air segment as well, but it sold all of its aircraft during 2006, the majority of which went to Macquarie Aircraft Leasing Limited. GATX's Q1 2009 Revenue was $264.4 million, which increased by 9% to $288.1 million in Q2 2009, an increase that can primarily be attributed to the addition of the ASC segment (it does not earn revenues in Q1 of any fiscal year).
Through the Rail segment, GATX leases railcars directly from manufacturers in North America and Europe to the chemical, agricultural and food processing, and railroad industries. In 2008, 26.9% of GATX's 165,836 railcars were located in Europe (in Germany, Austria, Switzerland and Poland), while the remaining 73.1% was located in North America. In fiscal 2008, Rail revenues were $1,015.2 million, a 6.8% increase from the $950.2 million in revenue GATX obtained from this segment in 2007. This increase can be attributed to robust investment activity and rising lease rates that created all-around strong market conditions in 2008. However, the onset of the economic recession began to affect GMT in the tail-end of fiscal 2008 and the first 2 quarters of fiscal 2009 as evidenced by the 13.5% drop in total revenue from Q4 2008 to Q2 2009. However, the rail market began to strengthen in Q2 2009 from factors such as decreasing oil prices, which benefit revenue for companies that lease railcars from GATX.
Through its wholly-owned subsidiary ASC, GATX owns and operates 18 shipping vessels meant to provide waterborne transportation of dry bulk commodities such as iron ore, coal, and limestone for a host of industrial customers. The ASC segment typically operates only from April through the end of the calendar year (as January-March tends to have unfavorable shipping conditions), providing GATX with a revenue boost starting from Q2 of any fiscal year. In fiscal 2008, ASC revenues totaled $271.5 million, a 16.5% increase from the $233 million this segment earned in 2007. GATX's 10-K attributed this increase to factors such as higher base freight rates and higher fuel surcharges and more favorable water and weather conditions from the year before, which created more revenue per ship and for the possibility for more shipments.
With the Specialty segment, GATX provides leasing and other financial services (such as direct finance leases and loans) to markets such as Industrial Facilities, Oil and Gas Equipment, Construction and Mining Equipment, Power Generation Equipment, and Marine Equipment. In fiscal 2008, Specialty segments totaled $159.4 million, a 1.7% decrease from the $162.1 million in revenue in fiscal 2007. As with the ASC segment, Specialty benefitted from favorable market conditions from 2006-2008, although the high oil prices of 2008 helped factor into the 1.7% revenue decrease.
In 2009, U.S. President Obama announced a plan to boost the economy through additional funding for high-speed railway networks in the United States. In June of the same year, the House passed a bill by a vote of 256-168 that provided an extra $2 billion for high-speed rail projects, setting the plan into motion. First of all, this helps GATX in the long-term because it provides a boost to the overall domestic economy. Secondly, and more importantly, this greatly strengthens the U.S. railway industry. And because GATX obtained 70% of its overall 2008 revenue from the leasing of various railcars, Obama's plan will also have a positive impact on GATX's Rail segment.
With 30% of its combined 2008 revenue coming from the ASC and Specialty segments, GATX's success depends heavily on the overall strength of the shipping industry. From 2006-2008, the shipping industry benefitted from favorable conditions, and GATX was thus likewise successful. In 2009, however, the shipping industry was volatile, experiencing unsustainably low demand in some locations, and record increases in others. For example, GATX competitor J.B. Hunt Transport Services (JBHT) suffered from the up-and-down nature of the shipping industry, recording consecutive quarterly revenues of $879.79, $722.84, and $769.78 million, from Q4 2008 to Q2 2009. One key factor in the unpredictability of the market is the price of oil, which, in 2008, reached record highs in the summer before settling down to $91.35/barrel by year's end (price adjusted for inflation). This figure still marked a 27% increase in price per barrel from the previous year, and, consequently, many businesses that depend on fuel costs suffered in 2008, including key competitor Kansas City Southern (KSU), who saw fuel costs increase by 24.6% from Q1 2007 to Q1 2008. Fortunately, GATX was able to avoid most of the negative effects of increasing fuel costs in fiscal 2008 because higher base freight rates and improving water and weather conditions from the previous year helped its business. The lower oil prices in 2009 only help GATX's revenue, which is especially important in such a turbulent industry.
In August of 2009, Germany announced that Deutsche Bank (DB) and Siemens planned to enter the US railway market in a joint venture. This decision is a direct result of Obama's rail infrastructure development plan, which will provide a boost to the domestic railroad industry. With Germany entering the US railway market, GATX will benefit from the added boost to the railway industry from such an international power, especially one from a market in which in operates (Germany). The addition of Deutsche Bank and Siemens to the railway industry provides GATX with more valuable opportunities to lease railcars to internationally renowned companies.
GATX primarily competes with companies from two different industries: the railroad industry and the shipping industry. GATX's rail segment competes with companies that lease railcars, while the ASC and Specialty segments compete with other freight shippers. These companies include:
|Company||2008 Revenue ($ in millions)||2008 Operating Income ($ in millions)||2008 Operating Margin|
|General Electric Company||182,515.0||19,141.0||10.49%|
|J.B. Hunt Transport Services||3,731.9||358.4||9.60%|
|Kansas City Southern||1,852.1||384.6||20.77%|