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WIKI ANALYSIS
Trinity Industries (NYSE: TRN) is the largest producer of railcars in North America, with a full line-up of freight and tank cars. The company is also involved in leasing their railcars to railroads. Trinity is also a leading producer of barges and highway products, such as guardrails.
Business Overview
Trinity's business is focused on five main segments:
Rail Group
TRN is the largest manufacturer of railcars and railcar products such as axles and couplers. The renewable fuels industry and the railcar replacement cycle are driving growth in the industry and for Trinity.
The company manufactures a full line of railcars, including:
- Auto Carrier Cars — used to transport automobiles
- Box Cars — transport products such as food products, auto parts, wood products, and paper
- Gondola Cars — used for coal and commodities such as metals and steel.
- Hopper Cars — carry cargo such as grain, fertilizer, and cement
- Intermodal Cars — are used to transport intermodal frieght, which are generally interchangeable among railcar, truck, and ship.
- Specialty Cars — designed for a particular industry or customer, such as waste-hauling gondolas and pressure differential cars used to haul fine grain food products such as sugar and flour.
- Tank Cars — transport products such as liquefied petroleum products, alcohol, and renewable fuels.
Rail Leasing and Management Services Group
The company leases tank cars and freight cars to railroads, shippers, and various other companies in the petroleum, chemical, agricultural, energy, and other industries that supply their own railcars to the railroads.
Construction Products Group
TRN is the largest producer of highway equipment such as guardrails and crash cushions, which protect cars on highways during collisions. Other highway products include beams and girders which are used in highway bridge construction. The company also produces ready mix concrete in certain areas of Texas and sells to contractors and subcontractors in the construction and foundation industries.
Energy Equipment Group
Leading full-line LPG tank manufacturer in North America and leading manufacturer of structural wind towers in the U.S.
Inland Barge Group
Largest barge and fiberglass hopper barge cover manufacturer in the U.S.
Trends and Forces
Increasing Oil Prices
If you recall, Warren Buffett purchased a significant stake in Burlington Northern, signaling that he believes the rail industry will outperform. If you look at the economics of the rail industry, you find it is significantly affected by fluctuations in oil prices. One would think that higher oil prices would be detrimental for rail shippers, and while it certainly does hurt their bottom line, that’s not exactly how one should look at it.
The rail industry is competing against other shipping industries. The most prominent competitor is the trucking industry. For many years the price of oil was low and the trucking companies could ship goods for less. If you were running a business and needed to ship goods en masse, you would have searched for the cheapest and most reliable method, and that would have been through trucks. Now, however, oil is breaking through new records and the tables have turned. Trucking, which relies even more heavily on oil prices than rail does, is facing serious cost increases and is forced to pass the increased expenses onto the customer.
Shipping through rail is becoming increasingly attractive for those businesses that need to ship goods within North America. Why? Every dollar that oil goes up hits the trucking industry far harder than it hits the rail shipping industry. Consider this:
A train can ship 1 ton of cargo 400 miles on 1 gallon of diesel, whereas a truck can ship 1 ton of cargo only a hand-full of miles on 1 gallon of diesel.
This is exactly why Mr. Buffett decided to invest in railroads. He knows the economics of the industry in and out, and knows that businesses are making the switch. Mr. Buffett also knows the increasing usage of biofuels - such as ethanol and biodiesel - are opening up a whole new market for shippers to attract.[1]
Market Share
Competition
References
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