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Section 1: 8-K (8-K)

Document
false0000099780TRINITY INDUSTRIES INC 0000099780 2019-07-24 2019-07-24



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
 
July 24, 2019
398895953_trnlogoverticalhrblaca03.jpg
_______________________________________
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
 
1-6903
 
75-0225040
(State or other jurisdiction
of incorporation)
 
(Commission File No.)
 
(I.R.S. Employer
Identification No.)
2525 N. Stemmons Freeway,
Dallas, Texas 75207-2401
(Address of Principal Executive Offices, and Zip Code)
(214) 631-4420
Registrant's Telephone Number, Including Area Code
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
______________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
TRN
New York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.






Item 2.02 Results of Operations and Financial Condition.
The Registrant hereby furnishes the information set forth in its News Release, dated July 24, 2019, announcing operating results for the three month period ended June 30, 2019, a copy of which is furnished as Exhibit 99.1 and incorporated herein by reference. On July 25, 2019, the Registrant held a conference call and webcast with respect to its financial results for the three month period ended June 30, 2019. The conference call scripts of Jessica Greiner, Vice President of Investor Relations and Communications; Timothy R. Wallace, Chief Executive Officer and President; Eric R. Marchetto, Senior Vice President and Group President, TrinityRail; and Melendy E. Lovett, Senior Vice President and Chief Financial Officer; are furnished as exhibits 99.2, 99.3, 99.4, and 99.5, respectively, and incorporated herein by reference.
The News Release includes a reference to a forward-looking target for pre-tax return on equity, which is a not a calculation based on generally accepted accounting principles (“GAAP”). The Registrant defines pre-tax return on equity as a ratio for which (i) the numerator is calculated as income from continuing operations before income taxes, adjusted to exclude the net income or loss attributable to non-controlling interest and (ii) the denominator is calculated as average stockholders’ equity (which excludes noncontrolling interest), adjusted to exclude accumulated other comprehensive income or loss. No quantitative reconciliation to a GAAP measure is provided because of the inherent difficulty in forecasting and quantifying the amounts necessary under GAAP.
This information is not "filed" pursuant to the Securities Exchange Act of 1934 and is not incorporated by reference into any Securities Act of 1933 registration statements. Additionally, the submission of the report on Form 8-K is not an admission of the materiality of any information in this report that is required to be disclosed solely by Regulation FD.
Item 7.01 Regulation FD Disclosure.
See "Item 2.02 — Results of Operations and Financial Condition."
Forward-Looking Statements
Some statements in this release, which are not historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about Trinity's estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements, including, but not limited to, future financial and operating performance, future opportunities and any other statements regarding events or developments that Trinity believes or anticipates will or may occur in the future. Trinity uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” “guidance,” “projected,” “outlook,” and similar expressions to identify these forward-looking statements. Forward-looking statements speak only as of the date of this release, and Trinity expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Trinity’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations, including but not limited to risks and uncertainties regarding economic, competitive, governmental, and technological factors affecting Trinity’s operations, markets, products, services and prices, and such forward-looking statements are not guarantees of future performance. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” and “Forward-Looking Statements” in Trinity’s Annual Report on Form 10-K for the most recent fiscal year, as may be revised and updated by Trinity’s Quarterly Reports on Form 10-Q, and Trinity’s Current Reports on Form 8-K.





Item 9.01 Financial Statements and Exhibits.

(a) - (c) Not applicable.

(d) Exhibits:
NO.
 
DESCRIPTION
99.1

 
99.2

 
99.3

 
99.4

 
99.5

 
101.INS

 
XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH

 
XBRL Taxonomy Extension Schema Document (filed electronically herewith).
101.CAL

 
XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith).
101.LAB

 
XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith).
101.PRE

 
XBRL Taxonomy Extension Presentation Linkbase Document (filed electronically herewith).
101.DEF

 
XBRL Taxonomy Extension Definition Linkbase Document (filed electronically herewith).







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
Trinity Industries, Inc.
 
 
 
July 25, 2019
By:
/s/ Melendy E. Lovett
 
 
Name: Melendy E. Lovett
 
 
Title: Senior Vice President and Chief Financial Officer



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1
NEWS RELEASE
                 398895953_logoa13.jpg
FOR IMMEDIATE RELEASE
Trinity Industries, Inc. Announces Strong Improvement in Second Quarter 2019 Results

Reports double-digit growth in revenue, operating profit, and EPS
Reiterates guidance outlook for 2019 earnings
Provides multi-year ROE performance target
Ongoing return of capital to stockholders

DALLAS, Texas - July 24, 2019 - Trinity Industries, Inc. (NYSE:TRN) today announced earnings results for the second quarter ended June 30, 2019.

Financial and Operational Highlights - Second Quarter 2019 (as of June 30, 2019):
Reported quarterly total company revenue of $736.0 million, reflecting growth of 16% year over year
Reported quarterly earnings from continuing operations per common diluted share ("EPS") of $0.29, an increase of 21% year over year
Reported quarterly revenues from leasing and management services of $189.4 million with a 41.0% operating profit margin
Leasing Group grew the wholly-owned and partially-owned lease fleet to 102,140 units, bringing the total net book value of the lease fleet (before deferred profit) to $7.4 billion
Leasing Group reported lease fleet utilization of 97.8%
Rail Products Group reported quarterly revenues of $712.3 million and a 9.5% operating profit margin
Rail Products Group reported quarterly railcar orders and deliveries of 2,105 and 5,255, respectively, resulting in total railcar backlog of $2.9 billion at quarter-end
Successfully executed a $528.3 million secured railcar financing transaction during the quarter
Repurchased approximately 2.1 million shares at a cost of $44.0 million

“Trinity’s second quarter results reflect the benefits of the integrated rail platform, producing valuable recurring revenues from our growing lease fleet and profiting from a healthy level of new railcar production,” said Timothy R. Wallace, Trinity’s Chief Executive Officer and President. “Economic headlines continued to impede railcar demand momentum during the quarter.  There were a number of transactions in the market for new railcars during the second quarter where the economic terms did not align with the financial criteria we have established.  Our commercial decisions resulted in a lower level of railcar orders for the quarter.  Fortunately, we did not have a large need for orders in the second half of the year.  At this point, we expect to deliver at least 35% more railcars in the second half of the year compared to the first half of the year.”
Mr. Wallace continued, “Our leasing company has been successful renewing and reassigning leases to maintain a high level of utilization. Our railcar manufacturing business delivered 17% more railcars sequentially during the second quarter. They also benefitted from a more favorable product mix and better pricing.”
“Trinity’s shift towards being a rail-focused organization is an exciting transformation for the company.  Trinity has significant potential to drive returns higher through disciplined growth of our integrated rail platform while returning substantial capital to shareholders. We expect to continue making progress on our financial goals over the next few years through various levers within our control - operational improvements throughout the business, optimizing our cost structure and balance sheet, high-return investments in our railcar lease fleet and adding value-added services to our platform of businesses,” Mr. Wallace concluded.


1


“As part of the new strategic direction for Trinity, Management and the Board of Directors have focused the goals of the company to emphasize profit and return on equity improvement,” said Melendy E. Lovett, Senior Vice President and Chief Financial Officer for Trinity. “These financial targets build on Trinity’s success in growing the integrated rail platform. In addition to delivering improved 2019 profitability, our operational and financial plans aim to improve our pre-tax return on equity to an initial target range of 11-13% by the end of 2021. We are very excited about the potential opportunities in front of Trinity to continue improving our financial performance and delivering shareholder value.”

Consolidated Results
Trinity Industries, Inc. reported net income from continuing operations attributable to Trinity stockholders of $37.2 million, or $0.29 per common diluted share, for the second quarter ended June 30, 2019. Net income from continuing operations attributable to Trinity stockholders for the same quarter of 2018 was $35.9 million, or $0.24 per common diluted share. Revenues for the second quarter of 2019 increased to $736.0 million compared with revenues of $634.0 million for the same quarter of 2018.

Quarterly Business Group Results
Railcar Leasing and Management Services Group
In the second quarter of 2019, the Leasing Group increased its revenues and operating profit to $277.1 million and $104.8 million, respectively, when compared with $213.4 million and $91.8 million, respectively, in the same quarter of 2018. The increase in the Leasing Group's revenues was primarily due to a higher volume of railcars sold from the lease fleet and growth in the lease fleet, partially offset by slightly lower quarterly average lease rates when compared to the second quarter of 2018. The wholly-owned and partially-owned lease fleet grew to 102,140 units as of June 30, 2019, an increase of approximately 9% in comparison to June 30, 2018. The increase in operating profit for the second quarter was primarily due to growth in the lease fleet, higher profits from railcar sales and lower rent expense resulting from our first quarter purchase of 6,779 railcars that were previously under lease. These increases were partially offset by higher depreciation expense associated with lease fleet growth and slightly lower quarterly average lease rates when compared to the second quarter of 2018. Total sales of leased railcars were $158.2 million in the second quarter of 2019 compared with $70.1 million in the second quarter of 2018; these totals include sales of railcars owned for more than one year that are not reported as revenues as well as railcars sold under sales-type leases. Supplemental information for the Leasing Group is provided in the accompanying tables.
Rail Products Group
The Rail Products Group reported revenues of $712.3 million during the quarter compared with revenues of $566.2 million in the second quarter of 2018. Operating profit and operating profit margin for the Rail Products Group increased to $68.0 million and 9.5%, respectively, in the second quarter of 2019 compared with $48.5 million and 8.6%, respectively, in the second quarter of 2018. The increase in revenues and operating profit primarily resulted from favorable railcar pricing and product mix changes compared to the prior year period and growth in our maintenance services business. The Rail Products Group received orders for 2,105 railcars and delivered 5,255 railcars during the second quarter of 2019, compared with orders for 8,320 railcars and deliveries of 5,105 railcars, respectively, in the same quarter last year. The railcar backlog in the Rail Products Group decreased during the quarter to $2.9 billion as of June 30, 2019, representing 23,170 railcars, compared with a railcar backlog of $3.3 billion as of March 31, 2019, representing 26,320 railcars.
All Other Group
In the second quarter of 2019, the All Other Group, which primarily includes the results of our highway products and logistics businesses, reported revenues of $88.5 million compared with revenues of $92.2 million in the second quarter of 2018. The decrease in revenues was primarily due to decreased demand and lower shipping volumes in our highway products business. Operating profit for the All Other Group was $6.2 million for the second quarter of 2019, compared with operating profit of $12.4 million in the second quarter of 2018. The decline in operating profit was primarily the result of higher selling, engineering, and administrative expenses when compared to the prior year period and gains on dispositions of property recognized in the prior year.

2



Progress on 2019 Priorities
Net of proceeds from the sales of leased railcars, Trinity has invested $591.0 million in railcars year to date for the growth of the leased railcar portfolio. Additionally, Trinity has invested $34.0 million in manufacturing and other capital expenditures for both maintenance and expansion.
During the second quarter, the Company announced expansion plans to develop a full-service railcar maintenance facility in a key geographic location within the Midwest. Upon completion, the new $60 million facility will provide a full range of railcar services, including repairs and maintenance, coatings, cleaning, inspections, and testing. The expansion of the railcar maintenance business is expected to enhance customers’ experience by delivering best-in-class turn times for maintenance events within the railcar industry, as well as increase the Company’s ability to service the maintenance requirements of approximately 50% of the lease fleet.
In connection with the Company's ongoing efforts to optimize its balance sheet and improve returns, the Leasing Group closed a $528.3 million railcar asset-backed securitization with a coupon rate of 3.82% as previously disclosed in April 2019. Proceeds received from the transaction were used to repay outstanding borrowings under the Leasing Group's secured warehouse credit facility and the Company's revolving credit facility, as well as for general corporate purposes.
During the second quarter of 2019, the Company repurchased approximately 2.1 million shares at a cost of $44.0 million, bringing year to date share repurchases to approximately 5.6 million shares at a cost of $133.0 million. The year to date total includes approximately 2.6 million shares that were delivered to the Company in the first quarter of 2019 upon final settlement of the previously announced accelerated share repurchase program, which was funded in November 2018.
As of June 30, 2019, the Company had a remaining authorization to repurchase up to $287.0 million, not to exceed 10.7 million shares, of its common stock under the current repurchase program. The size of the current share repurchase program, effective through December 31, 2020, is designed to meet certain IRS safe harbor guidelines associated with the Company's tax-free spin-off of Arcosa completed in November 2018.

2019 Guidance
For the full year 2019, the Company continues to anticipate earnings of between $1.15 and $1.35 per common diluted share, an increase of 64% to 93% as compared to 2018. Additionally, the Leasing Group expects a net lease fleet investment of between $0.9 billion and $1.1 billion in 2019. At this time, the Rail Products Group expects full year 2019 deliveries of between approximately 23,000 and 24,500 railcars. Additional guidance information is included in the accompanying tables.

Conference Call
Trinity will hold a conference call at 11:00 a.m. Eastern on July 25, 2019 to discuss its second quarter results. To listen to the call, please visit the Investor Relations section of the Trinity Industries website, www.trin.net and select the Events & Presentations menu link. An audio replay may be accessed through the Company’s website or by dialing (402) 220-7237 until 11:59 p.m. Eastern on August 1, 2019.


3


About Trinity Industries
Trinity Industries, Inc., headquartered in Dallas, Texas, owns businesses that are leading providers of rail transportation products and services in North America. Our rail-related businesses market their railcar products and services under the trade name TrinityRail®. The TrinityRail integrated platform provides railcar leasing and management services, as well as railcar manufacturing, maintenance and modifications. Trinity also owns businesses engaged in the manufacture of products used on the nation’s roadways and in traffic control, as well as logistical and transportation businesses that provide support services to a variety of industrial manufacturers. Trinity reports its financial results in three principal business segments: the Railcar Leasing and Management Services Group, the Rail Products Group, and the All Other Group. For more information, visit: www.trin.net.
Some statements in this release, which are not historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about Trinity's estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements, including, but not limited to, future financial and operating performance, future opportunities and any other statements regarding events or developments that Trinity believes or anticipates will or may occur in the future. Trinity uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” “guidance,” “projected,” “outlook,” and similar expressions to identify these forward-looking statements. Forward-looking statements speak only as of the date of this release, and Trinity expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Trinity’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations, including but not limited to risks and uncertainties regarding economic, competitive, governmental, and technological factors affecting Trinity’s operations, markets, products, services and prices, and such forward-looking statements are not guarantees of future performance. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” and “Forward-Looking Statements” in Trinity’s Annual Report on Form 10-K for the most recent fiscal year, as may be revised and updated by Trinity’s Quarterly Reports on Form 10-Q, and Trinity’s Current Reports on Form 8-K.


Investor & Media Contact:
Jessica Greiner
Vice President, Investor Relations and Communications
Trinity Industries, Inc.
 
(Investors) 214/631-4420
(Media Line) 214/589-8909

- TABLES TO FOLLOW -

4



Trinity Industries, Inc.
Condensed Consolidated Income Statements
(in millions, except per share amounts)
(unaudited)
 
Three Months Ended
June 30,
 
2019
 
2018
Revenues
$
736.0

 
$
634.0

Operating costs:
 
 
 
Cost of revenues
578.5

 
481.9

Selling, engineering, and administrative expenses
69.8

 
75.6

Gains on dispositions of property:
 
 
 
Lease fleet sales
(18.7
)
 
(9.5
)
Other
(0.6
)
 
(2.0
)
 
629.0

 
546.0

Operating profit
107.0

 
88.0

Interest expense, net
55.4

 
40.1

Other, net
(0.1
)
 
(1.9
)
Income from continuing operations before income taxes
51.7

 
49.8

Provision for income taxes
14.1

 
12.5

Net income from continuing operations
37.6

 
37.3

Income (loss) from discontinued operations, net of tax
(0.8
)
 
28.2

Net income
36.8

 
65.5

Net income attributable to noncontrolling interest
0.4

 
1.4

Net income attributable to Trinity Industries, Inc.
$
36.4

 
$
64.1

 
 
 
 
Basic earnings per common share:
 
 
 
Continuing operations
$
0.29

 
$
0.24

Discontinued operations
(0.01
)
 
0.19

Basic net income attributable to Trinity Industries, Inc.
$
0.28

 
$
0.43

Diluted earnings per common share:
 
 
 
Continuing operations
$
0.29

 
$
0.24

Discontinued operations
(0.01
)
 
0.19

Diluted net income attributable to Trinity Industries, Inc.
$
0.28

 
$
0.43

Weighted average number of shares outstanding:
 
 
 
Basic
127.6

 
146.2

Diluted
129.2

 
147.0

Trinity is required to utilize the two-class method of accounting when calculating earnings per share as a result of unvested restricted shares that have non-forfeitable rights to dividends and are, therefore, considered to be a participating security. The unvested restricted shares are excluded from the weighted average number of shares outstanding for the purposes of determining earnings per share. The two-class method may result in a lower earnings per share than is calculated from the face of the income statement. See Earnings Per Share Calculation table below.


5


Trinity Industries, Inc.
Condensed Consolidated Income Statements
(in millions, except per share amounts)
(unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
Revenues
$
1,340.8

 
$
1,167.2

Operating costs:
 
 
 
Cost of revenues
1,041.9

 
881.8

Selling, engineering, and administrative expenses
129.4

 
149.0

Gains on dispositions of property:
 
 
 
Lease fleet sales
(26.6
)
 
(11.6
)
Other
(2.7
)
 
(2.1
)
 
1,142.0

 
1,017.1

Operating profit
198.8

 
150.1

Interest expense, net
106.8

 
82.5

Other, net
0.2

 
(3.1
)
Income from continuing operations before income taxes
91.8

 
70.7

Provision for income taxes
23.0

 
18.2

Net income from continuing operations
68.8

 
52.5

Income (loss) from discontinued operations, net of tax
(1.9
)
 
54.6

Net income
66.9

 
107.1

Net income (loss) attributable to noncontrolling interest
(0.1
)
 
2.8

Net income attributable to Trinity Industries, Inc.
$
67.0

 
$
104.3

 
 
 
 
Basic earnings per common share:
 
 
 
Continuing operations
$
0.53

 
$
0.33

Discontinued operations
(0.02
)
 
0.37

Basic net income attributable to Trinity Industries, Inc.
$
0.51

 
$
0.70

Diluted earnings per common share:
 
 
 
Continuing operations
$
0.52

 
$
0.32

Discontinued operations
(0.01
)
 
0.36

Diluted net income attributable to Trinity Industries, Inc.
$
0.51

 
$
0.68

Weighted average number of shares outstanding:
 
 
 
Basic
129.0

 
146.7

Diluted
130.7

 
150.2

Trinity is required to utilize the two-class method of accounting when calculating earnings per share as a result of unvested restricted shares that have non-forfeitable rights to dividends and are, therefore, considered to be a participating security. The unvested restricted shares are excluded from the weighted average number of shares outstanding for the purposes of determining earnings per share. The two-class method may result in a lower earnings per share than is calculated from the face of the income statement. See Earnings Per Share Calculation table below.



6


Trinity Industries, Inc.
Condensed Segment Data
(in millions)
(unaudited)
 
Three Months Ended
June 30,
Revenues:
2019
 
2018
Railcar Leasing and Management Services Group
$
277.1

 
$
213.4

Rail Products Group
712.3

 
566.2

All Other
88.5

 
92.2

Segment Totals before Eliminations
1,077.9

 
871.8

Eliminations - Lease subsidiary
(328.9
)
 
(228.5
)
Eliminations - Other
(13.0
)
 
(9.3
)
Consolidated Total
$
736.0

 
$
634.0

 
 
 
 
 
Three Months Ended
June 30,
Operating profit (loss):
2019
 
2018
Railcar Leasing and Management Services Group
$
104.8

 
$
91.8

Rail Products Group
68.0

 
48.5

All Other
6.2

 
12.4

Segment Totals before Eliminations and Corporate Expenses
179.0

 
152.7

Corporate
(30.6
)
 
(39.9
)
Eliminations - Lease subsidiary
(41.6
)
 
(24.5
)
Eliminations - Other
0.2

 
(0.3
)
Consolidated Total
$
107.0

 
$
88.0





7


Trinity Industries, Inc.
Condensed Segment Data
(in millions)
(unaudited)
 
Six Months Ended
June 30,
Revenues:
2019
 
2018
Railcar Leasing and Management Services Group
$
477.5

 
$
388.0

Rail Products Group
1,315.9

 
1,154.3

All Other
174.9

 
169.5

Segment Totals before Eliminations
1,968.3

 
1,711.8

Eliminations - Lease subsidiary
(599.0
)
 
(524.6
)
Eliminations - Other
(28.5
)
 
(20.0
)
Consolidated Total
$
1,340.8

 
$
1,167.2

 
 
 
 
 
Six Months Ended
June 30,
Operating profit (loss):
2019
 
2018
Railcar Leasing and Management Services Group
$
190.6

 
$
162.9

Rail Products Group
118.6

 
100.0

All Other
12.8

 
18.2

Segment Totals before Eliminations and Corporate Expenses
322.0

 
281.1

Corporate
(54.2
)
 
(77.6
)
Eliminations - Lease subsidiary
(68.8
)
 
(53.2
)
Eliminations - Other
(0.2
)
 
(0.2
)
Consolidated Total
$
198.8

 
$
150.1





8


Trinity Industries, Inc.
Leasing Group
Condensed Results of Operations (unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
($ in millions)
Revenues:
 
 
 
 
 
 
 
Leasing and management
$
189.4

 
$
184.2

 
$
376.5

 
$
358.8

Sales of railcars owned one year or less at the time of sale(1) (2)
87.7

 
29.2

 
101.0

 
29.2

Total revenues
$
277.1

 
$
213.4

 
$
477.5

 
$
388.0

Operating profit:
 
 
 
 
 
 
 
Leasing and management
$
77.7

 
$
77.9

 
$
154.8

 
$
146.9

Railcar sales(1):
 
 
 
 
 
 
 
Railcars owned one year or less at the time of sale
8.4

 
4.4

 
9.2

 
4.4

Railcars owned more than one year at the time of sale
18.7

 
9.5

 
26.6

 
11.6

Total operating profit
$
104.8

 
$
91.8

 
$
190.6

 
$
162.9

Operating profit margin:
 
 
 
 
 
 
 
Leasing and management
41.0
%

42.3
%

41.1
%

40.9
%
Railcar sales
*
 
*
 
*
 
*
Total operating profit margin
37.8
%

43.0
%

39.9
%

42.0
%
Selected expense information(3):
 
 
 
 
 
 
 
Depreciation
$
57.8

 
$
47.0

 
$
112.2

 
$
92.1

Maintenance and compliance
$
26.5

 
$
25.0

 
$
54.3

 
$
51.4

Rent
$
4.3

 
$
9.9

 
$
9.8

 
$
20.0

Selling, engineering, and administrative expenses
$
12.7

 
$
12.6

 
$
25.5

 
$
24.8

Interest
$
50.4

 
$
32.3

 
$
96.4

 
$
63.8

 
June 30,
2019
 
June 30
2018
Leasing portfolio information:
 
 
 
Portfolio size (number of railcars):
 
 
 
Wholly-owned
77,510

 
69,480

Partially-owned
24,630

 
24,655

 
102,140

 
94,135

Managed (third-party owned)
22,510

 
27,150

 
124,650

 
121,285

Portfolio utilization (Company-owned railcars)
97.8
%
 
97.1
%
 
Six Months Ended June 30,
 
2019
 
2018
 
(in millions)
Proceeds from sales of leased railcars:
 
 
 
Leasing Group:
 
 
 
Railcars owned one year or less at the time of sale (2)
$
101.0

 
$
29.2

Railcars owned more than one year at the time of sale
99.9

 
56.4

 
$
200.9

 
$
85.6

* Not meaningful

9


(1) The Company recognizes sales of railcars from the lease fleet which have been owned by the lease fleet for one year or less as revenue. Sales of railcars from the lease fleet which have been owned by the lease fleet for more than one year are recognized as a net gain or loss from the disposal of a long-term asset.
(2)Includes revenues associated with sales-type leases of $32.3 million and $34.2 million, respectively, for the three and six months ended June 30, 2019.
(3)Operating profit includes: depreciation; maintenance and compliance; rent; and selling, engineering, and administrative expenses. Amortization of deferred profit on railcars sold from the Rail Group to the Leasing Group is included in the operating profit of the Leasing Group, resulting in the recognition of depreciation expense based on the Company's original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.

10


Trinity Industries, Inc.
Condensed Consolidated Balance Sheets
(in millions)
(unaudited)
 
June 30,
2019
 
December 31,
2018
Cash and cash equivalents
$
102.8

 
$
179.2

Receivables, net of allowance
351.7

 
276.6

Income tax receivable
21.0

 
40.4

Inventories
600.5

 
524.7

Restricted cash
113.7

 
171.6

Net property, plant, and equipment
6,869.6

 
6,334.4

Goodwill
208.8

 
208.8

Other assets
307.8

 
253.5

 
$
8,575.9

 
$
7,989.2

 
 
 
 
Accounts payable
$
217.7

 
$
212.1

Accrued liabilities
346.3

 
368.3

Debt
4,615.9

 
4,029.2

Deferred income

 
17.7

Deferred income taxes
769.0

 
743.1

Other liabilities
97.4

 
56.8

Stockholders' equity:
 
 
 
Trinity Industries, Inc.
2,178.8

 
2,210.8

Noncontrolling interest
350.8

 
351.2

 
2,529.6

 
2,562.0

 
$
8,575.9

 
$
7,989.2



11


Trinity Industries, Inc.
Additional Balance Sheet Information
(in millions)
(unaudited)


June 30,
2019
 
December 31, 2018
Property, Plant, and Equipment
 
 
 
Manufacturing/Corporate:
 
 
 
Property, plant, and equipment
$
988.6

 
$
963.2

Accumulated depreciation
(607.8
)
 
(592.3
)
 
380.8

 
370.9

Leasing:
 
 
 
Wholly-owned subsidiaries:
 
 
 
Machinery and other
13.8

 
13.5

Equipment on lease
6,568.2

 
5,934.8

Accumulated depreciation
(1,031.9
)
 
(971.8
)
 
5,550.1

 
4,976.5

Partially-owned subsidiaries:
 
 
 
Equipment on lease
2,390.7

 
2,371.9

Accumulated depreciation
(590.1
)
 
(557.2
)
 
1,800.6

 
1,814.7

 
 
 
 
Deferred profit on railcars sold to the Leasing Group
(1,078.8
)
 
(1,030.0
)
Accumulated amortization
216.9

 
202.3

 
(861.9
)
 
(827.7
)
 
$
6,869.6

 
$
6,334.4



12


Trinity Industries, Inc.
Additional Balance Sheet Information
(in millions)
(unaudited)
 
June 30,
2019
 
December 31,
2018
Debt
 
 
 
Corporate - Recourse:
 
 
 
Revolving credit facility
$

 
$

Senior notes, net of unamortized discount of $0.2 and $0.3
399.8

 
399.7

 
399.8

 
399.7

Less: unamortized debt issuance costs
(2.2
)
 
(2.3
)
 
397.6

 
397.4

Leasing:
 
 
 
Wholly-owned subsidiaries:
 
 
 
Non-recourse:
 
 
 
Secured railcar equipment notes
1,787.3

 
1,301.3

TILC warehouse facility
511.1

 
374.8

Promissory notes
643.6

 
660.2

 
2,942.0

 
2,336.3

Less: unamortized debt issuance costs
(22.6
)
 
(19.7
)
 
2,919.4

 
2,316.6

Partially-owned subsidiaries - non-recourse:
 
 
 
Secured railcar equipment notes
1,310.7

 
1,327.9

Less: unamortized debt issuance costs
(11.8
)
 
(12.7
)
 
1,298.9

 
1,315.2

 
$
4,615.9

 
$
4,029.2



13


Trinity Industries, Inc.
Additional Balance Sheet Information
($ in millions)
(unaudited)
 
June 30,
2019
 
December 31,
2018
Leasing Debt Summary
 
 
 
Total Recourse Debt
$

 
$

Total Non-Recourse Debt
4,218.3

 
3,631.8

 
$
4,218.3

 
$
3,631.8

Total Leasing Debt
 
 
 
Wholly-owned subsidiaries
$
2,919.4

 
$
2,316.6

Partially-owned subsidiaries
1,298.9

 
1,315.2

 
$
4,218.3

 
$
3,631.8

Equipment on Lease(1)
 
 
 
Wholly-owned subsidiaries
$
5,550.1

 
$
4,976.5

Partially-owned subsidiaries
1,800.6

 
1,814.7

 
$
7,350.7

 
$
6,791.2

Total Leasing Debt as a % of Equipment on Lease
 
 
 
Wholly-owned subsidiaries
52.6
%
 
46.6
%
Partially-owned subsidiaries
72.1
%
 
72.5
%
Combined
57.4
%
 
53.5
%
(1) Excludes net deferred profit on railcars sold to the Leasing Group.


14


Trinity Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
Operating activities:
 
 
 
Net income
$
66.9

 
$
107.1

(Income) loss from discontinued operations, net of income taxes
1.9

 
(54.6
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
138.1

 
119.7

Provision for deferred income taxes
22.8

 
19.0

Net gains on railcar lease fleet sales owned more than one year at the time of sale
(26.6
)
 
(11.6
)
Other
15.6

 
24.1

Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in receivables
(55.7
)
 
11.0

(Increase) decrease in inventories
(75.8
)
 
41.9

Increase (decrease) in accounts payable and accrued liabilities
(46.1
)
 
(11.5
)
Other
(38.2
)
 
(25.3
)
Net cash provided by operating activities - continuing operations
2.9

 
219.8

Net cash provided by operating activities - discontinued operations

 
128.5

Net cash provided by operating activities
2.9

 
348.3

Investing activities:
 
 
 
Proceeds from railcar lease fleet sales owned more than one year at the time of sale
99.9

 
56.4

Proceeds from disposition of property and other assets
14.3

 
4.4

Capital expenditures – leasing, net of sold lease fleet railcars owned one year or less with a net cost of $91.8 and $24.8
(690.9
)
 
(503.2
)
Capital expenditures - manufacturing and other
(34.0
)
 
(13.5
)
(Increase) decrease in short-term marketable securities

 
294.5

Other
(1.2
)
 
1.3

Net cash used in investing activities - continuing operations
(611.9
)
 
(160.1
)
Net cash used in investing activities - discontinued operations

 
(44.3
)
Net cash used in investing activities
(611.9
)
 
(204.4
)
Financing activities:
 
 
 
Payments to retire debt
(1,044.9
)
 
(674.5
)
Proceeds from issuance of debt
1,626.9

 
478.0

Shares repurchased
(59.0
)
 
(102.2
)
Dividends paid to common shareholders
(39.5
)
 
(39.3
)
Purchase of shares to satisfy employee tax on vested stock
(7.9
)
 
(11.3
)
Distributions to noncontrolling interest
(0.9
)
 
(10.3
)
Other

 
(3.2
)
Net cash provided by (used in) financing activities
474.7

 
(362.8
)
Net decrease in cash, cash equivalents, and restricted cash
(134.3
)
 
(218.9
)
Cash, cash equivalents, and restricted cash at beginning of period
350.8

 
973.8

Cash, cash equivalents, and restricted cash at end of period
$
216.5

 
$
754.9


15


Trinity Industries, Inc.
Earnings per Share Calculation
(in millions, except per share amounts)
(unaudited)

Basic net income attributable to Trinity Industries, Inc. per common share is computed by dividing net income attributable to Trinity remaining after allocation to unvested restricted shares by the weighted average number of basic common shares outstanding for the period.

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions, except per share amounts)
Income from continuing operations
$
37.6

 
$
37.3

 
$
68.8

 
$
52.5

Less: Net (income) loss attributable to noncontrolling interest
(0.4
)
 
(1.4
)
 
0.1

 
(2.8
)
Unvested restricted share participation - continuing operations
(0.3
)
 
(0.8
)
 
(0.9
)
 
(1.3
)
Net income from continuing operations attributable to Trinity Industries, Inc.
36.9

 
35.1

 
68.0

 
48.4

Net income (loss) from discontinued operations, net of income taxes
(0.8
)
 
28.2

 
(1.9
)
 
54.6

Unvested restricted share participation - discontinued operations

 
(0.3
)
 

 
(0.6
)
Net income (loss) from discontinued operations attributable to Trinity Industries, Inc.
(0.8
)
 
27.9

 
(1.9
)
 
54.0

Net income attributable to Trinity Industries, Inc.
$
36.1

 
$
63.0

 
$
66.1

 
$
102.4

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
127.6

 
146.2

 
129.0

 
146.7

Effect of dilutive securities:
 
 
 
 
 
 
 
Nonparticipating unvested restricted shares and stock options
1.6

 
0.8

 
1.7

 
0.8

Convertible subordinated notes

 

 

 
2.7

Diluted weighted average shares outstanding
129.2

 
147.0

 
130.7

 
150.2

 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.29

 
$
0.24

 
$
0.53

 
$
0.33

Income (loss) from discontinued operations
(0.01
)
 
0.19

 
(0.02
)
 
0.37

Basic net income attributable to Trinity Industries, Inc.
$
0.28

 
$
0.43

 
$
0.51

 
$
0.70

Diluted earnings per common share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.29

 
$
0.24

 
$
0.52

 
$
0.32

Income (loss) from discontinued operations
(0.01
)
 
0.19

 
(0.01
)
 
0.36

Diluted net income attributable to Trinity Industries, Inc.
$
0.28

 
$
0.43

 
$
0.51

 
$
0.68



16


Trinity Industries, Inc.
Reconciliation of EBITDA
(in millions)
(unaudited)

“EBITDA” is defined as net income plus interest expense, provision for income taxes, and depreciation and amortization including goodwill impairment charges. EBITDA is not a calculation based on generally accepted accounting principles. The amounts included in the EBITDA calculation are, however, derived from amounts included in the historical consolidated statements of operations data. In addition, EBITDA should not be considered as an alternative to net income or operating income as an indicator of our operating performance, or as an alternative to operating cash flows as a measure of liquidity. We believe EBITDA assists investors in comparing a company’s performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon many factors. However, the EBITDA measure presented in this press release may not always be comparable to similarly titled measures by other companies due to differences in the components of the calculation.

 
Three Months Ended
June 30,
 
2019
 
2018
Net income
$
36.8

 
$
65.5

Add:
 
 
 
Interest expense
57.0

 
43.8

Provision for income taxes
14.1

 
12.5

Depreciation and amortization expense
70.6

 
61.5

Earnings before interest expense, income taxes, and depreciation and amortization expense
$
178.5

 
$
183.3


 
Six Months Ended
June 30,
 
2019
 
2018
Net income
$
66.9

 
$
107.1

Add:
 
 
 
Interest expense
109.7

 
90.1

Provision for income taxes
23.0

 
18.2

Depreciation and amortization expense
138.1

 
119.7

Earnings before interest expense, income taxes, and depreciation and amortization expense
$
337.7

 
$
335.1



17


Trinity Industries, Inc.
2019 Full Year Guidance and Outlook
(unaudited)

Total Company:
 
Total earnings per share(1)
$1.15 - $1.35 per share
Corporate expense
$105 - $115 million
Interest expense, net
$220 - $230 million
Estimated tax rate
26.5%
 
 
Railcar Leasing and Management Services Group:
 
Leasing and Management revenues(2)
$760 - $775 million
Leasing and Management operating profit(3)
$320 - $330 million
Proceeds from sales of leased railcars to RIV partners and secondary market(4)
$350 million
 
 
Rail Products Group:
 
Revenue
$3.0 - $3.2 billion
Operating margin
9.0% - 9.5%
Railcar deliveries
23,000 to 24,500 railcars
Revenue elimination from sales to Leasing Group(5)
$1.5 billion
Operating profit elimination from sales to Leasing Group(5)
$175 million
 
 
 
 
All Other Group Operating Profit (6)
$15 - $20 million
 
 
(1) The range for earnings per share guidance reflects variability in the point estimates provided above for each business segment.
(2) Excludes sales of railcars owned one year or less at time of sale.
(3) Excludes operating profit from railcar sales.
(4) Excludes approximately $160 million of sales from transactions that are being accounted for as sales-type leases; however, the operating profit impact of these transactions has been factored into our full year 2019 EPS guidance.
(5) Revenue and operating profit eliminations from sales to the Leasing Group include maintenance services in addition to railcar sales.
(6) Includes Highway Products and Logistics businesses, as well as facilities engineering and non-operating plant expenses.



18
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit


Exhibit 99.2
Trinity Industries, Inc.
Earnings Release Conference Call – Q2 2019
Comments of Jessica Greiner
Vice President, Investor Relations and Communications
July 25, 2019

Thank you, David. Good morning everyone and thank you for joining us today. I’m Jessica Greiner, Vice President of Investor Relations and Communications. We welcome you to Trinity Industries’ second quarter 2019 financial results conference call.

We will begin our earnings conference call with our prepared remarks from Tim Wallace, Chief Executive Officer and President; followed by Eric Marchetto, Senior Vice President and Group President of TrinityRail. Melendy Lovett, Senior Vice President and Chief Financial Officer will provide the financial highlights and outlook. Following the prepared remarks from the leadership team, we will move to the Q&A session.

Brian Madison, President of Trinity Leasing and Management Services, and Paul Mauer, President of Trinity Rail Products are also in the room with us today, and will be a part of the Q&A session. Sarah Teachout, Senior Vice President and Chief Legal Officer and Steve McDowell, Vice President and Chief Accounting Officer are also in the room with us today.

It’s now my pleasure to turn the call over to Tim.

Tim
Eric
Melendy
Q&A Session

Thank you, David. That concludes today's conference call. A replay of today’s call will be available after one o'clock eastern standard time through midnight on August 1, 2019. The access number is (402) 220-7237. A replay of the webcast will also be available under the Events and Presentations page on our Investor Relations website located at www.trin.net.

We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.



(Back To Top)

Section 4: EX-99.3 (EXHIBIT 99.3)

Exhibit


Exhibit 99.3
Trinity Industries, Inc.
Earnings Release Conference Call – Q2 2019
Comments of Timothy R. Wallace
Chief Executive Officer and President
July 25, 2019
Thank you, Jessica, and good morning everyone.

I am pleased with our progress this year. We have a great organization and a strong leadership team that is highly motivated to create value for our customers and our stockholders. I have a high degree of confidence in our company’s ability to generate positive results, improve our company, and grow our platform. In a few minutes, Eric and Melendy will provide comments about our 2nd quarter results. I will use my time today to discuss some points about TrinityRail.
A number of business to business industries are in the process of being transformed through optimization initiatives. These transformations are driven by companies with products and services that help their customers operate more efficiently. Product enhancements and technology applications are helping B to B companies optimize their business functions.

Over the years, the railroad industry has implemented productivity improvements to enhance rail transportation. Today, many of the railroads are implementing Precision Scheduled Railroading, known as PSR. This initiative is designed to make railroads more efficient and cost-effective. We see opportunities to optimize additional aspects of the rail transportation system, specifically the ownership and usage of railcars.

We have identified product features that have potential to increase our customers’ productivity. We are also assessing different technology applications that could streamline the ownership and usage of railcars. We are pursuing value propositions that can be converted into profitable business models. We will report more on this in the future.

Our vision for TrinityRail is to be a premier provider of railcar products and services in North America while generating high-quality earnings and returns for shareholders. We want to be the “go-to source” for companies that rely on railcars to transport bulk freight. We deliver value to our customers and our shareholders through TrinityRail’s integrated platform of railcar products and services. Premier products and services provide the core foundation of our integrated platform. Our products and services are designed to streamline railcar ownership, as well as enhance the ability of our customers to load, transport and unload railcars efficiently.

I’m going to provide some comments pertaining to the value generated by our integrated platform business model. Every company chooses the business model that works best for them. Over the years, we have evaluated the benefits associated with our integrated business model and we have always arrived at the same conclusion - our integrated platform provides a large number of tangible and intangible benefits for our customers, our company, and our shareholders.

From a big picture standpoint, all of the businesses within our platform work synergistically to meet our customer needs and create shareholder value. From a financial point of view we value the tax attributes that our leasing business provides. During strong economic cycles we definitely value the increased earnings our manufacturing businesses deliver. The recurring revenues from our leasing and management services businesses are a big plus because they occur throughout the demand cycle. When we originate leases and renew leases, our customers commit to provide lease payments throughout the term of the lease. At the end





of the second quarter, we had $2.6 billion of future committed lease revenues included in our railcar leases. These revenues will be generated over the life of the leases. Each lease we originate and/or renew increases our recurring revenue pool. Recurring revenue and profit streams help mitigate the effects of cyclical down-turns associated with the railcar economy.

Successful manufacturing companies thrive on receiving performance feedback from their customers for product improvement purposes. Leasing connects our manufacturing businesses with the life cycle of our railcars, providing a conduit for direct feedback about the performance of our products. We use this information to improve our services and develop new product features that make our railcars more productive. The railcars within our lease fleet have the potential to provide a large amount of data and information for us. I believe this is a key differentiator for our company.

In addition, the companies in our integrated platform specialize in designing, manufacturing, modifying and maintaining railcars. Our leasing business has unlimited and direct access to all of these resources, plus a great visibility of the entire supply chain; and a reliable source of low-cost, premier railcars.

Frequently, our customers request quotes for both lease and sales pricing. Our integrated platform provides us the flexibility to respond to both requests. We never want to miss out on an opportunity to provide products and services to our customers.

In summary we believe our integrated platform works well for us. Doing business with our platform is like being a member of a club. Our customers have access to TrinityRail’s expertise as well as a wide range of premier products and services. We have proven the value of our integrated platform over the past 40 years and continue to perfect it. Our platform differentiates TrinityRail in the market place today, is designed to generate substantial benefits for our shareholders, and is a great vehicle to carry us into the future.

As I stated earlier, we have a highly capable team that is excited about the opportunities for our company. I am very confident in their ability to convert these opportunities into value for our customers and shareholders. In my experience, when we set our minds on accomplishing something, we deliver.

Now, I’ll turn it over to Eric, who will comment on our operations and commercial markets.




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Section 5: EX-99.4 (EXHIBIT 99.4)

Exhibit


Exhibit 99.4
Trinity Industries, Inc.
Earnings Release Conference Call – Q2 2019
Comments of Eric R. Marchetto,
Senior Vice President and Group President, TrinityRail
July 25, 2019
Thank you, Tim - and good morning everyone.

TrinityRail’s second quarter financial performance reflects the unique value of our rail platform - producing significant recurring revenues from our growing lease fleet while profiting from a healthy level of new railcar production and maintenance and compliance activities. Our rail platform of products and services is a differentiator, and fundamental to providing value to our customers and other stakeholders.

Our family of products available through our lease fleet and our manufacturing footprint ensures Trinity can deliver the right product when our customers need it, quickly adjusting to demand as market conditions evolve. Our owned and managed lease fleet is now 124,650 railcars at the end of the second quarter. Our ability to leverage the views and service opportunities we gain from a larger and more diverse fleet continues to expand. We are adding over $565 million in new railcars to the lease fleet in the remainder of 2019. We expect our lease backlog - all with commitments from customers- to earn unlevered returns well in excess of our cost of capital. This will bring the investment of our lease fleet to over $8.0 billion. Our fleet is young with an average age of 9 years. We have a customer base of over 700 shippers serving diverse markets with $2.6 billion of future committed lease payments. The fleet’s average monthly lease rate has been improving sequentially in 2019. We expect the modest sequential improvements in pricing to continue in the second half of 2019 and compare favorably year over year by end of year. Our team has been very successful renewing and assigning leases to maintain a high level of utilization, and I am very pleased with the service levels the TrinityRail teams continue to deliver, which is differentiating our business!

During the second quarter, our railcar manufacturing business increased railcar deliveries by 17% sequentially following a change in the mix of railcars from earlier in the year. Our manufacturing platform is scalable and flexible, and our operations team does an incredible job ensuring our footprint is appropriately sized for the market environment. The segment margin of 9.5% during the quarter reflected higher volume, better efficiencies, and also benefitted from better average pricing on railcars delivered.

We recently announced the geographic expansion of our railcar maintenance business during the second quarter with a new Iowa facility. We expect this investment will increase our ability to service the maintenance requirements of approximately 50% of our lease fleet, meeting another one of our strategic priorities we discussed at our investor day in 2018. By increasing our capacity to maintain our railcars, we expect to increase our service level to our customers while earning a very attractive return on this growing part of our platform. Managing the maintenance and compliance of our lease fleet will also enhance the productivity of our railcars. Our experience internally servicing our own railcar maintenance requirements has led to reduced turn times of approximately 40% per maintenance event compared to 3rd party providers.

On the commercial front, macroeconomic headlines have hindered the railcar market’s demand momentum at various times so far this year. Declining railcar loadings due to weather, global trade, and inventory pull-forward at the end of last year, as well as customer uncertainty for GDP growth creates hesitancy - a challenge in railcar equipment planning. It seems that just as clarity has emerged recently, new information or public comments reinject uncertainty into key business planning decisions. Despite this opaque market, our commercial activity spanning new and existing railcars as well as secondary market transactions totaled





9,900 railcars in the second quarter. As an integrated railcar provider, it is our first priority to protect the utilization of our lease fleet and the residual value of a 50 year asset. As a result, TrinityRail received orders for 2,100 new railcars. We were not surprised by our share of new railcar orders. There were a few larger transactions in the new railcar market that did not fit well either because of low lease rates, unacceptable economics or contract terms in crude oil markets. Simply put they did not meet our criteria and we held firm.

Over the last several years, TrinityRail has worked purposefully to harness the power of its rail platform with the goal of providing an unparalleled customer experience through superior service and innovative solutions. Rail IS the most efficient, land-based mode of transportation, however, there are service gaps in the railroad industry. Our focus is to optimize the ownership and usage of railcars to make rail transportation more economically attractive and compelling. We believe this is key for the long-term success of the rail transportation industry, and is the guiding principle for our strategic business objectives.

As a leading provider of railcar products and services, TrinityRail is focused on building our platform of products and services to address the complete spectrum of the rail transportation needs for industrial shippers. Railcars carry commodities. Our railcars and services are not commodities, yet the industry tends to compete on price. TrinityRail is moving towards a differentiated value proposition - whether it is service differentiation or product differentiation - and we are seeing the financial benefit of our rail platform through our pricing and our ability to integrate new services with our traditional product offering. This business strategy will grow our existing base of recurring revenue from long-term leases, and add high margin services revenue that enhance our return metrics.

As Tim mentioned, our vision is to be the premier provider of railcar products and services. Trinity will continue to build on this foundation of market leadership, innovation, and quality that has enabled us to serve our customers in the rail industry for more than 50 years. The rail transportation ecosphere is extensive with over 1.7 million railcars - that gives us incredible room to grow. Trinity’s integrated platform is in a strong position to capitalize on the evolving rail transportation landscape and create substantial value for our shareholders. WE ARE BUILT TO DELIVER!

I will now turn it over to Melendy.



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Section 6: EX-99.5 (EXHIBIT 99.5)

Exhibit


Exhibit 99.5
Trinity Industries, Inc.
Earnings Release Conference Call – Q2 2019
Comments of Melendy E. Lovett
Senior Vice President and Chief Financial Officer
July 25, 2019
Thank you, Eric, and good morning everyone.
I’d like to start by reviewing the financial highlights of the second quarter of 2019. Yesterday following market close, the Company reported second quarter revenues and earnings per share from continuing operations of $736 million and $0.29, respectively. The year over year improvement in our second quarter revenue and operating profit was primarily due to stronger pricing in our railcar deliveries as well as a more favorable product mix, higher sales of railcars from our lease fleet, and lease fleet growth. Lower year over year corporate related expenses of approximately $10 million resulted from our cost optimization efforts.
Operating profit improvements were partially offset by profit eliminations of $42 million resulting from the investment in newly manufactured railcars for our lease fleet - this is an increase of $17 million year over year. Our net interest expense increased by approximately $15 million year over year, reflecting the additional leverage on our balance sheet as part of our efforts to optimize our capital structure. All in all, the company delivered solid financial performance for the quarter.
Regarding litigation progress, we are pleased that we have reached an agreement to settle the shareholder class action lawsuit for $7.5 million dollars, of which our insurance will pay $5 million. The settlement is subject to final documentation and court approval. This case was filed after the jury verdict in the Harman federal False Claims Act lawsuit, which the Fifth Circuit later reversed in the Company’s favor. While the Company denies the allegations in the shareholder lawsuit, we are pleased to put this matter behind us.
For additional information regarding this case and the Company’s litigation, please see Note 14 to the financial statements in the Company’s Form 10-Q which will be filed today.
Moving into guidance, in yesterday’s press release, Trinity reiterated annual EPS guidance from continuing operations of $1.15 to $1.35 for 2019, resulting in growth of 64% to 93% percent year over year. We continue to expect segment profit from continuing operations to increase throughout the year as we add railcars to our lease fleet and ramp up railcar deliveries. At the consolidated level, our operating profit eliminations from sales to leasing will also move up as we add cars to the lease fleet.
While our earnings guidance for the Company did not change, there were slight adjustments to the business and the corporate forecasts. We have revised our revenue expectations for the Railcar Leasing and Management Services Group as a result of timing of railcar deliveries to the lease fleet, and it is expected to be between $760 million and $775 million for the year. We are holding our operating profit guidance for the segment in a range of $320 million and $330 million for the year due to improving operating expenses.
Regarding railcar sales from the lease fleet, our expectations for proceeds from sales of leased railcars to RIV partners and the secondary market remains at approximately $350 million. The timing of railcar sales from the lease fleet is always difficult to predict, but we expect the back half of the year to be relatively even between the 3rd and the 4th quarters. Our margin on railcar sales year to date reflects the younger maturity on the railcar assets sold from our lease fleet. As a reminder, we have sales-type leases in our earnings guidance, which are required to be accounted for as sales from the lease fleet in accordance with





accounting rules. We expect this to add an additional $160M in car sale revenue for the year, with $34M of this revenue being recognized year to date in 2019. The gain on sales from the lease fleet will be attributed to the total Leasing segment profit, and our EPS guidance range incorporates our assumptions.
Moving to the Rail Products Group, we are revising our railcar delivery guidance range to 23,000 to 24,500 railcars for 2019 as our production schedule has solidified for the balance of the year - the adjustment is a combination of firming customer requirements and a higher product mix requiring specialty linings. Rail Products Group revenue is now expected to be $3.0 billion to $3.2 billion, and we are maintaining our profit margin expectation of 9 to 9.5%. We expect our year to date margins to be relatively consistent throughout the remainder of the year.
Our business and corporate teams continue to work collaboratively to identify cost saving opportunities and right size corporate costs. As a reminder, our Corporate Expenses include transition and stranded costs related to the spin-off and separation of Arcosa. Additionally, our legal team has made good progress in reducing highway-related cases following the favorable Supreme Court ruling. As a result, we have again lowered our Corporate Expense guidance range to $105 to $115 million.
We are maintaining our guidance for revenue and profit eliminations of $1.5 billion and $175 million respectively. As a reminder, the revenue and profit associated with these transactions reflect the market-based transfer pricing for intercompany transactions between our railcar leasing and products business segments primarily for newly manufactured railcars.
Regarding our lease fleet investment, we now expect total net lease fleet investment of $0.9 billion to $1.1 billion for 2019, with fewer railcar deliveries and secondary market purchases planned.
In addition to our planned leasing capital expenditures, our manufacturing and corporate capital expenditures forecast is revised to $120 - $140 million. The increase is primarily driven by capital planned for the new Midwest railcar maintenance facility.
Regarding progress on 2019 financial goals, as a newly focused rail products and services company, we have shared with you specific goals and objectives to improve our earnings and returns and unlock shareholder value.
Our financial priorities include:
reducing Trinity’s cost of capital through a more optimized balance sheet,
using a disciplined capital allocation framework to deploy capital to high-return accretive business investments, and
delivering meaningful and steady return of capital to shareholders.
Our operational priorities include:
scaling the lease fleet with discretion and utilizing a disciplined, tax- and capital-efficient approach to fund our growth,
growing our maintenance services business to improve service levels and reduce fleet maintenance costs, and
aligning our overall corporate costs to Trinity’s go-forward business needs.
Since the spin-off and continuing through the second quarter, we have made good progress against these priorities. Financially, we completed the previously disclosed $528 million rail asset-backed securitization with a coupon rate of 3.82%. When combined with our short-term borrowings on our leasing Warehouse, the loan to value of our wholly-owned lease fleet is at approximately 53% at the end of the second quarter. We continue to expect a loan to value range on the fleet of 57 - 59% by year end. Optimizing our capital structure has our weighted average cost of capital at approximately 6.5% today.





We made a number of investments during the quarter, including a net lease fleet investment of $157 million, and $23 million in capital expenditures for our manufacturing platform. Trinity also completed $44 million of share repurchases, bringing our year to date total to $133 million. At the end of the second quarter, we had a remaining authorization of $287 million for a maximum of 10.7M shares.
Specific to our operational priorities and as Eric mentioned, the new Midwest maintenance facility will increase our capacity to internally service approximately 50% of the maintenance requirements of our owned and managed fleet. We anticipate the new facility will be operational by the end of 2020 and will be accretive to consolidated financial results by the end of 2021, including anticipated start-up costs.
All of these accomplishments and our investments in the second quarter, are aligned with management’s near term goal to deliver 2019 earnings growth and to improve our pre-tax Return On Equity (ROE) to an initial target range of between 11 and 13% by year end 2021. We are confident in our team’s ability to execute our plans to meet these goals.
In closing, you have heard from Tim and Eric about the commercial advantages of Trinity’s integrated rail platform, and how we are positioned to leverage the platform for growth and improved financial performance. Going forward, we will be highlighting the financial advantages of the platform, including:
Stable recurring revenues
Strong free cash flow generation
A valuable commercial channel for organic growth
Cost-advantaged railcar equipment sourcing, and
Tax-advantaged lease fleet investment
These combined financial advantages of the integrated rail platform enable Trinity to meaningfully invest in high-return growth opportunities, including our lease fleet, while also returning substantial capital to shareholders.
We’ll now transition into the Q&A session. Operator will you please give our listeners the instructions.



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