On the 14th of this month, Trinity Industries (TRN) announced that, through a wholly-owned subsidiary, it has acquired the assets of Armstrong Bros. Holding Co., a Michigan-based manufacturer and lessor of trench shields and shoring equipment for the underground construction industry, for a total price of $40 million. This $40 million acquires net working capital, rental fleet assets, associated manufacturing and operational facilities, and certain patents and trademarks, which just indicates fortification of the leasing business segment along with huge impact on the construction business segment.
"We are excited about the opportunity to further expand the product offerings and customer base for the Construction Products business in the North American infrastructure-related market," said William A. McWhirter II, Trinity Industries, Inc. Senior Vice President and Construction, Marine, and Parts & Components Group President. "This transaction represents further progress in repositioning the Construction Products segment to align with products that have more consistent demand drivers."
On the 4th of this month, the company announced that it was going to acquire certain aggregate operations of Texas Industries (TXI), which will probably show up in the fourth quarter results of this year.
"This transaction with TXI is a continuation of our strategy to focus on the aggregates side of our business. We have been repositioning the Construction Products segment to align with products that have more consistent demand drivers," said William A. McWhirter II, Trinity Industries, Inc. Senior Vice President and Construction, Marine, and Parts & Components Group President. "We expect the transaction to be slightly accretive but will not have a material impact on Trinity's ongoing consolidated financial results. We remain positive on the underlying infrastructure and construction markets driving long-term demand for aggregates."
Trinity is all set to increase the consistent profitability of the Construction Products business segment. But is it only in the Construction Products segment? I don't think so. In September this year, the company acquired certain parts of plant, property and equipment of DMI Industries for $20million, which was supposed to close in the fourth quarter this year. This acquisition was expected to strengthen the manufacturing output of the company, thus bettering the overall revenue model. Needless to say, this Armstrong Bros. acquisition might not be the last acquisition for Trinity. But how will it affect the financial sheets for that matter?
Into the Financials
If you look at the third quarter statement, total revenue in the Construction Products group was recorded at $466.1 million in the last nine months, compared with $447.7 million in the same period last year. Revenue in the Energy group was recorded at $391.3 million in the last nine months till September this year, compared with $347.8 million in the same period last year. Although these numbers are encouraging, the profitability seems to have suffered during this time. Operating profit in the Construction Products segment dropped to $38.7 million in those nine months this year, compared with $42.2 million last year. Operating profit at the Energy segment dropped to $9.7 million this year against $9.8 million last year.
Perhaps this fall in operational profitability might be the reason why further acquisitions are being done. Will you be able to see any instant results in the fourth quarter? Not probably. In fact, you might see even lower numbers because of the extra reconstruction charges. But 2013 might be a better year for Trinity.
Let's look at the comparative stats:
Return on Average Assets (ROAA)
Greenbrier Companies (GBX)
American Railcar Industries (ARII)
Westinghouse Airbrake Tech. (WAB)
FreightCar America (RAIL)
Although Trinity seems to be operating at an optimum efficiency level, I am not satisfied with the ROAA, which basically means how efficiently the company is utilizing the capital at hand. Moreover, the high beta level shows that the stock can be pretty volatile in comparison to the rest.
A Few Things to Note:
- Increase in net receivables - is the company getting lenient on its credit policy?
- Increase in inventory - is there really a problem with market demand, which might be resulting in #1?
- Decrease in cash assets - this might be an impediment to the working capital of the company.
- Increase in accounts payable and accrued liabilities - this might offset the tightness of the working capital condition.
In fact, this might not be the best time to conclude whether Trinity is a buy or not. Yes, the regular action at the company management does seem to have a positive impact on the investors' minds but then again, the numbers aren't that convincing to me. In short, you need to give it some time and watch where it goes in the next few quarters to decide whether you want to go with it or not.