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GATX Corp. (NYSE:GMT)

Q2 2010 Earnings Call

July 22, 2010 11:00 am ET

Executives

Jennifer Van Aken - Director of IR

Brian Kenney - Chairman, President and CEO

Robert Lyons - SVP and CFO

Analysts

John Hecht - JMP Securities

Steve Barger - KeyBanc Capital Markets

Art Hatfield - Morgan Keegan

Bob Napoli - Piper Jaffray

Mike Grondahl - Northland Capital Market

Gregory Macosko - Lord Abbett

Kristine Kubacki - Avondale Partners

Operator

Good day and welcome to the GATX, Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Ms. Jennifer Van Aken. Please go ahead ma'am.

Jennifer Van Aken

Thank you William and good morning everyone. Thank you for joining us for our second quarter conference call. With me today are Brian Kenney, President and CEO of GATX Cooperation and Bob Lyon Senior Vice President and Chief Financial Officer.

Before we get to questions I will give an overview of the numbers which were provided in our press release this morning. First I would like to remind you that any forward-looking statements made on this call represent our best judgment as to what may occur in the future.

We have based these forward looking statements on information currently available and disclaim any intention or obligation to update or revise these statements to reflect subsequent events or circumstances.

The company's actual results will depend on a number of competitive and economic factors, some of which may be outside the control of the company. For more information refer to our 2009, Form 10-K filings.

Today we reported 2010 second quarter net income of $21.5 million or $0.46 per diluted share. This includes a net benefit of $3.3 million or $0.07 per diluted share, related to the favorable resolution of the litigation matter and a tax accrual reversal, partially offset by the negative impact from fair value adjustments, related to certain interest rate swaps at our European rail affiliate AAE Cargo.

The breakdown of these items is as follows. The benefit from litigation is $4.1 million or $0.09 per diluted share. The benefit from the tax accrual reversal is $3.7 million or $0.08 per diluted share and the negative impact from the AAE interest rate swaps is 4.5 million or $0.10 per diluted share.

This compares to 2009 second quarter net income of $12.7 million or $0.27 per diluted share which includes the negative impact of $6.7 million or $0.14 per diluted share from the AAE interest rate swaps.

Year-to-date 2010, we reported net income of $40.2 million for $0.86 per diluted share. The year-to-date results include a net benefit of $2.5 million or $0.05 per diluted share, related to the affirmation tax and litigation matter and the interest rates swap at AAE.

Year-to-date 2009 we reported net income of $40.3 million or $0.83 per diluted share including a negative impact of $18.3 million or $0.37 per diluted share from the fair value adjustments of the AAE interest swap.

As noted in the press release our operating results are consistent with our expectations at the beginning of the year. The North American rail market remains challenging. We continue to see some signs of improvements although they are inconsistent. GATX's North American fleet utilization increased to 96.5% during the second quarter due primarily to increased fleet activity.

The pricing environment remains aggressive as renewal rates were well below expiring rates. GATX's lease price index was negative 18.6% for the quarter and the average renewal term remained relatively short at 36 months.

In specialty asset remarketing income improved during the second quarter reflective of a more active secondary market. Our marine joint ventures continue to face challenges as the markets in which they operate remain under pressure. American Steamship Company has seen a significant increase in customer demand from the level of experience in 2009.

This is particularly true in ASC's largest segment Iron ore shipments as the steel industry has brought more capacity online this year. While ASC's shipping volume has been higher than anticipated, we could see some softening in the demand for Iron Ore in the second half of the year.

As we noted in the press release we continue to expect our full year of 2010 earnings to be in the previously announced range of a $1.50 to $1.70 per diluted share this guidance excludes the AAE fair value adjustments as well as the adjustments related to litigation and tax matters.

So with that overview, let's go to your questions. William?

Question-and-Answer Session

Operator

And we'll take our first question. First question comes from John Hecht of JMP, SEC.

John Hecht - JMP Securities

Good morning, guys and thanks for taking my questions. First question is what drove the loss in the affiliate earnings in the rail division during the quarter?

Bob Lyon

That was the AAE hedge. That's where the hedge followed through.

John Hecht - JMP Securities

And what was excluding the hedge what is the normalized rate of recurring rate of earnings, what would it have been I guess?

Bob Lyon

Actually in the quarter it would have been about breakeven, a little slightly positive during the quarter. In the first quarter it was higher than that, due to some stronger affirmations at AAE and we often had within one of our North American, joint ventures we had been marketing that 50 was attributing positively in the first quarter.

John Hecht - JMP Securities

And is that I mean I know you don't get forecast as a breakeven trend is that a reasonable trend or is there other activities in the next couple of quarters to get visibility, into that? What changed that pace?

Brian Kenney

We would expect some pick up. The next ones for Jen.

John Hecht - JMP Securities

Can you guys give a sense for what renewal success rates were during the prolific they have been tracking around 55% is that consistent?

Jennifer Van Aken

Yes that's right.

John Hecht - JMP Securities

What's your outlook for pricing given the trends and capacity and idol capacity? And it looks like you're extending you're duration of your portfolio, may be you can characterize what's occurring there and is that in the context what your outlook for pricing is?

Brian Kenney

Yeah this is Brian Kenney. In general in the North American rail market pricing across the board is increasing remember that's also bottom and in many cases the bottom was pretty low.

So it's a pretty general widespread increase like I said across the board but still very far from the peak and very much below long term averages. But it is improving.

Bob Lyon

And I would just add that first 36 months is still relatively short compared to lets just start up with one.

John Hecht - JMP Securities

Yes you will stretch it out beyond 4 years in good times. So is the negative crop more of a function of just have crops as opposed to what you are seeing in the marginal trends?

Brian Kenney

Yes remember that 18 plus percent was because we were renewing leases that were put on in the peak of the market. So that's a pretty good representation of how far we are down from the peak, is that 18%.

Bob Lyon

We came into the year John I think back in January the expectation we had at that point in time would ask the question about what's negative, so what the LPI would be in 2010? My response was somewhere in the low negative 20s and we are actually at the margin we are a little bit better than we anticipated.

Operator

The next question from Steve Barger, KeyBanc Capital Markets.

Steve Barger - KeyBanc Capital Markets

Hi, good morning, looking at the RSI order numbers it looks like people are placing orders for small numbers especially car types are there any types that are tight enough for you to get involved right now and are you getting any quotes right now for opportunistic growth?

Brian Kenney

Yes we have in the first half of 2010 and there has been some activity in the new car side which is great because we didn't see that last year. And we are not out there specking yet but we have place customer orders on specialty hopper cars actually.

Steve Barger - KeyBanc Capital Markets

Is that the small cube stuff, the frac tanks or what kind of car type exactly?

Brian Kenney

That's most of the activity has been small cube coming out and going to frac sand later this year.

Steve Barger - KeyBanc Capital Markets

And any other notable types where you are starting to see a little tightness?

Brian Kenney

You know there as far as new car order activity there is a small cute coming offer there is some products activity. Those general service tanks are starting to take some word there, but I would call that widespread by any stretch.

Steve Barger - KeyBanc Capital Markets

Just looking at the AAR data you are starting to see some non-intermodal car loadings flattened out, is and we have seen a slowdown in terms of cars coming out of storage is this just a seasonal pause or is this, something that is more worrisome in terms of a trend?

Brian Kenney

You know the speculations is, that it's a seasonal pause but you know after going through what we have over the last 18 months obviously we are concerned that it could be something else but I will tell you in general activity in the rail business both in the U.S. and in Europe is defying any economic forecast out there it's a little better than you would expect given the economic numbers.

Steve Barger - KeyBanc Capital Markets

Well and I guess to that point, you said in the prepared remarks that you're preparing for softness in oil loadings, you already seeing that or is that more a cautionary forward looking kind of statement?

Brian Kenney

Well specifically, GATX into Great Lakes in general we have seen some blast furnaces close or going to be closed in the second half of the year. So that's why we issued that warning but it's still dramatically up from 2009. We said earlier in the year that we weren't sure that the pick up we saw in iron ore shipment in 2010 would go into 2011 and now we're seeing a good example of that.

Still it doesn't as far as our forecast earnings target for the year, we anticipated this and we're not going to change that.

Operator

And we will move to our next question from Art Hatfield, Morgan Keegan.

Art Hatfield - Morgan Keegan

Hey Brian, on that comment about the blast furnace shutdown, is that something that's kind of a maintenance issue or is it a demand issue?

Brian Kenney

People understand that to be a demand issue.

Art Hatfield - Morgan Keegan

When I look at some of the North American rail statistics you put out, looks to me, my perception that utilization appears to have bottomed out late last year and is there anything to read in Q2 to drop off in the number of cars that you are scrapping and the number of cars sold?

Can I read into that anything about what you're seeing from a customer demand perspective?

Brian Kenney

I would say no. It's more just timing through out the year.

Bob Lyon

I wouldn't try to slice that data too thinly.

Art Hatfield - Morgan Keegan

Thought I'd ask. I didn't feel so but. And then, just on a modeling thing, the litigation benefit, what if that falls in the income statement?

Bob Lyon

It actually is a, it's an offset to other cost. So on each statement you'll see other costs and within there, there's has been add benefit from litigation that offsets and goes the other way.

Art Hatfield - Morgan Keegan

The reason I asked that because that you have the different segments and in the other segment? Other cost and expenses, you have like $4.5 million benefit. Is that where that was?

Bob Lyon

Yeah, it was.

Art Hatfield - Morgan Keegan

And then just finally, are you seeing probably the RSI debt has gotten a little bit better but notably not where anybody would want it to be but are you seeing any kind of increased desperation or willingness from the car builders to commit to due to, do long term deals and prices that you would find advantageous or is that kind of market just dead right now?

Brian Kenney

I think the manufactures have been very co-operative in talking to us this year about long term ordered. As we said in the past, it is a priority for GATX to lock in that long term supply but when I say priority, it's a priority to lock in the right orders. So it has to be the right margin, the right price, the right mix of cars, terms, flexibility all that.

So, well, as a priority, I wouldn't say it's a burning issue right now for us to get it done immediately because of what you just said. I mean, if you look at backlog out there, it's almost non-existent as far as the new car wares we talked about in the call, got very short delivery time, you know they are selling pretty close to cost. So we don't feel, we're certainly not in any panic mode to get the order done but it is a priority.

Art Hatfield - Morgan Keegan

How does the ability to finance and financing cost play into that?

Bob Lyon

Well financing cost, I guess that's one of the irony in this market as low as they have been in a long time and all in basis and coupon basis, when you look at the five year treasury at 170 or whatever said today and the spreads above that would yield provide a really attractive financing cost.

And we may take advantage of some of that during the second half of the year but when I look in terms of the overall, doing a longer term order that would be just factored into our annual funding needs and right now, our committed CapEx beyond this year is really zero. But we have a lot of flexibility.

Art Hatfield - Morgan Keegan

And your bank lines don't expire till the 2013. 2012, okay.

Bob Lyon

That's 2012. Spread's kind of 2012.

Art Hatfield - Morgan Keegan

2012. So you may take advantage of the markets just to take advantage cheap capital but not necessarily in conjunction with signing something up, just being able to raise and park some capital until you decide to do something.

Bob Lyon

There is a possibility but obviously, you have to weight that against the bet of carry on that. And so, we're constantly looking at that.

Operator

We'll take our next question from Bob Napoli, Piper Jaffray.

Bob Napoli - Piper Jaffray

Question. International, I know you guys have talked a little bit about your interest in moving into additional markets over long the run in over to make this, let's give growth opportunity in India, China. Is there any update on the opportunities there and I understand that this is going to take, this long term in nature.

Brian Kenney

Yeah. As far as India, we have established an office there and we're getting going. Reggie set the long term opportunity. As far as any other jurisdiction, there's really nothing to report.

Bob Napoli - Piper Jaffray

So you setup an office in India, just too establishing relation like. I mean you are you're not set to do business or anything like that?

Brian Kenney

No but you know as attractive as that market is we want to be in a position to do that in the next year or so.

Bob Napoli - Piper Jaffray

What is the ending share count on a fully diluted basis? You did not find any stock back in the quarter did you?

Bob Lyon

No, we did not

Bob Napoli - Piper Jaffray

I know you had to convert till you paid down.

Bob Lyon

That's correct. Right around 46 million shares.

Bob Napoli - Piper Jaffray

46 million shares, Okay.

Bob Lyon

46.5 million shares.

Bob Napoli - Piper Jaffray

And just, did a great job on the expense control side. But I just on the remarketing obviously I have been covering you guys long enough to know that's a lumpy and I read too much into but are there opportunities out there on the remarketing side or are there, would you expect to be more active in the back half of the year than you were in 2011 that you have been so far this year?

Bob Lyon

During the back half of the year, I think that we will converse second quarter there will some increased re-marketing activity. There are defiantly opportunities out there and I think that reflective of the fact that asset value that generally stabilized in a number of different markets and also some buyers have access to capital which is critical.

Brian Kenney

Yeah. And say capital market access has improved and traditional buyers are starting to see the trends in the real market and is probably looking a little more attractive. So, it's the second a market is definitely stronger than it was a year ago when it was almost not existent in the real thing.

Bob Napoli - Piper Jaffray

And how about on the acquisition front and I'm sure you must be looking. It has, are there opportunities on the acquisition front for portfolio acquisition or have the improvements in the capital market essentially taken the opportunities off the market for now?

Brian Kenney

Don't think there's opportunities. We're still trying to get out in front of all them that might either be going to sell or probably should sell. Will be out in front of those opportunities but as you've seen, really nothings changed hands over the last year and half, it's on going portfolio.

But we're still getting after it. I actually expect there will be some activity. I think the increase if a trend in the real market will actually motivate the people to get out there along with the recovery in the secondary market. Its not just purchasing to the extent that we can control fleet through management or other opportunities will pursue that as well.

Bob Napoli - Piper Jaffray

Now would you expect to. Borrowing a significant acquisition, the investment dollars that we are seeing right now, do you see that kind of being not a lot of upside in near term to those invested dollars and if you try to law a deal with manufacture, it's more likely to be long term type of deal with cars being delivered more than a year down the road?

Bob Lyon

In terms of the long term order, you're correct but I would say probably over the last six weeks, eight weeks, the number of investment opportunities is, the activity has picked up. We would expect that to continue during the second half of the year.

Brian Kenney

The one thing I would say to any long term order we placed, you are going to have to take cars sooner rather than later to motivate the manufacture.

Bob Napoli - Piper Jaffray

Then last question, bigger picture question. I mean your return on equity is obviously well below where your targets are but it seems and you guys done a great job managing the business through the cycle and I think your real book value is probably a lot higher than your stated book value if you mark-to-market the value of the rail cars, I mean, we're kind of stuck in this are low ROE, are you are for, it looks like almost for a couple of years, no matter what you do until the market comes back more strongly because I mean, you still have the. You are going to have the negative pricing for at least another year, on the least price index in probably two years and unless I don't think you are going to get more aggressive buying back stock probably anytime soon.

So how do you think about that and understand you guys think longer term in nature than most companies and maybe couple of years is not long to wait for it to get back to double digit ROE?

Brian Kenney

I think you answered your question. At the end, we have a very long term focus as due to majority of our shareholder and what we are really focused on is not only managing the business sufficiently. I mean, we're re going to need some help from that economy advance results absolutely but we are very focused on investment as well in this market.

And I think if we can place the attractive order, if we can pick up some of those portfolios, this custom order start to materialize, we are setting ourselves up for a return to that ROE and then some in the future.

Bob Napoli - Piper Jaffray

And what is the right ROE do you think for this company long term?

Brian Kenney

You know traditionally, we said 12 to 15%. I am not going to back-off that yet. It does give you some pause if you look at the developments in the capital market for the last couple of years and general decrease in leverage that might be expected not just do a check with everybody but at this point, we are still shooting for that.

Operator

We'll move to our next question from Mike Grondahl, Northland Capital Markets.

Mike Grondahl - Northland Capital Market

Just two questions. One you talk about seeing kind of an uneven market out there, some positive, some negative, can you give us just an example of a few of the positives your seeing and a few of the negatives your seeing?

And then secondly, can you just talk a little bit about how you're planning for 2011? Is it just, are you planning to kind of continue to grind through the year or are there any more significant changes that you think you can make?

Brian Kenney

Okay. As far our planning for 2011, we're very focused right now on continuing to manage through the downturn. Despite the fact that the real market is recovering, as I said, it's still dramatically below the peak; it's dramatically below long term averages. So it is still feels like a downturn to us and we are still having churn in the fleet and we still have to manage very efficiently, both on a fleet and cost perspective.

So there is a real focus on continuing to manage the downturn we've had over the last year and half. As far as the focus in 2011, if this market continues to recover, there is going to be lot more focus than hopefully success on the investment front.

And I think we have a lot of resources dedicated to that both internationally as well as domestically in fleet acquisitions, in possible new cars and things like that. Back to your first question on the positive and the negative, I think you already heard them on phone Mike. I mean I think the rail market is seeing a pretty broad based recovery as far, at least for the first six months of the year.

Hopefully, that continues to be trend. As far as the negatives, we've talked about that too. We are seeing the great Lakes tonnage. Perhaps, had a little bump down in the second half of the year from where we thought it would be three months earlier. So it's very uneven out there as far as what you see as an economic recovery.

Bob Lyon

Mike, I think with that regard to ASC, the results for the full year will be stronger than we anticipated coming into the year. But one of the concerns we've laid out for ASC earlier in the year was the momentum continues all the way through the year and into 2011 and we will be keeping our eye on that very closely.

And you see a little bit of reason for some concern that there will be take down on activity there during the second half of the year.

Brian Kenney

And that's also why there is real focus still on operational excellence to this down and ASC has accomplished that. If they had gone just by what they saw and we're hearing from customers in the March timeframe, they would have probably fit a lot more vessels to handle that tonnage.

They didn't do that, they were waiting for the tonnage to materialize and sure enough, that turned out to be wise decision based on their current forecast. So that's an example where you still have to manage the business very tightly.

Bob Lyon

And I'm planning for the future too Mike. You see that constantly and how we think about rate in term in rail and as we have been managing, trying to the best of our ability manage term as we can, we are positioning the company to have significantly more cars up for renewal in the 2013 type timeframe is our expectation will be that the market will be improving by the end or have improved and we can capitalize on that.

Operator

Now, we will move to our next question from Gregory Macosko, Lord Abbett.

Gregory Macosko - Lord Abbett

So just to summarize sequentially we saw the lease term did lengthen I guess sequentially from 31 to 36 months, is that correct?

Bob Lyon

From 31 to 36 months, correct.

Gregory Macosko - Lord Abbett

Right and so, your are seeing is it fair to say you expect that trend to continue or that expectation to your ability to set the lease term that you like relative to price to sort of improve in terms of your flexibility?

Bob Lyon

Well, that number moves around a little bit. It's not an exact science nor do we know it. We don't have completely control over that number. We have very smart, intelligent customers on the other side of the table. And in times, their desire for return is different than ours. So we have to manage that. So does the fact that it bumps around a few months here and there from quarter-to-quarter is nothing too alarming or really I wouldn't read too much into that in terms of the trends either.

Gregory Macosko - Lord Abbett

Now if I remember from previous calls and conversations, you've been saying that the least exploration that you are seeing going forward for the rest of this year 2010 that those maturities are increasing in rates, correct?

Bob Lyon

That's correct.

Gregory Macosko - Lord Abbett

So the fact that you did down 18% is I think it's fair to say a fairly significant improvement from kind of what you were expecting in terms of the lease renewal rate you were previously expecting?

Brian Kenney

It's an improvement yes. I wouldn't say it's a dramatic improvement, yes. I wouldn't say it's a dramatic improvement but it's an improvement. The expiring rate, if everything was renewed for per schedule on lease termination, the expiring rate would increase through 2010. And because we're a little better than we thought, that just shows that absolute lease for the new leases are a little better than we thought.

Gregory Macosko - Lord Abbett

And so going forward, there's still some pretty strong headwinds but you've not, right? And my sense is your feeling like you can at least deal with them to the same extent that you have been dealing with them in the second quarter?

Bob Lyon

Correct.

Gregory Macosko - Lord Abbett

And then, just with return, with regard to the absolute level of the fleet which is 109,000 cars, remind me what you had in the previous quarter and what was the scrappage and kind of what you were expecting going forward?

Jennifer Van Aken

The car count is pretty close to what it was at the end of the previous quarter. There wasn't too much change there. The current quarter, we scraped about little over 700 cars but we also added little over 400 to the fleet.

Gregory Macosko - Lord Abbett

And how many of those were new versus from the market? Deliveries of new cars? Any new cars bought in the quarter?

Brian Kenney

There were a lot of, I wont say a lot of but I think there was a pretty good percentage of that 400 was new car.

Gregory Macosko - Lord Abbett

And that kind of rate you expecting kind of relative to the scrappage etcetera and the deliveries you have scheduled, kind of will continue kind on this basis going forward? For a couple of quarters?

Bob Lyon

As you based on what we have and order right now and what we're seeing. The outside where we will be hopeful that some of that activity we've seen on the customer front here applies couple of months can continue and we make even more opportunities despite of this.

Gregory Macosko - Lord Abbett

Okay. And then with regard to Europe, I believe there is been some concerns that Europe and sort HM201 certification are driving maintenance cost up. Are you seeing that and is that, it sounds like, it seems like if you are then, you are controlling pretty well.

Bob Lyon

Couple of things on that front. You have direct referring environment is increasing and changing as we speak in Europe and that is manifesting itself. It's not just a GATX but industry wise from increased activity on the maintenance front. At one point out that part of that revolves around changing our wheel sets across the industry for participating in that process as well.

And we made the determination starting second quarter that many of those wheels that change out or the new wheels that brought in will be capitalized versus expense. And so, we will be capitalizing new wheel sets on a go forward basis. And in the second quarter, we actually reversed a little bit as it first was.

The net of all that, in the second quarter. We had, we will continue to face challenges on the maintenance front of Europe. As second quarter numbers for active of and the normal environment.

Gregory Macosko - Lord Abbett

With the reversal flush, the ongoing in the second quarter, there was a reversal from the first quarter that you in other words, you capitalized some expenses from the first quarter in the second quarter?

Bob Lyon

About $3 million.

Gregory Macosko - Lord Abbett

Okay, all right. And this is in North America we are talking on the wheel sets?

Bob Lyon

No. This is in Europe we're talking about.

Gregory Macosko - Lord Abbett

The wheel sets are Europe?

Bob Lyon

Yes. That's where it is.

Gregory Macosko - Lord Abbett

Okay, I'm sorry I didn't understand. And that HM201, I really don't know what I am talking about?

Bob Lyon

That's North American issue.

Gregory Macosko - Lord Abbett

And that?

Bob Lyon

That is the regulatory mandate exceptional tank property under very scheduled places chemicals research certification. That's ongoing. We do have wave of cars that we are dealing with right now and fully secure but those costs are being managed very much in line with what we anticipated since this took place.

Gregory Macosko - Lord Abbett

Okay. And that goes on for how long you figure?

Brian Kenney

Well, that's not new. That was I think it started back in 1999 or 2000.

Gregory Macosko - Lord Abbett

Okay. So it's an ongoing thing. It's not something that is sort of going to happen for brief period or relatively short period of time?

Brian Kenney

Well except it. What happens is that the tank inspection either every ten or every 15 years though it comes in waves? We are actually going to be on the down side of that wave in 2011.

Operator

(Operator Instructions). And we will move to our next question. Next question comes from (Ed Johnson, Green Eagle).

Unidentified Analyst

I didn't have an opportunity to go through your financial statement and I was just wondering last quarter, there were some revenue recognized by selling off some of the capitalized leases. It was maybe about half the earning. How much of that was done this quarter, kind of realizing, kind of future earnings in the current quarter?

Bob Lyon

Well, I think you are talking about remarketing is the sale of an asset to a third party that GATX either owns or manages. So it could be operating leases it could be assets that GATX has owned for any number of years and remarketing income was higher in the first quarter. It was about 14 million in the first quarter and about four million in the second.

Operator

And we will move on to our next question. Question comes from Kristine Kubacki from Avondale Partners.

Kristine Kubacki - Avondale Partners

My question is from the direction of absolute lease rates, kind of sequentially this year that in the quarter that there was international competitors out there. I was wondering if that's really kind of come to an end and most player are acting more rational kind of across the board, in terms of maybe not raising pricing but at least just from kind of gutter ball pricing out there at this point, given what you're saying in terms of lease prices?

Brian Kenney

Well in general, I don't think any of our competitors have been irrational over the last year. Just been a lot of idle equipment out there in the industry that they are trying to put to work I would say that most of our competitors had more idle equipment than us but I don't know that any of them were irrational economically in what they were doing.

I think that increase in lease rates, absolute lease rate you're seeing especially in the second quarter of 2010 is just a reflection of less idle cars in the industry. And there is some renewed customer demand that we talked about on the new car side and in general. But once again, I don't think anybody was acting necessarily irrational over the last year as opposed to what they might have been doing during the peak of the market.

Kristine Kubacki - Avondale Partners

And then just taking the question on the marine joint ventures, just wanted to kind of broad picture, you talked about the different form of environment. I was wondering if it's a function of capacity coming online or is it a function of demand or both.

Brian Kenney

It's a function of both. That actually a good question. I think there is a lot of capacity coming on both of these markets and that will continue over the next couple of years if you believe those deliveries will happen and gets financed. In addition to demand, just isn't what it was a couple of years ago.

If you look at our marine joint ventures except for any sizable carrier joint ventures that we participate in rates in general are just bumping along the bottom and are no better then they were a year ago. In fact, in some cases, a little worse.

Kristine Kubacki - Avondale Partners

Do you have any insight into will those particular capacity come online? I mean, do you feel that it will come and be financed?

Brian Kenney

Indications, maybe not as much as it was originally expected but yes, there will be additional capacity coming on. And therefore we don't have a. No, once again it's a very volatile market. So it's hard to talk definitely but we don't anticipate a great recovery in rates in most of those marine joint ventures for instance in 2011.

There might be some short term pick up that's peculiar to the asset types that we have or capacity coming online and our customers not shift capacity but plant capacity that make change rates in the second half of the year but as far as the systematic market increase, we're not seeing a lot of things to get excited about out there.

Operator

And there are no further questions at this time. At this time, I would like to turn the call back over to our speaker for any closing comments.

Bob Lyon

I would just appreciate everybody's participation on the call. And if there are any additional questions this afternoon, please give Jennifer a call. Thank you.

Operator

And that concludes our conference for today. And we thank you for your attendance.

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Source: GATX Corp. Q2 2010 Earnings Call Transcript
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