After the bell Tuesday, Trinity Industries (TRN) reported second quarter earnings, and the market did not like the news. Shares fell nearly 8% after hours, as the company missed earnings estimates and issued Q3 guidance that lagged analyst expectations. Earnings came in at $0.37 per share, up from $0.23 in the year ago period, lagging results by a penny. Results from the barge group were hurt by flooding at a facility in Missouri, which helped contribute to the miss in estimates.
While strong growth in the transportation businesses (railcar and barges) helped propel earnings forward, the energy and construction businesses continue to lag. Strong demand for railcars from the farm and chemical industries have helped new railcar orders, as well as the railcar leasing business. In addition, these industries also are heavy users of barges to transport products, further benefiting Trinity. However, low natural gas prices and soft electricity demand have both hurt the wind business that Trinity had hoped to capitalize on, and the sluggish economy has held back growth in the construction products group.
Going forward, Trinity expects EPS of between $0.32-0.37 in Q3, below expectations of $0.44, and narrowed the full year guidance to $1.35-1.45 per share, raising the bottom of the range a nickel and trimming the top of the range by the same amount. The company says factors affecting the business going forward will be the operating leverage as the rail business ramps up, a new product mix in the energy business, weather impacts to the construction business, and the effects of the flooding on the barge business.
At the midpoint of the current yearly EPS range, shares are trading at 23x earnings in the after hours, at $32 and change. While not overly expensive, shares have doubled off the 52-week low, and are up about $6 this year. Expect investors who have been in the name to take profits, adding further selling pressure to shares. Another possible negative catalyst for the stock is GE's inability to sell its rail car leasing division, which may add some additional pressure to Trinity as investors balk at the lack of demand for GE's division. I'll be looking to get back into shares around $29 should they drop that far.
|Segment||Q2 2011 Rev (millions)||Q2 2011 Operating Profit (millions)||Q2 2010 Rev (millions)||Q2 2010 Operating Profit (millions)||% Change in Rev||% Change in Operating Profit|
|Railcar Leasing and Management Services||$130.4||$59.7||$119.6||$49.2||+09%||+21%|
|Inland Barge Group||$177.8||$19.1||$99.5||$12||+78.6%||+59%|
|Energy Equipment Group||$117.5||$1.2||$115.3||$13.5||+1.9%||-91%|
|Construction Products Group||$149.3||$16.1||$170.9||$17.7||-12.6%||-09%|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.