GATX Management Presents at Bank of America Merrill Lynch 2012 Global Transportation Conference (Transcript)

May.19.12 | About: GATX Corp. (GATX)

GATX Corporation (GMT) Bank of America Merrill Lynch 2012 Global Transportation Conference May 17, 2012 2:55 PM ET

Executives

Mark Rittenbaum – VP, EVP and CFO, The Greenbrier Companies

Bob Lyons – SVP and CFO

Tim Wesley – VP, IR, Wabtec Corporation

Analysts

Ken Hoexter – Bank of America Merrill Lynch

Ken Hoexter – Bank of America Merrill Lynch

I will knock off my part before the panel gets started. So keeping with the panel of team of the afternoon, right now we’ve got Rail CapEx Cycle in Full Swing. With us today, we’ve got The Greenbrier Companies, GATX Corp, and Wabtec on our next panel.

Let me start off with Greenbrier Companies will be up first. About $400 million market cap company. With us today, we’ve got Mark Rittenbaum, Vice President, EVP and Chief Financial Officer. And the company is a leading designer and manufacturer of rail road freight car equipment with about a 60% historical market share in the intermodal and boxcar production in addition to making freight cars, covered hoppers, and now some auto cars, auto racks.

GATX Corp, next up we’ll have Bob Lyons, the Chief Financial Officer and SVP. Just about a $2 billion market cap company. A leader in leasing transportation assets and controls, one of the largest railcar fleets in the world.

And then we’ll have Wabtec Corporation. About a $3.5 billion market cap company. Tim Wesley, Vice President of Corporate Communications, Investor Relations. The company manufactures a broad range of products for locomotives, freight cars, passenger transit vehicles with about a 50% market share in North America for braking vehicles and a great tour of the facility a couple of weeks.

But with that, let me turn it over to Mark, to start us up from Greenbrier Companies.

Mark Rittenbaum

Thank you Ken. It’s great to be here on a beautiful day with such a gloomy group of market investors. We’re going to draw a lot and each of us give each other’s presentation and see if it might have a better outcome than how the market is treating the rail supply marketplace.

As always there is a forward-looking statements that I will remind you of and refer you to our public filings in that regard. As Ken said, we are a leading provider of transportation equipment and services to the railroad marketplace in North America. We build new railroad freight cars, repair and refurbish freight cars and provide rail services. In addition, we provide leasing and management services for railroad and freight cars. We also build marine barges in North America and railroad freight cars in Europe.

I do – I want to comment briefly on the industry fundamentals. Chicken Little was wrong. The sky is not falling in the rail marketplace. We believe the fundamentals are solid, driven by all the things that you hear many people and wealthy investors in the marketplace speak to, as well we believe that Greenbrier is unique in the marketplace and how we participate with our integrated model.

I think all of you are aware of this but some of the dynamics that are favoring rail today are an aging fleet what’s going on in energy transformation in North America. You were all familiar with natural gas and fracking in natural gas and oil boom, but I also want to speak to that we believe that the recovery is much more broad based than just what is that being energy driven. We’re all familiar with the benefits of rail over a highway, less highway congestion, favorable on gas and environmental concerns. And then I think many of you have heard about the strengths of the rails themselves and how they are reinvesting and doing well even in a less than robust environment.

This just speaks to the broad based nature that over 88% of demand over the next five years will be in non-coal related products and Greenbrier participates in all of these markets including intermodal where we are the leading provider with over 50% market share, and indeed again the outlook in this market is also very favorable. While our marine business is softer today, we are seeing increases in inquiries and demand there and we would expect this to be a significant provider of an uptick for Greenbrier when that business does recover.

I’ll just touch briefly on the benefits of our integrated business model. Again we believe we are unique in this regard and what it does is it allows us to participate across the spectrum of a life of a railcar from in essence cradle the grave and provide a unique value proposition to our customer base. And in that regard, we also believe that it generates a way of diversification and to take a less of a shock out of the cycle on the downswing.

And in essence that becomes our value proposition to our investors is that by offering freight car solutions that combine all of the skill sets across the life of a railcar that we can create a superior value proposition to our customers that in turn will create a superior value proposition to our shareholders. And I will turn it over to – I’ll leave it to Ken.

Ken Hoexter – Bank of America Merrill Lynch

Okay, hold on.

Bob Lyons

Good afternoon. My name is Bob Lyons. I am the Chief Financial Officer for GATX. In total I have four minutes for summaries and I thought I had eight. So settle in, we are going to go very fast. So GATX Corporation, we are one of the largest railcar leasing companies in the world and that’s where we’re focused on as railcar leasing. We do participate in a few other transportation markets, but rail is central to what we do.

I do want to take a second on this page. We have a very long storied history. We’ve been in business since 1898, always based in Chicago. And we’ve been listed on the New York Stock Exchange since 1960 and I think most importantly we’ve paid the dividend every quarter without interruptions since 1990. It speaks to the strength of the underlying rail assets. The expertise we have in that market and our commitment to it over a very long period of time.

This slide just quickly shows you where our asset mix is today, as I mentioned, it’s about 80% rail but if you get down to the underlying assets in the portfolio, almost 95% of the assets that GATX owns were in the transportation sector. We are one of the largest railcar fleets in the world. 117,000 cars that we have an interest, they are owned in North America. 109,000 in the GATX owned fleet. Very large footprint today in Europe with an interest in nearly just under 50,000 railcars.

And then also looking very closely at expansion opportunities in India and China, two of the largest rail networks in the world were leasing does not really exists today but hopefully will in the very near-term. Just to reiterate some points, again the rail market is very strong, continued to be, 2011 was the stronger year than we anticipated. And that momentum carried right through the first quarter. Very high utilization on the fleet today, almost 98.5% and we’re seeing the benefit of rising lease rates that we saw last year and has continued on into the first quarter of this year.

And in Europe, the market is a bit mixed on the tank car side, it’s very stable, very solid market. And freight, which is more of an intermodal container driven market, there is more volatility. If we look at the long-term outlook for GATX, we feel we’re in a very good position to benefit from some strong underlying trends in our marketplace. This pie chart on the left hand side breaks down our mix based on revenue. And you can see the markets were levered to petroleum, chemical and food and Ag. And in each of these markets, we feel there are long-term fundamental shift that will benefit GATX in the future.

We’re also one of the largest shipping company on the Great Lakes, American Steamship Company, very large market presence and market share and one of the largest movers of iron ore in the Great Lakes. So we’re benefiting there as well, also from the steel manufacturing companies and ultimately when it works its way through, a lot of it is auto driven as well. Our third business is portfolio management, broken down by the pie chart you can see here, we own a number of marine-related assets both wholly and through joint ventures. And we also have a very large ownership interest – 50% ownership interest in aircraft engine leasing joint venture with Rolls-Royce which we’ve been in since 1998, and it's been a very successful partnership over all these years and continues to grow today.

So quick snapshot of our financial performance. As you can see, we’re in a cyclical business. Our objective is not to try to shy away from that cyclicality but to use it to our advantage, take out some of the volatility that GATX has exhibited in the years past. We remain solidly profitable right through the downturn, but as the market weakened in late 2008 through 2009, financial performance reflects that and we’re in the early stages of that recovery taking place today. The 2012 numbers you see there of $2.40 to $2.60 a share, that’s the range we’ve put out for EPS guidance. And it’s up substantially from the $2.01 we posted in 2011.

So our vision long-term, we strive to be the finest railcar leasing company in the world and as I mentioned before, we want to be recognized as such by our customers, our shareholders and employees. And we need to operate very safely in the communities where our cars run. And that’s our focus. And I think I probably came in right at four minutes.

Ken Hoexter – Bank of America Merrill Lynch

Thank you Bob.

Bob Lyons

Yes. Not sure, I’ll want to spend a lot of time on that page. All right.

Ken Hoexter – Bank of America Merrill Lynch

It will go.

Bob Lyons

It will go, okay. Right, thank you.

Tim Wesley

There we go. All right, good afternoon. My name is Tim Wesley. I am with Wabtec, the VP of IR and Corporate Communications. And I want to thank couple of our good customers here for leading off and setting the table for me and I will try to hit it out of the park for the rail supply guys today.

Ken Hoexter – Bank of America Merrill Lynch

Make sure you’re on [ph].

Tim Wesley

Thank you. I’m not going to read the forward-looking statement but I also would like to say that I will make some forward-looking statements and please refer to the SEC filings for the appropriate disclaimers. Wabtec has been around a long time as well. Actually our history goes back to 1869. George Westinghouse founded the company, revolutionized the industry by inventing the airbrake. Today we’re a global supplier with engineered components.

Our content is on virtually every freight car, locomotive, subway car and bus in North America and also in many countries around the world. We operate in 17 different countries and we sell our products in more than 100. The last point here, our diverse revenue base, I am going to talk a little bit more about that in just a second. Our track record is quite good financially. I think couple of quick line items I’d like you to look at here. The operating margin, we’ve been very successful in driving that margin higher through a combination of increased volumes through lean manufacturing, through low-cost sourcing and becoming more efficient as a manufacturer.

And then the second to last line, the cash from operations despite the first quarter which always seems to be a pretty light quarter for us for some reason, we generate quite a bit of cash and we turn around and invest that in our business. We make acquisitions and we also return money to shareholders through either stock buyback, we’ve got a current authorization outstanding. And last year, I was able to stand up and say that we tripled our dividend, we went from $0.01 to $0.03 per share per quarter. Actually just yesterday, we went from $0.03 a share per quarter to $0.05. So we didn’t triple it this year but we did increase it.

Diversity is a real important part of our story. We’re a little bit different from GATX and Greenbrier, in that we are also in the transit market for example. About a third of our business, see the first quarter numbers, about a third of our business is in transit so that’s moving people as opposed to moving goods. We have a nice diversity of aftermarket and OEM split. We’re actually a little bit more aftermarket.

And we’re pretty geographically diverse with about 50% here in the U.S., 35% rest of the world and Canada, Mexico is about 15%. Of that rest of the world, the big pieces would be Continental Europe, the U.K., Australia, China, Brazil. Europe is about 15% or so of our total sales and that’s about half Continental Europe and half U.K.

So more quick – products very quickly, we make commuter locomotives. We provide all of these components that you see on locomotives and freight cars to customers like GATX and Greenbrier. We provide our locomotive components to companies like GE and Caterpillar and then of course we sell to the railroads in the aftermarket. On the transit side, we make a number of components for subway cars, as well as for buses. So the customers here would the builders of those vehicles, so Bombardier, Kawasaki, Alstom and then all of the transit authorities as they maintain and service their fleets.

You’ve heard us talk a little bit about the freight markets. Things basically are good. You see rail traffic down a little bit this year, mostly driven by coal. If you extract coal from those numbers, the ton miles and the car loadings are actually up at a pretty nice rate. We too are in some of the cyclical markets. This is the freight car market and the locomotive market. And they do cycle, we don't fear the cycle either. We try to do our best to manage through it and to succeed when it’s either good or bad. And I think again when you look at the margins that we’ve been able to generate over the years, even in a time period, the ’08, ’09 recession when we lost I think about a $150 million of sales, the margins basically did hold up.

Some of the passenger transit drivers we look at would be ridership and federal funding. The federal funding comes from the highway bill. That money is used for mostly new equipments, so new locomotives, new subway cars, new buses. The money that the transit authorities use to operate their systems comes from state and local revenues as well as the farebox revenues. Ridership is the key indicator. Ridership has been going up. You do see it come down in recessions as unemployment goes up. You’ll see ridership come down, now again the employment is getting a little bit better, we’re starting to see good ridership gains there.

Of course we care about new subway cars, the new bus deliveries as well. Those markets don’t tend to cycle quite as much as the freight car and locomotive markets do. This is an important slide for us. This charts our net income versus freight car deliveries. If you look five or 10 years ago, we were pretty closely tied to that. We have managed to diversify our way, away from that a bit. It’s still a very important market to us but the new freight car market is about 15% of our business these days versus maybe 30% or 35% five or 10 years ago.

Our vision is to average double digit EPS growth through the cycle, that’s on average. We don’t say that we can do that every year but if you look back over our track record, we’ve done pretty well there. Our growth strategies, I’ll quickly mention these, global and market expansion. We are a small player in some very large global markets, places like Europe, China, India, Brazil. These are growing both freight rail and passenger markets and we are for the most part a small player in some of those markets.

Aftermarket is always going to be very important to us. We wouldn’t want it to be 70% or 80% of our sales but in the 60% or so range. It gives us a nice base that is certainly not as cyclical as some of those OEM markets. New products and technologies. We’ve always been a technology based company. We’re among the companies in the industry that can drive new technology. One of our most recent new product offerings is Positive Train Control, PTC. It’s a significant internal growth opportunity for Wabtec over the next several years as the industry rolls out the technology.

And finally acquisitions. We’ve proven ourselves to be I think a pretty good acquirer. We bought I think 15 businesses or so in the last five years and we’ve been able to find them, buy them, integrate them and grow them. So I think we’ve withheld a pretty good track record of acquisitions. Have I gone over my four minutes?

Ken Hoexter – Bank of America Merrill Lynch

It’s wonderful.

Tim Wesley

All right. Let's see here. I am going to stop there. Okay. I’m good. Thank you.

Question-and-Answer Session

Ken Hoexter – Bank of America Merrill Lynch

Thank you. Mark, let me get to a more near issue before we kind of jump into the general Q&A and that was couple of weeks ago you had a filling talking about some wheelset replacements. Anything you can provide kind of an update on that, how meaningful that is relative to the overall base?

Mark Rittenbaum

Right. Thank you, Ken. Yes, it was a short time ago that we made an 8-K filing related to very specifically to some wheelsets that we had produced out of our Mexico City repair facility and just to give you an idea the magnitude that on a quarterly basis we deliver about – company-wide, we deliver about 60,000 wheelsets a quarter. So this is relatively small piece of the puzzle but we did have some wheelsets that were built that had not met AAR technical specifications. Clearly from our end, safety is the number one priority, quality number two. Right up there was number one. And so we took immediate action there definitely was some improvement in quality and quality control that we’ve taken out of this.

So there was a little over 8,000 wheelsets that we identified that had not been conforming to AAR specifications, 541 of those we set that to the point where we believe that we should take precautionary and immediate action to replace some 7,800 of them. We do not believe are a safety issue but we end it, we can work with the AAR and our customers on those sets. What we’ve said in our filing is that we do not believe this is a material to our financial statements that it costs us about $1,200 a wheelset to replace the wheelsets to require immediate replacement. So you can do that math on the 541 and the $1,200 and it’s about $700,000 of pre-tax for the replacement of those.

We’ve taken remedial measures to ensure that this does not happen again in the future and we’re working with our customers on the other 7,800 cars for satisfactory resolution which again we believe did not require immediate replacement of those wheelsets. So really no change from our last filing, Ken.

Ken Hoexter – Bank of America Merrill Lynch

Wonderful, I appreciate the update. Bob, you talked about the building strength on to the market right now. Can maybe dig on that for a minute obviously looking at the rail car loads, as Tim mentioned, it’s been maybe flattish overall if you exclude the coal, we’ve seen a increase in demand 5% or 6%. How do you see things trending in the marketplace in terms of you mentioned that you had 500,000 parts at the peak, now there is 300,000. Does that keep shrinking or is that the normal level that you want parts given in that close distress on the environment at this point?

Bob Lyons

Sure. Well on the number of idle cars in the industry right now, it seems have leveled off essentially at that, call it 290,000 to 300,000 car level. Unfortunately there isn’t data that goes all the way back to the last down cycle and recovery but it seems like it’s leveled out there. From our perspective, we’re 98.5% utilization. It’s difficult to really get much more than that. And we’re seeing very good demand, very broad based demand both across the chemical, petroleum and the food sectors.

Now on the chemical side, one of our biggest customer base that we had at GATX benefiting significantly from low natural gas price and investing – reinvesting very heavily in North American manufacturing. So we think that will be very beneficial to GATX long-term. On the petroleum side obviously everybody talks about crude movements coming out of the Bakken. We do have some cars in that service. We may put some more in there too but we’re being prudent about what we do place there and when we do place cars, they were going very long term.

But that’s had a significant positive trickle-down effect on demand for other cars in the petrochemical service too. So we’re seeing pretty good demand across all of our major sectors.

Ken Hoexter – Bank of America Merrill Lynch

So Tim, obviously it’s pretty encouraging given the parts that you make for each one of the cars given the demand that we’re seeing. We also heard carriers this morning talking about some of their Positive Train Control expenditures. How is that rollout going – some of them complain that, it can't be ready on time obviously, we’ve toured the facilities, we saw all the piece parts kind of being put together to show that from your perspective an immediate solution is available. So maybe kind of provide an update on that?

Tim Wesley

Sure. Yes, so Positive Train Control is something we’ve been working for – it really goes back to the late 90s. We bought a company called Rockwell Railway Electronics back in ’98. And they had actually started to develop this Positive Train Control technology back then. We stuck with it. BN was the most recent I guess to start a pilot program in early 2002-2003. And then there was the incident out in L.A. which caused the Rail Safety Act to be passed which mandated that the technology be implemented by the end of 2015.

And so we actually have been chosen by the Class I railroads to be the supplier or the developer in conjunction with them of this Positive Train Control system, which would be rolled out over the next several years. We’ve seen really good growth in the last few years. I think in 2010, our revenues from this product line were about $25 million. Last year, it was about $125 million. And we said that here in 2012, we would expect to exceed $200 million.

We have kind of classified the opportunity into three different buckets, they are the Class I freight railroad opportunity here in the U.S. which we’ve said over the implementation period, we would expect to be work something revenue-wise cumulative, somewhere around $250 million to $500 million, again a revenue for Wabtec. The second bucket which we’ve not quantified yet but it’s a transit opportunity. There are something like 20 transit agencies here in the U.S. that will have to have some form of train control.

To-date we’ve announced a couple of contracts, one for about $60 million, one for about $30 million. There are some others. Those happen to be two of the bigger systems that we would be working with. So you can't take the 20 times those numbers and do that math. It’s not going to work out quite to that opportunity. But there is some significant $10 million and $20 million opportunities out there.

And then the third bucket for train control for Wabtec is international. About a year or so ago, about 15 months ago now, we’ve signed a contract with MRS which is the fourth largest railroad in Brazil to design and implement a turnkey train control project down there. That’s $165 million over the next couple of years and again going very well. There are some other international opportunities that we’ll take a look at.

So yes, we’re confident that Wabtec’s technology is going to be ready. We’re basically on target. There are many other moving pieces of train control. And so when the railroads talk about, can we get done in time, I am sure that some of that’s going to play into it as well, but we expect to be able to get this rolled out on time and it’s been a nice good organic growth opportunity for the company.

Ken Hoexter – Bank of America Merrill Lynch

So Mark, let me bring it back to you on a similar subject, and so if we’re seeing demand, if I take it back maybe a year, at first your first phase is to kind of get the first initial orders of the downturn, second phase was to fill up the order book. Now it’s to go back and get pricing and margin. Where do you think we are in that process in terms of the manufacturing side on building of the cars? Where do you see the incremental demand coming from as that shifts overtime and as you extend your manufacturing lines?

Mark Rittenbaum

All right. Maybe there is a couple of different questions in there, but I think that, I’ve put up a slide earlier that showed industry forecast demands over the next four to five years here. And indeed the industry forecast which we directionally subscribe to is it that we would be in the 60,000 to 70,000 car range over that time period. But as you hit in on an annual basis and that is not a typical in our industry that the cycles generally running about a four to six year period.

And of course as I also referenced earlier with the outlook for this year, this is even in a tepid economy that the industry is going to have a strong demand. And so the rails themselves have didn’t been able to unbundled themselves from the general economics and from the general freight car loadings and that and of course all of us, the suppliers have benefited from that as well. What we had seen probably over the last 12 months is that a lot of this demand has been energy and energy transformation related but also as shown on that slide and also as we’re experiencing recently while we expect that phenomenon to continue and that really the – what is occurring currently with the lower natural gas prices is more of a blip rather than the sea change in any of the fundamentals.

We think the recovery being more broad based and rather we think that – rather than just energy related as Bob referred to that it can have some trickle-down effects in the chemicals, into manufacturing resurgence in North America overall in more competitive marketplace and chemicals is one reference. But we’re also seeing it spread into other car types that either would be in the replacement cycle or just were just health an example so that would in the auto industry, refrigerated boxcars that are very old in age and car types such as general boxcars.

So we expect that and then last but not least is intermodal being a very solid and that we would expect that intermodal loadings would continue to outpace general GDP. And while today you’re hearing a lot from the – I’m sure from your panel of truckers about the transformation and the continued transformation of highway rail. We expect that to continue and drive demand but also as the economy recovers and consumer demand will pickup and that will general increases in international freight traffic which will also drive intermodal demand.

Ken Hoexter – Bank of America Merrill Lynch

Are there any questions from the audience? Just one on to Bob, when you look at some of the upcoming regulatory systems in terms of the chemical cars and the like how does that, do you start seeing another wave of maintenance CapEx or investment in cars?

Bob Lyons

Well I think it will be very focused. Right now, most of the regulatory talk and concentration is around cars that carry TIH products. And we have represented as we sit on the Tank Car Committee and are involved in that process and we’ll see where it goes over time in terms of the increased scrutiny around the structural integrity of the cars. But that’s going to be a very focused area. So I wouldn’t view that as a big sea change that’s really going to affect the overall tank car market. We’ll have definitely a material impact in certain types but not a huge driver overall.

Ken Hoexter – Bank of America Merrill Lynch

So coming back to that that the number of cars that are still on the sideline, as you start to see that demand, the railcar demand, from ex coal remained fairly strong.

Bob Lyons

Right.

Ken Hoexter – Bank of America Merrill Lynch

Are we still in that CapEx cycle of pulling newer equipment or you still finding yourselves going back to that 300,000 of parts?

Bob Lyons

Now the 300,000 that are parts I think many of those are going to be parts.

Ken Hoexter – Bank of America Merrill Lynch

Yes.

Bob Lyons

For some reason or another, they are out there even in a strong market right now where we’re seeing very good demand from our customer base, many of those cars are out there. A lot of them are owned by the railroads, many are intermodal related, older boxcars and cars were maybe just difficult to reinvest in those and bring them back into service. So you’re seeing while that number has stabilized, it’s probably going to – it feels like it’s going to stay somewhere in that range. And it’s not affected really the new car order side which has been robust, continues to be very solid, replace the sizable five year order for 12,500 cars.

And so we really don’t have – we don’t participate in that 300,000 that’s idle. We only have about 1,800 that are idle in our fleet. And I think that’s pretty consistent what you would hear from other rail sources as well.

Ken Hoexter – Bank of America Merrill Lynch

Certainly this is a pretty positive panel though to what we’ve heard not only here but in our trip to China last week where it was really a bearish trip except for the box makers were also fairly positive seeing things moving and demand from the liner companies. Are you just going to jump in if you want?

Mark Rittenbaum

I just tied it to Bob’s comment regarding the intermodal and I think from our perspective that what you would see in storage on the intermodal cars would be the older kind of ’89 flatcars that is not a – that cannot carry units too high, but indeed the double-stack railcars are pretty fully deployed at this time. So I just wanted to clarify that.

Ken Hoexter – Bank of America Merrill Lynch

No, wonderful. I appreciate that. So Bob, then just taking with that last answer, then how do you see pricing right now for the leased cars coming into the current quarter?

Bob Lyons

Sure. Well in the first quarter, we provided with a data point called the Lease Price Index which measures for a basket of our most common car types. The average renewal rate compared to the expiring rates for those cars in a given quarter. We came into 2012 expecting that number to be right around 15% on average for the full year and in fact in the first quarter, it was just under 20%. It was 19.2% I believe.

So that’s indicative of a very strong environment. We also look at our renewal success rate. The key factor for us that’s of the car schedule to renew in a given quarter, how many stayed with the existing customer. In a bad environment like late 2008, early 2009 it’s about 50% to 60%. Right now we’re seeing that number or we did at the end of the first quarter, we saw that number over 80%. So customers are keeping the cars, they are willing to go very long-term. And term in our market is five to 10 years and we’re getting very attractive lease rates. So we feel very good on all three fronts.

Ken Hoexter – Bank of America Merrill Lynch

Mark, maybe you can throw in your thoughts on car – on sale pricing recently, it seems like you’ve had a mix shift but if you take the average revenue for your sold car, it’s gone from 80,000 to 110,000 but I know there is also change of cars that AutoMax’s and the likes. So maybe you can just talk about what you see in pricing?

Mark Rittenbaum

Right. Well just one thing I would say about average sales prices are like bill to book ratios, don’t do it. On a average sale price...

Ken Hoexter – Bank of America Merrill Lynch

It’s only you give us, it’s totally candid.

Mark Rittenbaum

Yes, no comments. In average sale price per unit is as much or more indicative of a mix than it is of any kind of representative of any kind of a change, as an example a tank car is going to have a higher unit sale price than a covered hopper car, covered hopper car is going to have a higher unit price than a double-stack intermodal car. An auto caring car such as our Amax cars that have a higher unit price than any of those. And that’s going to be true of any of the builders.

So I just be mindful that with any of us. Generally speaking, we do see that again you have to look at the car type as to the – as to what’s going on generally in pricing but as you would expect the pricing environment is more favorable environment, it would been six months ago when we expect that as we go through the cycle that with the longer industry backlogs and tightening of space that the pricing would continue to improve.

Tim Wesley

While we’re talking about car types, I’ll just make the point that Wabtec is in different. We don’t care what kind of car these guys are buying or making, we can have contents conceivably on any car type.

Ken Hoexter – Bank of America Merrill Lynch

Tim, I was just going to jump to you to wrap it up. It sounds like we’re hitting the bell but as we squeeze the last one in, given the pace of string of recent acquisitions the demand that we’re now seeing on both sides of your shoulders here, do you see that pace continuing on the acquisition front for Wabtec?

Tim Wesley

We do. It is a fundamental growth strategy for the company. And overtime perhaps as much as half of our growth could come from acquisitions. If you look backward about five years, probably only about 25% of the growth has come from acquisitions, but yes I mean the pipeline is pretty active. We I think made three or four acquisitions last year. We look really around the world. It’s a strategic, but it’s also an opportunistic approach to acquisitions.

Strategic in the sense, that they have to be championed by a business unit general manager. It’s not somebody at corporate who is going to lead an effort to buy a company. We want that business unit general manager to come to us and say here is why I need this company for strategic reasons. And yes, I’ll be the champion, I’ll be the integrator, I’ll be the one who is responsible for growing it.

So it’s strategic. But it’s also opportunistic in the sense that we have our wish lists but you can't control when these companies are going to be for sale or if you can agree or price or any of the other terms. So we look all around the world. We look freight, transit. We want to build out or content. We want to add to our geography, add to our technology and we’ve been able to do that.

Ken Hoexter – Bank of America Merrill Lynch

Wonderful. Bob, Tim, Mark thank you very much for your time. I appreciate it.

Tim Wesley

Thank you.

Bob Lyons

Thank you.

Mark Rittenbaum

Thank you.

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