Freightcar America Earnings Preview

| About: FreightCar America, (RAIL)


RAIL reports Q4 earnings after-hours.

Analysts expect flat revenue growth Q/Q.

If deliveries fall again RAIL could miss revenue estimates. If the backlog continues to decline it could hurt sentiment.

I do not expect any meaningful pick up in orders until 2018. RAIL remains a hold for now.

FreightCar America (RAIL) reports Q4 earnings after-hours. Analysts expect revenue of $114.43 million and eps of $0.14. The revenue estimates implies flat growth sequentially. Investors should focus on the following key items:

Have Revenue Declines Really Subsided?

Industry freight car sales have been in rapid decline since the second half of 2014. Ironically, the downturn coincides with the wind down of the Fed's quantitative easing ("QE") program. Smaller, less-diversified freight car manufacturers like FreightCar America have suffered more than bigger players like Greenbrier (NYSE:GBX) and Trinity Industries (NYSE:TRN). In Q3 the company's revenue of $114 million was off 53% Y/Y, while EBITDA fell over 80%. Over the past year the stock has been flat, despite free-falling earnings.

RAIL has been buoyed by an increase in the general financial markets. President Trump's promise to spend hundreds of billions on infrastructure could potentially spur rail traffic; businesses would need to send construction materials cross country, which would be good for Freightcar America and its competitors. I believe animal spirits might have gotten ahead of themselves, but the market suggests otherwise.

Rail Orders Have Picked Up

Q3 freight car orders were 620, up from 426 in Q2 and down from 1,008 in the year earlier period. Q3 deliveries of 1,214 exceeded orders, causing the backlog to fall to 5,613 -- down 10% sequentially. A stable backlog is key to maintaining the company's top line; freight car orders must pick up to at least match deliveries. However, it is unclear whether macroeconomic trends are in the company's favor. For the first seven weeks of 2017 rail traffic was up 5% Y/Y. Coal traffic was up 19%, which appears positive on the surface; railroads like CSX (NYSE:CSX) and Norfolk Southern (NYSE:NSC) might keep a lid on capex for 2017 as they look for ways to stem cash burn, cut costs and increase shareholder value. CSX is already cutting costs in advance of being taken over by Hunter Harrison.

In the short-term I believe rising coal volume and promises of infrastructure spending could drive sentiment. I do not expect sentiment to convert to robust railcar orders until sometime next year. The company could tread water for the rest of this year. RAIL remains a hold into earnings.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , Railroads, Earnings
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