Freightcar America (NASDAQ:RAIL) reported Q4 earnings after-hours Monday. The company delivered revenue of $135.5 million and eps of $0.01. It beat on revenue by over $21 million, but management gave a bleak outlook for 2017. I had the following takeaways on the quarter:
Freightcar Has Not Bottomed
Revenue was up 19% sequentially but down 33% Y/Y. Deliveries were 1,364, up 12% sequentially, but down 44% Y/Y. Management expects 2017 deliveries to range from 3,000 to 3,800. At the top end of the range deliveries would be down by 32% Y/Y. 2016 was a tough year for the railcar industry. It appears like 2017 could be even worse. In 2016 rail traffic fell by high single-digits. For the first seven weeks of 2017 rail traffic was up 5% Y/Y. Coal traffic was a big driver, up 19%. On the surface these would be appear to be positive trends for Freightcar America. However, increased traffic has not led to an increase in capex by the railroad industry.
Those railroads with high coal exposure -- CSX (NYSE:CSX), Norfolk Southern (NYSE:NSC) and Union Pacific (NYSE:UNP) -- have actually been cutting costs. Former Canadian Pacific (NYSE:CP) CEO Hunter Harrison is attempting to take control of CSX. CSX has already cut 1,000 managerial positions in advance of Harrison's arrival. If Harrison eventually takes the helm, I expect him to cut more jobs and cut more capex in order to increase earnings, engage in share buybacks and drive the stock higher. Cost-cutting by railroads does not bode well for Freightcar America.
Backlog Continues To Decline
Freightcar America's backlog fell to 4,259 at the end of the year, down 24% sequentially and 57% Y/Y. The earnings press release did not divulge orders for the quarter. Deliveries were 1,364, yet the backlog fell by an eye-popping 1,354 units. If the company received orders for more than 10 units during the quarter then that would imply Freightcar America suffered order cancellations that were already included in the backlog. A falling backlog portends lower revenue and earnings going forward.
Normally I would find this a cause for concern. However, President Trump's promise of hundreds of billions in infrastructure spending will likely drive rail traffic. Even if it does not occur until 2018, that could be enough to spur longs to support the stock. Secondly, the company has $117 million in cash and no debt to speak of. Its fortress balance sheet will allow it to weather the storm until Trump's infrastructure spending kicks in.
2017 will be another down year, but hope springs eternal for stocks and RAIL. I rate RAIL a hold for now.
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.