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Greenbrier (GBX -14%) is heading lower following its Q3 (May) earnings report this morning. This supplier of freight railcars and marine barges reported an EPS miss following two double-digit EPS beats in Q1-Q2. Also, revenue fell 21% yr/yr to $820.2 mln, which was well below analyst expectations. GBX also shaved the high end of its FY24 revenue guidance to $3.5-3.6 bln from $3.5-3.7 bln.

• The company announced diverse new railcar orders for 6,300 units valued at $830 mln and delivered 5,400 units, resulting in new railcar backlog of 29,400 units with an estimated value of $3.7 bln. Nevertheless, GBX slightly lowered the high end of its FY24 railcar delivery guidance to 23,500-24,000 units from 23,500-25,000 units.
• In terms of revenue, it declined 21% yr/yr and 5% sequentially. GBX said that the sequential decline was primarily related to the timing of new railcar deliveries. Manufacturing segment revenue fell 6.8% sequentially to $685.1 mln. Despite the revenue decline, GBX was able to posted sequential adjusted EBITDA growth of 9.5% to $104 mln, which was good to see.
• GBX also operates a railcar leasing segment that owns and manages a portfolio of leased railcars that originate primarily from Greenbrier's manufacturing operations. In Q3, GBX grew its lease fleet by 600 units to 15,200 units with lease fleet utilization of nearly 99%. GBX's Q3 earnings call has not started yet, but on its Q2 call, management said that the supply of available railcars was near trough levels, which has led to robust lease rate growth, renewals and term length. GBX's Q3 result from its leasing segment sems to support that view.
• Gross margin in Q3 improved to 15.1% from 14.2% a year ago with improved performance in Manufacturing and Maintenance Services along with increased syndication activity. The company noted that gross margin was in the mid-teens for a third consecutive quarter. GBX cited its focus on efficiencies gained over the last several quarters. Looking ahead, GBX says its outlook is optimistic as it expects revenue to grow based on the pace of its delivery schedule.

Overall, this was a disappointing quarter following the EPS and revenue miss. In particular, revenue came in well below analyst expectations. In fairness, GBX said that was more related to the timing of new railcar deliveries. If it is just timing and not a decline in demand, that would be good news. However, investors do seem a bit worried.

On the positive side, its leasing business seems to be performing well. However, revenue from this segment is only a fraction of what is generated by its manufacturing segment, so that dominates the overall results. Longer term, nearshoring trends should support long-term growth in traffic, particularly across the southern border.