Greenbrier (NYSE:GBX) Exceeds Q3 Expectations, Stock Soars

Rail transportation company Greenbrier (NYSE:GBX) reported Q3 CY2024 results exceeding the market’s revenue expectations, with sales up 3.5% year on year to $1.05 billion. On the other hand, the company’s full-year revenue guidance of $3.5 billion at the midpoint came in 1.2% below analysts’ estimates. Its GAAP profit of $1.92 per share was also 37.6% above analysts’ consensus estimates.

Is now the time to buy Greenbrier? Find out by accessing our full research report, it’s free.

Company Overview

Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE:GBX) supplies the freight rail transportation industry with railcars and related services.

Heavy Transportation Equipment

Heavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.

Sales Growth

A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Unfortunately, Greenbrier’s 3.2% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Greenbrier’s annualized revenue growth of 9.1% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its sales volumes, which reached 4,400 in the latest quarter. Over the last two years, Greenbrier’s sales volumes averaged 17.6% year-on-year growth. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, Greenbrier reported modest year-on-year revenue growth of 3.5% but beat Wall Street’s estimates by 3.5%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and illustrates the market believes its products and services will face some demand challenges.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.

Operating Margin

On the bright side, Greenbrier’s annual operating margin rose by 3.1 percentage points over the last five years.

This quarter, Greenbrier generated an operating profit margin of 11.8%, up 5.6 percentage points year on year. The increase was driven by stronger leverage on its cost of sales (not higher efficiency with its operating expenses), as indicated by its larger rise in gross margin.

Earnings Per Share

Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Greenbrier’s EPS grew at an astounding 18.2% compounded annual growth rate over the last five years, higher than its 3.2% annualized revenue growth. This tells us the company became more profitable as it expanded.

Diving into Greenbrier’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Greenbrier’s operating margin expanded by 3.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business. For Greenbrier, its two-year annual EPS growth of 88.1% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Greenbrier reported EPS at $1.92, up from $0.72 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Greenbrier’s full-year EPS of $4.96 to shrink by 10%.

Key Takeaways from Greenbrier’s Q3 Results

We were impressed by how significantly Greenbrier blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates. On the other hand, its sales volumes missed and its full-year revenue guidance slightly fell short of Wall Street’s estimates. Overall, this quarter was mixed but still had some key positives. The stock traded up 7.9% to $55.50 immediately after reporting.

So should you invest in Greenbrier right now?If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings.We cover that in our actionable full research report which you can read here, it’s free.