* To stop rail car production at Concarril plant in Mexico
* GE seeking to postpone some deliveries
* To furlough 550 workers; employee count down to 2,500
* Q3 profit $0.03 ex-items vs est share loss $0.06
* Greenbrier shares close down nearly 9 pct
(Recasts with GE comments; updates shares; edits)
By Eric Yep
BANGALORE, July 7 Greenbrier Cos Inc (GBX.N) is
stopping production at a Mexico facility and will furlough 550
more workers as key customer General Electric Co (GE.N) seeks
to defer some rail car deliveries.
The railway equipment supplier -- which posted a quarterly
net loss, compared with a year-ago profit, on a hefty goodwill
impairment charge -- said GE will accept 414 fewer rail cars
than was agreed, through Sept. 30.
GE denied Greenbrier's accusation that it was breaching its
obligations under an eight-year contract to buy 11,900 rail
cars worth about $1.0 billion.
A GE spokesman said the U.S. conglomerate was seeking
seeking negotiate an agreement to postpone some deliveries in
the face of a slumping U.S. economy that has seen a fivefold
increase in the number of idle rail cars in North America.
"The economic landscape has changed dramatically since we
signed the contract in 2007," said Stephen White, a spokesman
at GE Capital. "Taking on more rail cars from Mexico is
aggravating a tough situation."
Greenbrier said delivery delays would seriously affect it.
"GE asserts that in subsequent periods they will accept for
delivery an even smaller number of rail cars. The seriousness
of this problem to us accelerates during each fiscal quarter of
fiscal 2010 and 2011," Greenbrier said.
GE intends to accept no more than 25 tank cars and 10
covered hopper cars per month from October 2009 to June 2010.
"Based on the production schedule originally proposed...,
this is 95 fewer tank cars per month and 105 fewer covered
hopper cars per month," Greenbrier said.
However, Greenbrier said the contract "contains adequate
protection" and both the contract and law "provide effective
legal and equitable remedies." It said it was attempting to
work with GE to find a mutually acceptable solution.
Robins Group analyst Frank Magdlen pointed out that the GE
contract has wider implications as it also impacts other
railcar-parts suppliers, many of whom are dependent on the
contract to keep their own employees.
The employee count at Greenbrier, which said it would
furlough the 550 workers mainly at its Concarril facility, is
down to about 2,500 from a peak of about 5,000, Chief Financial
Officer Mark Rittenbaum told a conference call.
As of Aug. 31, 2008, it had 4,174 full-time employees,
according to Greenbrier's 2008 annual report.
The mothballing of the Concarril facility was expected and
is not a direct result of curtailments from the GE contract,
SWINGS TO NET LOSS
For the third quarter ended May. 31, Greenbrier reported a
net loss of $50.5 million, or $3 per share, compared with a
profit of $8.1 million, or 49 cents a share, a year ago.
However, excluding goodwill impairment charges of $55.7
million, it earned 3 cents a share, topping analyst
expectations of a loss of 6 cents a share.
Revenue fell 36 percent to $244.4 million. Analysts on
average expected revenue of $277.2 million, according to
Greenbrier's new rail car manufacturing backlog as of May
31 was 14,100 units valued at $1.25 billion, sequentially down
from 15,100 units at the end of the second quarter. About
11,800 units in backlog are subject to the GE contract.
"I'm skeptical about a quick recovery," Chief Executive
William Furman said on a conference call about the railcar
Railcar makers like Greenbrier and Trinity Industries
(TRN.N), hit by declining freight volumes and falling demand in
a weak economy, are depending on other businesses like
aftermarket repair and wind tower manufacturing to survive.
"I think the car builders who don't have other diversified
revenue bases are going to really feel the pain, because... our
analysis is that most of the (industry railcar) backlog will be
running out by the end of 2009," Furman added.
Analyst Magdlen said Greenbrier's non-GE railcar backlog of
about 2,311 units will probably last a year.
The company is waiting, as many companies are, for a
revival in the economy and much of its gross profit is going to
come from its refurbishment, leasing and marine barge
businesses which must remain profitable, the analyst said.
Shares of the Lake Oswego, Oregon-based company pared some
initial losses to close Tuesday down 8.8 percent at $6.31 on
the New York Stock Exchange.
(Additional reporting by Scott Malone in Boston, Editing by
Himani Sarkar and Tim Dobbyn)