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UPDATE 5-Greenbrier cuts production, GE seeks to defer orders
July 7, 2009 / 11:37 AM / 8 years ago

UPDATE 5-Greenbrier cuts production, GE seeks to defer orders

* 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 (Reuters) - 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, Magdlen said.

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 Reuters Estimates.

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 manufacturing business.

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)

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