Trinity Industries' Q3 2025 Earnings Call: Contradictions Emerge in Railcar Demand, Terminal Orders, and Delivery Projections

Date of Call: October 30, 2025

Financials Results

• Revenue: $454M, down sequentially and year-over-year due to lower external deliveries
• EPS: $0.38 per share, up sequentially
• Operating Margin: 7.1% operating profit margin in Rail Products in Q3; full-year Rail Products margin expected 5%–6%

Guidance:

• Full-year EPS raised and tightened to $1.55–$1.70.
• Maintain industry deliveries outlook of 28,000–33,000 for 2025.
• Expect ~40,000 railcars scrapped in 2025 (fleet contraction).
• Maintain net fleet investment guidance of $250M–$350M (implies negative net investment in Q4).
• Full-year gains on lease portfolio now expected $70M–$80M.
• Rail Products full-year margin expected 5%–6%.

Business Commentary:

• Railcar Leasing Performance:
• Trinity's leasing revenue grew year-over-year, driven by higher fleet pricing and strong utilization of 96.8%.
• Renewal rates were 25.1% above expiring rates, with an 82% renewal success rate.

• The growth was attributed to strong market dynamics, higher lease rates, and favorable pricing on external repairs.

• Manufacturing Segment Stability:

• Despite lower deliveries (1,680 railcars), the Rail Products segment achieved a solid operating profit margin of 7.1%.

• This was due to a favorable mix of specialty railcars and improving operational efficiencies despite a lower delivery environment.

• Secondary Market Activity:

• Trinity added over $100 million of railcars to its fleet from the secondary market and sold $80 million in railcars in Q3.

• The company expects secondary market activity to accelerate in the fourth quarter, contributing to its overall net lease fleet investment guidance.

• Financial Performance and Guidance:

• Full-year EPS guidance was raised and tightened to $1.55 to $1.70, reflecting confidence in the business model and execution capabilities.

• The increase in guidance was driven by margin performance in the Rail Products Group and expected higher gains on railcar sales in the fourth quarter.

• Market Overview and Demand Outlook:

• The North American railcar fleet is expected to contract as scrapping outpaces new railcar deliveries, with an anticipated 40,000 cars scrapped this year.
• The company anticipates similar industry deliveries for 2026, with potential growth driven by customer demand after the current market uncertainty subsides.

Sentiment Analysis:

Overall Tone: Positive

• Management raised and tightened full-year EPS guidance to $1.55–$1.70, reported leasing revenue growth with 96.8% utilization and 25.1% renewal uplift, achieved 7.1% Rail Products operating margin in Q3, and increased expected gains on lease portfolio to $70M–$80M, while noting strong secondary market activity and operational cost savings.

Q&A:

• Question from Andrzej Tomczyk (Goldman Sachs): Discuss the current railcar delivery and order environment; how many quarters of book-to-bill >1 before confidence in a sustainable recovery, and would you expect that in 2026?
  Response: Unable to predict timing of book-to-bill >1; Trinity has multi-year backlog and strong inquiries, and currently expects 2026 to be similar to 2025 (industry deliveries 28k–33k).

• Question from Andrzej Tomczyk (Goldman Sachs): Of the gap vs replacement demand (35k–40k), how much is customers having enough cars vs customers delaying orders due to uncertainty?
  Response: Management believes the gap is primarily delayed orders—scrapping (~40k) is contracting the fleet and demand should pick up once certainty returns.

• Question from Andrzej Tomczyk (Goldman Sachs): If delayed demand returns, will deliveries move back above replacement and how long to recover to a peak?
  Response: Orders are lumpy and timing is uncertain; they expect 2026 similar to 2025 and will provide multi-year outlook when visibility improves.

• Question from Andrzej Tomczyk (Goldman Sachs): Would Class I consolidation (less interchange) boost utilization and modal share, and how might that impact fleet needs?
  Response: Consolidation could increase fluidity and potentially drive modal share growth that offsets faster turns, but historical proof is mixed and outcomes are uncertain.

• Question from Andrzej Tomczyk (Goldman Sachs): FLRD dropped to ~9% from 18%—what caused that and will FLRD trend this way?
  Response: FLRD decline driven by higher expiring rates and some moderation in specific car types; the metric is lumpy quarter-to-quarter and leasing environment remains favorable.

• Question from Andrzej Tomczyk (Goldman Sachs): How much of the book has been repriced at the higher COVID-era rates and how much remains to reprice?
  Response: About 65% of the fleet has been repriced to double-digit levels, with roughly 15% left to reprice this year—there remains a tail of repricing opportunity.

• Question from Bascome Majors (Susquehanna): Can you reconcile the 25% renewal uplift this quarter with the ~8–9% FLRD—what explains the difference?
  Response: They reflect different denominators and mixes: 25% compares contracted renewals this quarter versus expiring rates for those contracts; FLRD compares current quarter rates to expirations over the next four quarters, causing volatility.

• Question from Bascome Majors (Susquehanna): Which car types are stable/increasing vs softer sequentially?
  Response: Tank car rates remain strong; slight softness in some agricultural-related car types; many car types are trending upward while a few are moderating.

• Question from Bascome Majors (Susquehanna): What drove better-than-expected gains and OEM margins, and are those drivers sustainable?
  Response: Rail Products margin benefited from favorable specialty-car mix and earlier rightsizing/operational execution; gains improved due to a strong secondary market and planned RV partner sales—management is confident but notes market-dependent sustainability.

• Question from Bascome Majors (Susquehanna): How was investor appetite in your recent ABS deal and what did you learn about financing rail assets?
  Response: ABS demand was strong with tightened spreads, positive reception for the Trinity name, green investor interest, and maintained financing flexibility for fleet transactions.

• Question from Bascome Majors (Susquehanna): High-level directional puts and takes for next year across manufacturing, leasing, and secondary markets?
  Response: Manufacturing expected steady at a soft level with a Q4 step-up from backlog; leasing still has repricing and growth opportunities though renewal income growth may moderate; secondary market demand remains strong and opportunistic.

Contradiction Point 1

Railcar Demand and Order Environment

It involves differing expectations about the demand for railcars, which is crucial for forecasting and planning production and investment strategies.

Can you provide more details on the current railcar delivery and order environment? - Andrzej Tomczyk (Goldman Sachs Group)

2025Q3: We're looking to see something similar in 2026 right now. - E. Savage(CEO)

Can you provide an update on second-half production plans? - Bascome Majors (Susquehanna Financial Group)

2025Q2: The bottom of the cycle for the railcar industry was reached in the second quarter. The production cycle aims to optimize operations, achieving breakeven during the lows and profitability in the highs. - E. Jean Savage(CEO)

Contradiction Point 2

Terminal Orders and Backlog

It pertains to the company's backlog and terminal orders, which are key indicators for future production and revenue expectations.

Could you provide more details on the current railcar delivery and order environment? - Andrzej Tomczyk (Goldman Sachs Group)

2025Q3: And when you look at our projection for this year for industry deliveries, it's 28,000 to 33,000, which is below replacement level demand right now. - E. Savage(CEO)

What is the current competitive environment and secondary market perspective on lease rates? - Andrzej Zenon Tomczyk (Goldman Sachs)

2025Q2: We expect our year-end FY '24 terminal orders will be slightly above our terminal orders from the prior year. - E. Jean Savage(CEO)

Contradiction Point 3

Industry Deliveries and Backlog

It relates to the expected number of industry deliveries and the status of the backlog, which are crucial for forecasting demand and production planning.

Can you discuss the current railcar delivery and order environment? - Andrzej Tomczyk(Goldman Sachs Group)

2025Q3: For us, when you're looking at order entry, it may mean something a little bit different because you have to take that into consideration. When you look at our projection for this year for industry deliveries, it's 28,000 to 33,000, which is below replacement level demand right now. - E. Savage(CEO)

Does the guidance assume that some inquiries will convert to orders in the next few months? - Andrzej Tomczyk(Goldman Sachs)

2025Q1: For the Rail Group, we expect to deliver approximately 50,000 railcars this year, including roughly 35,000 railcars for our internal lease fleet. - Jean Savage(CEO)

Contradiction Point 4

Order Inquiries and Demand

It involves differing statements on the nature and lead of order inquiries, which impacts the assessment of demand trends and potential recovery for the company's railcar business.

Have order inquiries increased, and are they tank car-led or freight car-specific? - Andrzej Tomczyk(Goldman Sachs)

2025Q3: Order inquiries have picked up, led by freight car replacement demand. Tank cars have shown consistent levels of inquiries. - E. Savage(CEO)

Have order inquiries increased, and are they driven by tank cars or specific to freight cars? - Justin Bergner(Gabelli Funds)

2024Q4: Order inquiries have continued, but are largely driven by tank cars. If we see any increase in tank cars, it will be driven by the tank car replacement need. - Jean Savage(CEO)