Gatx Corporation · NYSE:GATX
Gatx — Stephens Annual Investment Conference 2020
51 slides from Gatx's conference presentation, Nov 17, 2020
Slide 1: Stephens Annual Investment Conference
STEPHENS ANNUAL INVESTMENT CONFERENCE NOVEMBER 17, 2020
Slide 2: Forward-Looking Statements
Forward-Looking Statements Statements in this presentation not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and, accordingly, involve known and unknown risks and uncertainties that are difficult to predict and c
Slide 3: History and Business Overview
History and Business Overview 122 YEARS OF EXPERIENCE 3
Slide 4: GATX's 122-Year History
GATX’s 122-Year History 1898 Established as railcar lessor with 28 railcars 1907 1919 Began manufacturing railcars Initiated quarterly dividend 1936 Began rail investment in Canada 1984 Exited railcar manufacturing 1985 Began locomotive investment 1994 Began rail investment in Europe & Mexico 1998 F
Slide 5: GATX Today – Business Segments
GATX Today – Business Segments RAIL NORTH AMERICA Premier railcar lessor 6% Diversified fleet of over 118,000 railcars 8% Strong customer credit quality, diversification in car types and commodities carried $2.7 billion of committed lease receipts as of 12/31/2019 19% NET BOOK RAIL INTERNATI
Slide 6: Straightforward and Proven Business Model
Straightforward and Proven Business Model BUY LEASE SERVICE MAXIMIZE the railcar at an the railcar to a the railcar in a the value of the economically attractive quality customer at manner that railcar by selling or and competitively an attractive rate for maximizes safety, scrapping at the advantag
Slide 7: GATX Rail North America Overview
GATX Rail North America Overview 2019 OVERVIEW FLEET UTILIZATION* WHOLLY OWNED FLEET COUNT 118,000+ 11% 100% 99% CAR TYPE COUNT 7% 26% 98% 160+ 98% AVERAGE FLEET AGE 13% INDUSTRIES 96% SERVED 20 Years 96% 94% LOCOMOTIVE COUNT 23% 92% 625+ 20% NUMBER OF CUSTOMERS 90% 90% 850+ 88% COUNTRIES OF OPERATI
Slide 8: North America – Industry Commodity Carloads
North America – Industry Commodity Carloads QUARTERLY COMMODITY CARLOAD TRAFFIC (North America) 2,500 2,000 1,500 THOUSANDS 1,000 500 0 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16
Slide 9: North America – Industry Backlog
North America – Industry Backlog INDUSTRY BACKLOGS Cyclicality of the industry is illustrated by the backlog of orders at 160,000 the railcar manufacturers 140,000 The 2013 and 2014 spike in tank car 120,000 backlog was primarily due to the crude boom 100,000 Backlogs have 80,000 moderated pos
Slide 10: GATX Actively Manages Through Cycles
GATX Actively Manages Through Cycles GATX proactively manages changing market conditions by utilizing our strong customer relationships and the diversity of our fleet to adjust rate and term. STRONG MARKET WEAK MARKET STRONG MARKET WEAK MARKET 70 67 63 66 50% 60 62 54 40% 60 39% 30% 50 45 35% 41 20%
Slide 11: GATX Strategy in Today's Environment
GATX Strategy in Today’s Environment Operate the Business Practice a Disciplined Outperform the Competition Safely and Efficiently Capital Allocation Strategy • Maintain focus on utilization; highest reported utilization in • Maintain a safe and healthy North America work environment • Place new car
Slide 12: GATX Rail International Overview
GATX Rail International Overview 2019 OVERVIEW FLEET COUNT GRE FLEET UTILIZATION 24,500+ in Europe (GRE) 100% 25% 99% 4,000+ in India and Russia 99% CAR TYPE COUNT 98% 97% 97% 97% 97% 35+ INDUSTRIES 97% 48% SERVED 96% AVERAGE FLEET AGE (GRE) 96% 96% 12% 95% 18 Years 95% 95% 94% NUMBER OF CUSTOMERS 9
Slide 13: GATX Rail India Overview
GATX Rail India Overview GATX obtained the first-ever wagon leasing license in 2012 and is the largest private railcar lessor in India. GATX’s GROWTH IN INDIA KEY ATTRIBUTES $140 $15 Wholly Owned Fleet of $14 High Growth Opportunity $120 $13 ~4,000 railcars $12 Actively seeks attractive Serving cust
Slide 14: Portfolio Management Overview
Portfolio Management Overview RRPF PRE-TAX INCOME (GATX’s SHARE) 3% 6% 4% $100 18% 4% 31% 9% $80 RRPF ASSET ENGINE MIX 9% TYPES $ MILLIONS $60 79% 16% 21% $40 Aircraft Spare Engine Trent XWB (A350) V2500 (A320) Leasing Affiliates (RRPF) Trent 700 / 7000 (A330) CFM 56 / LEAP (A320 / B737) Marine Equi
Slide 15: RRPF: Key Attributes
RRPF: Key Attributes RRPF AFFILIATES ENTERED THE COVID-19 CRISIS FROM A 2019 OVERVIEW POSITION OF STRENGTH. ENGINE COUNT 478 Engine Portfolio Operating Flexibility ENGINE TYPE COUNT Diverse portfolio established over Low operating cost base and full 10+ years of consistent and disciplined discretion
Slide 16: Financial Highlights
Financial Highlights 122 YEARS OF EXPERIENCE 16
Slide 17: GATX is Well Positioned with Strong Cash Flows
GATX is Well Positioned with Strong Cash Flows GATX has nearly $3.2 billion in Our strong operating cash flow provides committed future lease receipts. tremendous capital allocation flexibility. $954 $735 $482 $224 $ MILLIONS $ MILLIONS $385 $234 $555 $264 $154 $166 $250 $289 $407 $84 $68 $304 $269
Slide 18: Capital Allocation Framework: Invest in Core Assets
Capital Allocation Framework PRIORITY 1 Invest in core, service-intensive assets to maximize shareholder value $9.3 billion** of investments over the period shown INVESTMENT VOLUME $1,031 $928 $860 $781 $770 $715 $723 $ MILLIONS $634 $621 $585 $615 $589 $480 2007 2008 2009 2010 2011 2012 2013 20
Slide 19: Capital Allocation Framework: Optimize the Balance Sheet
Capital Allocation Framework PRIORITY 2 Optimize the balance sheet Maintain a solid investment grade rating of BBB/Baa2 Maintain capacity for opportunistic investments LEVERAGE & REDUCTION OF SECURED ASSETS 5.0x 50% 4.5x 45% 4.0x 40% 3.5x 35% 3.0x 30% 2.5x 25% 2.0x 20% 1.5x 15% 1.0x 10% 0.5x 5
Slide 20: Capital Allocation Framework: Return Excess Cash
Capital Allocation Framework PRIORITY 3 In lockstep with Priorities 1 and 2, return excess cash to shareholders Over the period shown below, $2.0 billion returned to shareholders CASH RETURNED TO SHAREHOLDERS $2,500 $2,000 $ MILLIONS $1,500 $1,000 $500 $0 2007 2008 2009 2010 2011 2012 2013 2014
Slide 21: GATX Financial Highlights
GATX Financial Highlights Income Per Diluted Share, Adjusted** $5.77 $5.37 $4.67 $4.89 $4.48 $4.41 $3.50 $2.81 $2.01 $1.59 2010 2011 2012 2013 2014 2015 2016 2017* 2018* 2019* Return on Equity, Adjusted** Investment Volume 18% 18% $1,031 15% $928 14% 14% $860 13% 13% $770 $715 $723 $ MILLIONS 11% $5
Slide 22: Appendix
Appendix 122 YEARS OF EXPERIENCE 22
Slide 23: GATX Investment Highlights
GATX Investment Highlights Disciplined Management Team Leading Market Position focused on the long-term and experienced in managing the business across market cycles in most of the major rail markets globally Highly Diversified Railcar Fleet Full-Service Maintenance Capabilities with approximately 1
Slide 24: Environmental, Social, and Governance Efforts
Environmental, Social, and Governance Efforts ENVIRONMENTAL, SOCIAL GOVERNANCE HEALTH & SAFETY (EHS) Efficient Transportation People Board Leadership Moving freight via rail is three to four Policies and programs in place to Eight of our nine directors are independent times more efficient comp
Slide 25: North America – Industry Ownership
North America – Industry Ownership Approximately 1.6 million railcars RAILROADS (16%) LESSORS (55%) Ownership of railcars has been Shift from railroad- and shipper- owned declining railcars to lessors Virtually no tank car ownership due Lessors dominate the tank car segment to complexities a
Slide 26: North America – Industry Fleet and Ownership Mix
North America – Industry Fleet and Ownership Mix RAILCARS BY TYPE TANK CAR OWNERSHIP SHARE (Approximately 1.6 million railcars) 19% 4% 0% 7% Lessor Shipper/Other 8% <1% Railroad 34% Based on approximately 436,000 tank cars 81% 20% FREIGHT CAR OWNERSHIP SHARE 27% 14% Lessor Railroad Covered Hopper Fl
Slide 27: North America – Lessor Market Share
North America – Lessor Market Share LESSOR OWNERSHIP SHARE TANK CAR LESSOR OWNERSHIP SHARE (Based on approximately 909,000 lessor-owned railcars) 2% 12% GATX 17% Union Tank Car 13% 8% Trinity 25% 17% CIT 10% GATX SMBC 15% 33% Wells Fargo Rail 13% 18% Other 6% GATX Based on approximately 353,000 less
Slide 28: North America – Industry Shipments & Carloadings
North America – Industry Shipments & Carloadings INDUSTRY SHIPMENT COMPOSITION CARLOADS ORIGINATED (Based on 2019 U.S and Canadian carloads of approximately 17.2 millions) (United States and Canada) 22 21.1 21.0 22% 21 27% 20 3% 3% 19.1 MILLIONS 5% 19 18.7 14% 18.2 6% 18 7% 17.5 13% 17.2 17.1 17 Coa
Slide 29: North America – Industry Railcar Deliveries
North America – Industry Railcar Deliveries 25,000 20,000 YTD 15,000 Total: 27.2k 10,000 5,000 - ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ‘20 Number of Tank Number of Freight Railway Supply Institute as of October 2020 29
Slide 30: North America – Industry Railcar Orders
North America – Industry Railcar Orders 50,000 45,000 40,000 35,000 30,000 25,000 20,000 YTD 15,000 Total: 13.9k 10,000 5,000 - ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ‘20 Number of Tank Number of Freight Railway Supply Institute as of October 2020 30
Slide 31: GATX Rail North America: Diverse Fleet
GATX Rail North America: Diverse Fleet CAR TYPE COMMODITIES CARRIED % OF FLEET % OF NBV General Service Tank Cars: Liquid fertilizers, Fuel oils, Asphalt, Food-grade oils, Chemicals (styrene, glycols, etc.) 20k-25k gallon 15.3% 14.3% General Service Tank Cars: Ethanol & methanol, Food-grade oils, Lu
Slide 32: GATX Rail North America: Continuous Investment
GATX Rail North America: Continuous Investment $6.0 130 Car count increased 7% $5.7 Assets increased 37% $5.6 120 $5.5 $5.4 $5.2 $5.1 110 RAILCARS IN THOUSANDS ASSETS IN $ BILLIONS $5.0 $5.0 100 $4.6 $4.4 $4.5 $4.5 90 $4.2 $4.1 80 $4.0 70 $3.5 60 $3.0 50 2009 2010 2011 2012 2013 2014 2015 2016 2017
Slide 33: GATX Fleet Optimization Strategy
GATX Fleet Optimization Strategy GATX optimizes its fleet partly through selling railcars in the secondary market or scrapping them at the end of their useful lives. Our fleet of cost-advantaged, well-maintained modern railcars, leased to quality customers, allows us to realize significant remarketi
Slide 34: GATX Railcar Supply Strategy
GATX RAILCAR SUPPLY STRATEGY GATX’s Railcar Supply Strategy is to acquire railcars from a variety of sources versus manufacturing its own railcars. Combining Railcar Adds significant volatility leading to a higher cost of capital Manufacturing with a Can result in poor asset allocation within th
Slide 35: GATX Rail North America: Diverse Customer Portfolio
GATX Rail North America: Diverse Customer Portfolio CREDIT RATINGS OF TOP 50 CUSTOMER FAMILIES GATX serves Largest more than customer represents 16% 850 individual less than 6% customers of total lease revenue 30% 14% Average Top 20 customers relationship account for 40% tenure of top less than 10 c
Slide 36: GATX Rail North America: Maintenance Network
GATX Rail North America: Maintenance Network GATX is known for its integrity, safety, and quality of our operations and superior execution. EXTENSIVE MAINTENANCE NETWORK MAINTENANCE CUSTOMERS RELY ON GATX Eight maintenance facilities In 2019, GATX Rail North America performed approximately 47,000
Slide 37: GATX Rail North America: Locomotive Leasing
GATX Rail North America: Locomotive Leasing GATX owns, manages or has an interest in more than 625 Locomotives. LOCOMOTIVE LEASE REVENUE $39 $39 $39 $38 $36 $35 $34 $32 $ MILLIONS 96% are four-axle locomotives leased to: Regional and short-line railroads Industrial users Class I railroads 2012
Slide 38: Europe – Industry Snapshot
Europe – Industry Snapshot Relatively limited manufacturing capacity RAILCAR OWNERSHIP − Helps avoid an industry oversupply of railcars (Based on approximately 728,000 railcars) Older industry fleet in need of replacement − Key segments continue to demonstrate need to replace aging, smaller, and
Slide 39: Europe – Industry Fleet and Ownership Mix
Europe – Industry Fleet and Ownership Mix TANK CAR OWNERSHIP SHARE RAILCAR OWNERSHIP (Based on approximately 728,000 railcars) 4% 30% Lessors 11% Railroad & Privately Owned 31% 70% Based on approximately 136,000 tank cars 35% FREIGHT CAR OWNERSHIP SHARE 19% 24% Lessors Flat Wagons Covered Wagons Rai
Slide 40: Europe – Lessor Market Share
Europe – Lessor Market Share TANK CAR LESSOR OWNERSHIP SHARE LESSOR OWNERSHIP SHARE (Based on approximately 236,000 lessor-owned railcars) 21% 23% GRE VTG 11% 2% 24% 23% Ermewa 8% GRE Wascosa Touax 13% 33% Other 11% Based on approximately 95,000 lessor-owned tank cars 5% GRE 36% 6% FREIGHT CAR LESSO
Slide 41: GATX Rail Europe (GRE): Major Rail Markets
GATX Rail Europe (GRE): Major Rail Markets 72% of GRE’s revenue is generated in Germany, Poland, and Austria – strong rail freight transport economies. GEOGRAPHIES SERVED 4% 11% 13% Germany 4% FLEET STRUCTURE Poland 32% 4% Austria 14% Mineral Oil 5% Switzerland LPG 56% The Netherlands Chemicals 11%
Slide 42: GRE: Diverse Customer Portfolio and Fleet
GRE: Diverse Customer Portfolio and Fleet GRE’s newer and higher capacity railcar fleet attracts top-tier customers. GRE HAS INVESTED MORE THAN $1 BILLION OVER THE LAST 10 YEARS Today, the average remaining lease term for GRE is 2 years 25% • Renewal success rates have been consistently high • GRE
Slide 43: GRE: Service Offerings
GRE: Service Offerings MAINTENANCE ENGINEERING ASSEMBLY SUPPORT MODERNIZATION GRE’s goal is to ensure Decades of engineering GRE’s own production Comprehensive customer With an average age of 18 maximum railcar experience facility, combined with service years, GRE has one of the availabili
Slide 44: India – Industry Overview
India – Industry Overview Indian Railways has a number of initiatives in progress to increase freight rail modal share in the country. RAILCAR OWNERSHIP FREIGHT RAIL TRANSPORT (Based on approximately 300,000) Significant Potential − Large railway network, dominated by passenger 10% service today −
Slide 45: Aircraft Spare Engine Leasing Industry Overview
Aircraft Spare Engine Leasing Industry Overview Aircraft spare engines are very attractive and reliable leasing assets − Robust residual value characteristics − Retain value better over the long term compared to aircraft Aircraft engines need regular scheduled maintenance (3-5 year intervals) wh
Slide 46: RRPF Affiliates Overview
RRPF Affiliates Overview RRPF is a leading worldwide lessor of aircraft spare engines. OVERVIEW 4% 6% GATX established its first 4% partnership with Rolls-Royce plc in 31% 1998 9% RRPF Total NBV of engines upon RRPF ENGINE establishment was $350 million; 9% TYPES today the NBV is approximately $
Slide 47: RRPF: Growth in Revenue & Net Book Value
RRPF: Growth in Revenue & Net Book Value CAGRs of 15.5% and 14.2% for NBV and Total Annual Revenue, respectively, since 1998. 2019 NBV: $5,016M Rev: $470M $6,000 $500 $450 1998 $5,000 $400 NBV: $243M REVENUE (MILLIONS) $350 NBV (MILLIONS) $4,000 Rev: $29M $300 $3,000 $250 $200 $2,000 $150 $100 $1,00
Slide 48: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures 122 YEARS OF EXPERIENCE 48
Slide 49: Reconciliation of Non-GAAP Measures: Net Income Measures
Reconciliation of Non-GAAP Measures: Net Income Measures Net Income 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (in millions) Net income (GAAP) $ 80.8 $ 110.8 $ 137.3 $ 169.3 $ 205.0 $ 205.3 $ 257.1 $ 502.0 $ 211.3 $ 211.2 Less: Net income from discontinued operations (GAAP) n/a n/a n/a n/a n/
Slide 50: Reconciliation of Non-GAAP Measures: Earnings Per Share
Reconciliation of Non-GAAP Measures: Earnings Per Share Earnings per Share 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Diluted earnings per share from continuing operations (GAAP) $ 1.72 $ 2.35 $ 2.88 $ 3.59 $ 4.48 $ 4.69 $ 6.29 $ 11.88 $ 4.98 $ 4.97 Diluted earnings per share from discontinue
Slide 51: Reconciliation of Non-GAAP Measures: Balance Sheet Measures
Reconciliation of Non-GAAP Measures: Balance Sheet Measures On- and Off-Balance Sheet Assets 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total assets (GAAP) $ 5,442.4 $ 5,846.0 $ 6,044.7 $ 6,535.5 $ 6,919.9 $ 6,894.2 $ 7,105.4 $ 7,422.4 $ 7,616.7 $ 8,285.1 Off-balance sheet assets (1): Rail No