Trinity officials optimistic about the rail car market; use service to defend premium pricing

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DALLAS — Executives at rail car manufacturer and lessor Trinity Industries are optimistic about the rest of 2019 after uncertain economic issues in the second quarter.

“Economic headlines continued to impede railcar demand momentum during the quarter,” says CEO Timothy Wallace. “At this point, we expect to deliver at least 35 percent more railcars in the second half of the year compared to the first half of the year.”

Economic issues included questions regarding trade tariffs and interest rates, says Eric Marchetto, TrinityRail vice president, “The good news is we’re seeing [customer] inquiry levels that are very healthy in car types that fit our production plan.”

In an investors’ conference call, Trinity officials said aspects of its business model other than manufacturing — leasing and railcar maintenance — help ease the intense peaks and valleys of railroad rolling stock demand.

“During strong economic cycles, we definitely value the increased earnings our manufacturing businesses deliver,” says Wallace. “When we originate leases and renew leases our customers commit to provide lease payments throughout the terms of the lease.”

So despite a weak second quarter in manufacturing, Trinity had $2.6 billion in lease revenue commitments.

Another revenue stream is in service — Trinity maintains about a third of its nearly 125,000 cars with expectations to increase to 50% after a new Shell Rock, Iowa, car maintenance facility begins operations late in 2020.

Its leasing service helps in product development, Wallace says.

“We normally launch new product features — and have done this for years — through our leasing company because it gives us that connection with the usage of the railcar,“ he says.

And Trinity officials use service to defend charging premium prices.

They say focusing on providing services along with customer-requested features on railcars helps keep their business from becoming a commodity, which is typical in the price-driven transportation industry.

Whether the car market is strong or weak, “Customers are looking for a service alternative that will create value for them,” Marchetto says. “We think it resonates with our customers.”

“Product differentiation will not resonate with all products and all customers,” he says, “Whether we’re dealing with railroads, industrial shippers or leasing customers — service differentiation does resonate with our customers.”

Trinity’s second quarter revenues were $736 million, up 16%, with earnings per share of $0.29, up 21%.
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