GATX Corporation (GATX) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the GATX 2026 Second Quarter Earnings Call. [Operator Instructions] I will now hand the conference call over to Shari Hellerman, Head of Investor Relations. Shari, please go ahead.

Thank you, Julian. Good morning, and thank you for joining GATX Corporation's 2026 Second Quarter Earnings Conference Call. I'm joined today by Bob Lyons, President and Chief Executive Officer; Tom Ellman, Executive Vice President and Chief Financial Officer; and Paul Cherton, Executive Vice President and President of Rail North America. As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10-K for 2025 and our other filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Earlier today, GATX reported 2026 second quarter diluted earnings per share of $2.84. This compares to 2025 second quarter diluted earnings per share of $2.06. Year-to-date 2026, GATX delivered diluted earnings per share of $5.19 compared to $4.21 for the same period in 2025. I'll briefly touch on each of our business segments, and then we'll open the line for questions. In Rail North America, market conditions remain constructive. Fleet utilization remained high at 98%, and our renewal success rate was strong at 82.6%. The renewal rate change of GATX's lease price index was 16.8% with an average renewal term of 54 months. Leasing fundamentals driven by favorable supply-demand dynamics continue to support attractive renewal economics across most car types. We also continue to realize benefits from the Wells Fargo Rail acquisition as integration efforts progressed and the combined fleet continues to perform well. Additionally, we continue to successfully place new railcars from our committed supply agreement with a diverse customer base. We've placed about 9,500 railcars from our 2022 Trinity supply agreement. Our earliest available scheduled delivery under this supply agreement is in the first quarter of 2027. We capitalized on strong demand for railcars in the secondary market during the quarter, resulting in meaningful asset remarketing activity. Our gains on asset dispositions were $67.7 million in the quarter and totaled $117.5 million year-to-date. Outside North America, GATX Rail Europe delivered a solid performance, achieving 95.3% fleet utilization at quarter end despite challenging economic conditions. At GATX Rail India, demand for railcars remains robust, and the fleet was fully utilized. Rail International's investment volume was approximately $46 million during the quarter, reflecting continued fleet growth as we took delivery of new cars in Europe and India to meet customer needs. Turning to Engine Leasing. The segment delivered excellent results in the second quarter, supported by favorable market fundamentals and continued air travel trends, which drove strong demand for aircraft spare engines. We also identified attractive investment opportunities through our 50-50 joint venture with Rolls-Royce. Finally, as we noted in the earnings release, we are raising our 2026 earnings guidance to a range of $9.90 to $10.30, reflecting our strong year-to-date performance, healthy leasing fundamentals in the North American rail and engine leasing markets, the benefits from the Wells Fargo Rail acquisition, and the positive outlook for our businesses. And with that overview, Julian, let's open the line for questions.

[Operator Instructions] Your first question comes from the line of Ben Mohr with Citigroup.

Congrats on the beat and raise. The first one I've got is, along with your EPS guide raise, do you plan to give corresponding full-year targets updating from what you gave at the beginning of the year for revenue, remarketing, segment profit, and SG&A?

Ben, it's Bob Lyons. We don't plan to go through line by line as we did at the beginning of the year. What I can tell you is that midyear, we're essentially very close or slightly above the guidance that we provided almost across the board, line by line. Slightly ahead on remarketing income, slightly ahead on segment profit at North American Rail and at Engine Leasing. And those are really driving the guidance change. But if I look, whether it's revenue, SG&A, some of the key line items, we're still right where we thought we'd be. The $200 million of remarketing income split $130 million between GATX and $70 million at the joint venture still is in line with our expectations.

And regarding your LPI, the 16.8% looks like it's driven by some sand mix in the quarter. Maybe a 2-parter. Can you share what LTI would have been without this extra sand mix, maybe a rough estimate? And then the other is, do you still see high teens, low 20s for the full year?

So Ben, this is Paul speaking. I'm going to comment just qualitatively on that. As you know, we don't do car type-specific breakouts in terms of the components of LPI just as a matter of policy. But qualitatively, what I'll say is this: when we took on the Wells Fargo portfolio, we knew what the portfolio was. We knew we were getting sand exposure. So really, everything going on in sand, first of all, is consistent with our expectations. But beyond that, we did have an outsized remarketing quarter for sand, which explains the impact for that. We will have more sand exposure for the remainder of the year. But again, overall, what I'll say is it's consistent with our expectations and consistent. We value those sand cars appropriately. So obviously the rates are low, they're not concerning from that standpoint.

Yes. And Ben, it's Bob. I'd add too that there's a bit of an anomaly there because the actual level of renewals, just the pure level of renewals, was higher than we anticipated. We actually expected to get some of those cars back. And when you get them back, they come out of the LPI entirely. But we actually renewed more than anticipated, which is a good thing economically for the shareholder, good thing for P&L long term, but a negative on LPI. So a bit of an unusual element to the number this quarter.

And we noticed engine leasing other income; that $13.7 million stepped up. Can you share what's behind this? And then how we should model this, what the trend should be for this line going forward?

Yes, Ben, this is Tom. From time to time, we collect maintenance reserves from customers to ensure that funds are available for required maintenance when those events become necessary. If it ever becomes evident that these funds are no longer required for maintenance, they're taken into income. Typically, this happens as part of an end-of-lease activity. Given the nature of how maintenance reserve releases are recognized, they tend to be lumpy. And Q2 happened to be a particularly significant quarter for this type of activity. So we wouldn't expect that level to necessarily persist quarter-to-quarter. But over longer periods of time, it is fairly predictable. And this kind of activity regularly happens within the JV portfolio, and we expect it to regularly happen within the wholly owned portfolio as well, but to be a bit lumpy in nature.

Last one for me, Rail North America maintenance expense looks like it stepped up to the $130 million handle versus before, actually not that much, but about a couple of million there, or about $10 million, $11 million. Can you share a view on how the qualification tests are coming along? What drove the step-up? Should we still view it as a 120-ish run rate going forward? Or is this the new run rate?

So Ben, I'll start with some of the numbers, and then I'll let Paul add some color commentary on what he's seeing on the ground. So as far as the maintenance expense number, we're very much in line with what we expected coming into the year. Coming into the year, we thought it would be in the $500 million range. And year-to-date, we're at around $250 million. So exactly on target. We expect that to be a bit lumpy quarter-to-quarter. So I would look more at the total year type of numbers than I would at what happens in a given quarter.

Yes. And this is Paul speaking. I'll just add. From a maintenance demand standpoint and a compliance demand standpoint, the year is really unfolding more or less as we expected. So no surprises there. The volume of repair is consistent with what we thought coming in.

Your next question comes from the line of Andrzej Tomczyk with Goldman Sachs.

I was just curious to start off on the gains on sale in the second quarter. I know it popped up. I'm curious, though, because I remember, I think last quarter, the JV only saw about $2 million of gains relative to the $70 million full-year target for the JV, I think it was. Any update on what the JV experienced in terms of gains relative to your core business in the second quarter? And then on that full-year target, how you would expect to trend for the JV versus the separation of the JV.

Yes, Andrzej, you might recall from last quarter that we noted that we expected the first quarter of gains from the JV portfolio to be pretty limited as we focused on integration. So if you look at what happened in the second quarter, it's roughly 1/3 of what we expect for the entire year. So very much on pace. And our $70 million number that expectation has not been changed. In contrast, if you look at what's going on in the legacy portfolio, we're definitely running ahead of where we originally anticipated we would. And it's likely that for the full year, we'll be a bit better than that $130 million, and that was one of the things that drove our decision to take up guidance.

Yes. And I'll just add a couple of numbers around that. If you look at the year-to-date 6-month numbers for net gain on disposition, we're at $118 million. You can call it $25 million of that roughly is the joint venture, and about $95 million of that, roughly $94 million of that, is in the legacy versus the $130 million we said coming into the year. So consistent with what Tom said, we're well ahead of where we thought we would be on the legacy portfolio through the first 6 months, and we'll probably exceed that a little bit, the $ 130 million. And then with the joint venture, right in line with what we thought in terms of timing and amount.

And on the Wells Fargo benefits, I think $0.30 benefit expectation is what you guys had previously talked about. Is that still the expectation or the run rate you guys are on currently? And then I just had a question as you integrate the Wells Fargo fleet into your own, the revenue per active carload, I think, will be going down from a mix perspective. How do we think about that going forward and when that sort of normalizes?

Yes. So let me take the first part of that question. So as far as what we expected coming into the year, we thought it would be between about $0.20 and $0.30 of EPS. And at this point, we definitely believe we will exceed that, and we'll probably be at least double that number. There are 3 aspects to things driving that contribution. Management fees that we earn, the day-to-day performance of the portfolio, and then the remarketing gains. We already talked about the remarketing gains and said that those are likely to come in about where we thought. But we think it's likely that the other 2 aspects of that will be better than anticipated. You may recall that Bob mentioned even before we one day start doing maintenance on our own facilities, we would see opportunities to enjoy benefits as we apply our rigor at looking at third-party maintenance performance. And we're seeing that. We're seeing ourselves do a little bit better than anticipated on the day-to-day running of the portfolio. Also on the potential upside, part of the way management fees are structured for the portfolio that is wholly owned by Brookfield is that we have the potential to earn fees for asset sales. And just like the strong secondary market in our legacy portfolio and the JV portfolio, it's a strong market on that side as well. And so there's the potential to have some upside there. So again, when you translate all of that, we'll probably be at least double what we thought we'd be coming into the year. And on your comment or question about revenue or revenue per car, the only comment I'll make there is a cautionary one, which is it's really difficult to try to glean any consistent trend out of that data point, given that we're selling assets and adding assets. The portfolio is very dynamic, not static. So it's changing every single quarter. And it also comes back to when assets are sold. If they're sold right at the end of the quarter, if they're sold at the beginning of the quarter, it can have a pretty meaningful impact if you're looking just at revenue per car. So I understand the reason for the attention on that number, but I'll just add that note. It can be a little bit difficult to really dig into that one and draw any meaningful conclusion from it on a trend basis.

And I'll just add that mix as well affects that. The revenue on a railcar with an OEC of $100,000 is very different than the revenue on a railcar with an OEC of $300,000. And our fleet has a diverse mix. So depending on what's coming in or out of the fleet, you can have a very different revenue per car profile.

And Andrzej, finally, on that point, we've mentioned before that when we do asset sales out of whatever portfolio, we're primarily selling for portfolio optimization purposes. In other words, the quality of the portfolio that we have remaining is stronger after an asset sale than before. So if you simply look at quarter-over-quarter revenue, you're missing the fact that when you sell assets, some of the costs go away as well. One obvious example is ownership costs like depreciation. So when you look at the total impact on the portfolio, that's really the way to think about this rather than the revenue line in isolation.

Maybe just shifting gears a little bit to tariffs. Just trying to get some clarity here from a high-level perspective, our understanding is that some of the tariffs on tank cars, at least imported into the U.S., have been reassessed, and potentially there's a 25% or 10% to 25% tariff on the imported value of those tank cars. Curious if you guys are hearing that at all from the manufacturers, if that's factoring into any of your buying decisions, and just how to think about that dynamic going forward?

Yes. So this is Paul speaking. And what I'll say is you're correct about the existence of the Section 232 tariffs. What I will say is this, it's a very fluid situation, and we've disclosed this previously, contractually, as the buyer of railcars will ultimately be economically responsible to the extent tariffs will be assessed. Having said that, to date, we've had no material impact on GATX from any tariff assessments. And really, at this point, because the situation is so fluid, that's all we can really say at this point. I will say this, it's not affecting our investment behavior. Most of the new railcars we're taking today are taken under the supply agreement, and really, our investment behavior under the supply agreement has remained consistent.

So even at the margin, your behavior around tank car orders hasn't really been impacted by those changes?

Not to date. No.

And then maybe just lastly for me, I'm curious about the ISM positivity of Lee. I know rail carloading growth has also seen some improvement, especially around ex-intermodal as well, maybe some broadening out of the volumes. Does that bode well for sort of lease rates from your perspective? Are there customers saying, "Hey, rail volumes are growing again, we're going to start leasing more cars? What are you hearing from the customer perspective there?

Sure. This is Paul again. Yes, I mean, obviously, we always like to see carloads rising. So certainly, the year-to-date metrics are positive. And really, the areas where we're seeing that are intermodal, agricultural, and chemical. Those are the 3 biggest segment drivers. And obviously, we have a fleet that serves all 3 of those segments. So that is certainly positive. I would say, though, to zoom out for us really, what we've been saying for quite some time now about the supply-led market is really what drives our positivity about the business. The fleet is shrinking, which is a positive for us. The North American fleet is shrinking. And if you combine that with rising carloads, that's a fairly good story for us. And so ultimately, we see that as carloads grow, more demand for our fleet, and as the North American fleet shrinks, less supply. So we certainly see that as a supportive dynamic, and I think that's why our pricing and utilization have remained in a fairly attractive place from our standpoint.

Your next question comes from the line of Brendan McCarthy with Sidoti.

Just wanted to have a follow-up question on the guidance increase. It looks like you're taking up guidance to $0.30 at the midpoint. But you just mentioned you're potentially expecting maybe double the EPS expectation from the Wells Fargo rail portfolio, which I guess, according to math, would be roughly an incremental $0.25. So is it fair to think about that $0.30 midpoint increase? Is it fair to think about that breakdown as $0.25 coming from the Wells portfolio and then maybe the remaining $0.05 coming from incremental legacy remarketing income?

Yes. So there's obviously a lot of different pieces that are moving here. And directionally, for sure, that is one of the pieces. We also mentioned the possibility for improved asset sales. And then finally, I would note that the engine leasing business may do a bit better than we anticipated as strength continues in that market. So we have a few different areas that we could see some benefits. And that's one of the key reasons that you get that range as opposed to a single point.

And on the engine leasing business, it looks like the second quarter saw a nice increase at the JV. What was the breakdown there between remarketing gains and operating gains?

Yes. For year-to-date, we're at about 70% from operating income and 30% from remarketing type activity. So for the quarter, that mix was more 60-40, with 60% being the operating component. So the first quarter, we mentioned, was very heavy on the operating income, and we expected that to normalize over the course of the year.

Okay. And how did the internal portfolio perform in the second quarter? And maybe you can touch on the CapEx outlook there. I don't think any engines have been added to the internal portfolio year-to-date. But what are your thoughts there for the rest of the year in terms of CapEx?

Yes, Brendan, it's Bob. I'll take that one. So yes, the portfolio of wholly owned engines is static currently. We have not put into our forecast or into our CapEx plan any addition to that. When we did those investments originally over the course of the prior few years, really going back to the pandemic era, we added those engines at a point in time where it was really an opportunistic purchase, opportunistic acquisition. It made sense for Rolls-Royce. It made sense for GATX. But we didn't expect that that would be a steady supply of 10 or 15 engines a year because, as things improved, there would be other alternatives for Rolls-Royce in terms of financing those engines with other parties or selling to third parties. So we're well over $1 billion invested. Those are going to be great, very strong, high-return assets for GATX for a long time. There may be opportunities, spot opportunities to add to the portfolio, but there's no programmatic outlook for that. We haven't factored that in any of that into our guidance or CapEx plan for the year.

I appreciate the detail. Just last question for me on the LPI. And I'm not sure if you're able to provide this level of detail, but just maybe under the assumption that you renew roughly 10,000 railcars per quarter, can you give us an idea of the magnitude of the sand service railcar renewal during the quarter? And maybe how much of that total composition for the quarter was made up of the sand cars?

Yes. This is Paul speaking. Unfortunately, we don't, as a matter of policy, disclose car type-specific write-downs. What we can tell you was second quarter was a significantly outsized quarter for sand car renewals. And to reiterate the point that Bob made, that was actually a positive thing from our standpoint because we achieved higher renewal success than we thought. And as you know, it is generally optimal for us to keep cars in service at the same customer versus to take them back. So we deliberately did something that was, in the short run, harmful to LPI, but in the long term, favorable to economics. When we took over the Wells fleet, and again, this was all priced in. We knew what we were getting. We knew we were taking a large sand car fleet, and we also knew that the exposure in 2026 was going to be significant. So all of this is expected, but it certainly has the effect that it has on the LPI.

Yes, Brendan, it's Bob. Totally understand your question and am trying to get as granular as you possibly can. I would just note, we're in a very competitive marketplace. And I can guarantee you our competitors are all listening to this call right now, and they would be thrilled to know what our renewal schedule looks like over the course of the next few quarters by car type, as we would be to know what theirs is. But there is some limit on what we're kind of willing to provide publicly.

Your next question comes from the line of Harrison Bauer with Susquehanna.

Some follow-ups first on some of the renewals. Any color that you're able to provide on LPI in terms of legacy versus wells, if you can't provide anything specific to sand? And then any color around the average renewal term has continued to inch down really throughout the last 2 years or so. Anything to read on that or how you're approaching length of terms and your contract renewals?