Trinity Industries (TRN) Down 26.7% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Trinity Industries (TRN). Shares have lost about 26.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Trinity Industries due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at Trinity in Q4

Trinity’s earnings (excluding 18 cents from non-recurring items) of 35 cents per share surpassed the Zacks Consensus Estimate of 32 cents. Moreover, the bottom line surged approximately 35% year over year. Further, total revenues of $850.7 million beat the Zacks Consensus Estimate of $666.2 million. The top line also improved 15.7% year over year.

The Railcar Leasing and Management Services Group generated revenues of $313.3 million, up 37.8% year over year. The upside was primarily owing to growth in lease fleet, higher volume of railcars sold and favorable average lease rates.

Segmental operating profit summed $100.3 million, up 4.5% from the year-ago quarterly figure owing to factors like higher profits from sale of railcars and lease fleet growth. Moreover, the company’s lease fleet came in at 103,705 units as of Dec 31, 2019. The fleet size grew 4.5% from the December 2018 figure.

Revenues at the Rail Products Group (before eliminations) totaled $887.6 million, up 27.7% from the prior-year number. Segmental operating profit was $97.4 million compared with $44.1 million a year ago. Operating profit improved primarily on the back of higher railcar deliveries and favorable railcar product mix changes. Notably, the group delivered 6,880 railcars and received orders for 2,585 railcars compared with 5,285 and 8,045, respectively, in the year-earlier quarter.

Revenues at the All Other Group were $79.8 million, down 10.7% year over year. The decline was due to sluggish demand and lower shipping volumes in Trinity’s highway products operations. Segmental operating loss came in at $0.6 million against a profit of $8 million a year ago.

The company exited the fourth quarter with cash and cash equivalents of $166.2 million compared with $179.2 million at 2018 end. Meanwhile, debt totaled $4,881.9 million as of Dec 31, 2019 compared with $4,029.2 million at 2018 end. Trinity repurchased 13.7 million shares worth $294.7 million during 2019.

2020 Outlook

For the current year, earnings are anticipated in the range of $1.15-$1.35 per share. Additionally, revenues are estimated in the band of $2.5 billion-$2.7 billion. The guidance reflects the company’s consistent cost-cutting measures and its balance sheet optimization initiatives. Additionally, free cash flow (before leasing investment) is predicted between $600 million and $650 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -31.82% due to these changes.

VGM Scores

At this time, Trinity Industries has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Trinity Industries has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.