Stock Story -
Leasing services company GATX (NYSE:GATX) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 12.7% year on year to $386.7 million. It made a non-GAAP profit of $1.43 per share, down from its profit of $1.77 per share in the same quarter last year.
Is now the time to buy GATX? Find out by reading the original article on StockStory, it's free.
GATX (GATX) Q2 CY2024 Highlights:
- Revenue: $386.7 million vs analyst estimates of $385.5 million (small beat)
- EPS (non-GAAP): $1.43 vs analyst expectations of $1.78 (19.4% miss)
- Gross Margin (GAAP): 75%, up from 72.7% in the same quarter last year
- Active Railcars: 102,086, up 1,501 year on year
- Market Capitalization: $5.17 billion
Vehicle Parts DistributorsSupply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Transportation parts distributors that boast reliable selection in sometimes specialized areas combined and quickly deliver products to customers can benefit from this theme. Additionally, distributors who earn meaningful revenue streams from aftermarket products can enjoy more steady top-line trends and higher margins. But like the broader industrials sector, transportation parts distributors are also at the whim of economic cycles that impact capital spending, transportation volumes, and demand for discretionary parts and components.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, GATX's sales grew at a weak 2.5% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. GATX's annualized revenue growth of 8.8% over the last two years is above its five-year trend, suggesting some bright spots.
This quarter, GATX's year-on-year revenue growth clocked in at 12.7%, and its $386.7 million of revenue was line with Wall Street's estimates. We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
GATX has been a well-oiled machine over the last 5 years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 25.7%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, GATX's annual operating margin rose by 5.7 percentage points over the last 5 years, showing its efficiency has meaningfully improved.
This quarter, GATX generated an operating profit margin of 28.5%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
GATX's EPS grew at an unimpressive 4.4% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 2.5% annualized revenue growth and tells us the company became more profitable as it expanded.
Diving into the nuances of GATX's earnings can give us a better understanding of its performance. As we mentioned earlier, GATX's operating margin was flat this quarter but expanded by 5.7 percentage points over the last five years. On top of that, its share count shrank by 2.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For GATX, its two-year annual EPS growth of 5.3% is similar to its five-year trend, implying stable earnings.
In Q2, GATX reported EPS at $1.43, down from $1.77 in the same quarter last year. This print missed analysts' estimates. Over the next 12 months, Wall Street expects GATX to grow its earnings. Analysts are projecting its EPS of $6.81 in the last year to climb by 14.9% to $7.83.
Key Takeaways from GATX's Q2 Results We struggled to find many strong positives in these results. Its EPS missed and its EPS guidance for the full year fell short of Wall Street's estimates. Overall, this was a bad quarter for GATX. The stock remained flat at $145.35 immediately after reporting.
