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Railcar products and services provider Trinity Industries (NYSE:TRN) beat analysts' expectations in Q2 CY2024, with revenue up 16.5% year on year to $841.4 million. It made a GAAP profit of $0.65 per share, improving from its profit of $0.20 per share in the same quarter last year.
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Trinity (TRN) Q2 CY2024 Highlights:
- Revenue: $841.4 million vs analyst estimates of $738 million (14% beat)
- EPS: $0.65 vs analyst estimates of $0.34 (94% beat)
- EPS (GAAP) Guidance for the full year is $1.65 at the midpoint, beating analysts' estimates by 8.9%
- Gross Margin (GAAP): 21.3%, up from 16.8% in the same quarter last year
- Free Cash Flow of $116.9 million is up from -$71.8 million in the previous quarter
- Backlog: $2.7 billion at quarter end, down 25.1% year on year
- Market Capitalization: $2.71 billion
Trinity Industries, Inc. (NYSE: TRN) is a provider of railcar products and services in North America, operating under the trade name TrinityRail.
Heavy Transportation EquipmentHeavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Trinity grew its sales at a weak 4% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Trinity's annualized revenue growth of 35.5% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Trinity also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Trinity's backlog reached $2.7 billion in the latest quarter and averaged 59.3% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Trinity's products and services but raises concerns about capacity constraints.
This quarter, Trinity reported robust year-on-year revenue growth of 16.5%, and its $841.4 million of revenue exceeded Wall Street's estimates by 14%. 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. This signals Trinity could be a hidden gem because it doesn't get attention from professional brokers.
Operating MarginTrinity has managed its expenses well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of well-managed operations if they're high when gross margins are low.
Analyzing the trend in its profitability, Trinity's annual operating margin rose by 16.1 percentage points over the last five years, showing its efficiency has meaningfully improved.
This quarter, Trinity generated an operating profit margin of 16.9%, up 3.1 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Trinity's EPS grew at a spectacular 16.7% compounded annual growth rate over the last five years, higher than its 4% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Trinity's earnings to better understand the drivers of its performance. As we mentioned earlier, Trinity's operating margin expanded by 16.1 percentage points over the last five years. On top of that, its share count shrank by 34.9%. 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 Trinity, its two-year annual EPS growth of 117% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, Trinity reported EPS at $0.65, up from $0.20 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts' consensus projections, but there is insufficient data. This signals Trinity could be a hidden gem because it doesn't have much coverage among professional brokers.
Key Takeaways from Trinity's Q2 ResultsWe were impressed by how significantly Trinity blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. On the other hand, its backlog missed. Overall, we think this was a strong quarter that should satisfy shareholders. The stock traded up 3.3% to $34.11 immediately following the results.
