FreightCar America Raises Guidance For The Second Time
We expected a lot more from Freightcar America (NASDAQ:RAIL) and so did the analysts. The company's revenue missed consensus by a wide margin on less than expected deliveries, but the details of the report are mixed. While Business was slower than anticipated, the company's backlog increased and executives were able to raise guidance.
FreightCar America raised guidance for the second time this year and now expects to see fiscal 2021 deliveries in a range of 1750 to 1850 versus the prior range of 1600 to 1750. That's a 10% increase to guidance at the low end of the range and one that we see driving share prices higher later in the year. It should also be noted the consensus sentiment has seen no change in over a year.
FreightCar America Incorporated Has A Good Quarter
FreightCar America had a good quarter despite missing the consensus estimate. The $37.35 million in consolidated revenue missed the consensus by 1500 basis points but grew 113.9% over last year. The company says it delivered 313 rail cars and managed to post positive operating income from manufacturing for the first time in three years.
Moving down the report, the company was able to produce a substantial increase in gross margin as well. Gross margin came in at 9.6%, better-than-expected and reversing a loss in the previous year. The only real negative is that the gross margin was offset by one-time non-cash items on the bottom line. On the bottom line, the company reported a loss of $0.13 but $0.06 better than expected.
According to Jim Meyer, President and Chief Executive Officer of FreightCar America:
“For the first half of fiscal 2021, our Adjusted EBITDA loss decreased to $2.0 million compared to a loss of $23.2 million in the same period of 2020. This improvement, in the face of multiple supply chain constraints and significant raw material inflation, truly highlights the potential of our new footprint.”
The non-cash adjustment to earnings is related to the value of warrants and is worth $3.50 million. The actual impact on cash, because cash reserves are in decline, is the company's investment into capacity. The company's business rebound may be starting slower-than-expected, but the company is expecting it to accelerate and expanding capacity to match demand. The company is going to build two new lines at its Castanos facility effectively doubling its capacity within the next twelve months.
Meyer continued,
“We remain encouraged by signs of an improving demand environment across our end-markets. Sales inquiries remain positive, and we have raised our 2021 outlook again for railcar deliveries … This planned expansion is an essential next step to driving incremental volumes and significantly improving our long-term earnings profile.”
The Technical Outlook: FreightCar America Confirms Support
FreightCar America’s Q2 results weren't exactly fantastic in relation to the analyst consensus but the consensus is irreverent. The Q2 results were strong, regardless of the consensus, and the guidance was stronger. The news had shares up more than 4% in early action on Monday and confirming support above the key $5 level. At time of writing, price action may test support at $5 before the day is through but we view it as an attractive entry point for this stock if it happens.
Longer-term, we expect to see FreightCar America begin moving higher and breaking above the $6 level before the end of summer (if not today). In that scenario, price action should continue higher and retest the recent highs near $8 by the end of the year (if not the summer). The risk, however, is global supply chain issues that may put a cap on production levels regardless of the company's capacity expansion.
