Trinity Industries, Inc. Q2 2026 Earnings Call

Good day, welcome to the Trinity Industries second quarter ended June 30th, 2026 results conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions, and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which would cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

I would now like to turn the conference over to Leigh Anne Mann, Vice President of Investor Relations.

Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's second quarter 2026 financial results conference call. Our prepared remarks will include comments from Jean Savage, Trinity's Chief Executive Officer and President, and Eric Marchetto, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the quarterly investor slides, which are accessible on our investor relations website at www.trin.net. These slides are under the Events and Presentations portion of the website, along with the second quarter earnings conference call event link. A replay of today's call will be available after 10:30 A.M. Eastern Time through midnight on August sixth, 2026.

Replay information is available under the Events and Presentations page on our investor relations website. It is now my pleasure to turn the call over to Jean.

Thank you, LeighAnn, good morning, everyone. Second quarter earnings per share from continuing operations came in at $1.25, reflecting the successful completion of our Napier Park partnership transaction alongside execution headwinds in Rail Products that are specific and transitional. The Napier gain was $132 million pre-tax and demonstrates the embedded value we have been building in our fleet. It is also proof of what this platform was designed to do, perform profitably through the cycle and convert hard asset value into shareholder returns. Rail Products came in below expectations at a 1.3% operating margin, driven by two specific items we quantify at 270 basis points. Leasing continued to perform. Fleet utilization held at 97.3%. Lease rates moved higher. Rail Products ended the quarter with a $1.6 billion backlog and a book-to-bill just below one time. The demand signal is there.

On the last 12 months basis, our adjusted return on equity expanded to 32.4%, reflecting the impacts of the work completed on the business and the Napier Park and secondary market transactions in the last 12 months. Let me walk you through what we're seeing in the market. The market is turning, not all at once and not without friction, but the direction is clear. The PMI Manufacturing Index has been positive for six consecutive months. Industrial production improved year-over-year. Carload growth is materializing across agricultural, energy, and industrial construction segments, where rail has a natural advantage. In particular, agricultural carloads have shown the most strength due to soybean strength and steady increase in ethanol. Rail cars and storage have been below 20% for the last four months.

Inquiry levels for new rail cars are strong, reflecting growing customer conviction that the cycle has turned, demand side signals continue to be stronger than supply side signals. Rail structural advantages are playing to our favor as well. Fuel efficiency relative to trucking, capacity constraints in the over-the-road network, and increasing pressure on supply chains to reduce carbon footprints are all driving freight towards rail. These are durable trends. When I look at the core indicators, PMI, industrial production, carloads, and inquiry levels, the trajectory is constructive and gaining momentum. We enter the second half of 2026 with growing confidence. I'll take you through both segments, starting with leasing and services. Leasing performed. Utilization held at 97.3%. Renewal success rates improved to 75%, up from 60% in the first quarter. The future lease rate differential moved to a positive 3.5%, up from 1.2% in the first quarter.

That is a meaningful acceleration, FLRD has now been positive for 20 consecutive quarters. A forward indicator that lease rates should continue to grow as renewals convert. These are the metrics that tell us the fleet is healthy and the market is supporting our pricing. Leasing revenues were down year-over-year, the reason is structural. We closed railcar partnership transactions in Q2 2026 and Q4 2025 that reduced our own fleet. For context, in the second quarter of 2025, the revenue contribution from the consolidated Napier Park fleets was about $30 million. We are growing our overall platform while monetizing embedded fleet value and simplifying the balance sheet. As of June 30th, our wholly owned railcar fleet stands at 96,280 rail cars, and our investor-owned fleet count, which we manage, is 50,650.

Higher lease rates and stronger external repair pricing partially offset the revenue impact of the smaller consolidated fleet. Leasing segment operating margin was 79.8%, including the $132 million non-cash gain from the Napier Park transaction. Excluding that gain, the leasing and services margin was 33%, reflecting higher maintenance and depreciation costs and the mix impact of a smaller consolidated fleet. Additionally, we incurred disposal charges related to the exit of certain logistics solutions locations in the quarter. On the portfolio management side, we completed $31 million of lease portfolio sales in the quarter, generating $8 million in gains. The secondary market remains active, and we continue to use it as a capital allocation tool. In the rail product segment, we received orders for 1,560 new rail cars and delivered 1,570 rail cars in the quarter, ending the quarter with a backlog of $1.6 million.

We currently hold just under half of the industry backlog. Revenues were down slightly year-over-year, driven by lower deliveries. Rail Products operating profit margin came in at 1.3%. Two items drove roughly 270 basis points of that shortfall. An unplanned production interruption at our Longview manufacturing facility and temporary realignment expenses tied to our Mexico manufacturing footprint. Excluding those items, underlying margin was in the 4% range, still below the annual trajectory we are targeting. Additionally, the mix of deliveries in the second quarter was less favorable than the first quarter. Last year, we initiated a significant consolidation and automation initiative at our Longview operations, transitioning from two facilities to one. While we are excited about the long-term operational improvements this project will deliver, it can affect our productivity while it is ongoing. We expect this project to reach completion early in 2027.

The full-year Rail Products margin is expected to land at the low end of our 5%-6% range as production normalizes in the second half and mix improves in Q3 and Q4. The structural work we have done on automation, rightsizing, and break-even reduction is intact and performing. The second quarter results do not reflect that progress, but the full year will. Before I turn the call to Eric, I want to highlight a strategic development for Trinity. In June, we acquired a 32% interest in Touax Texmaco Railcar Leasing Private Limited, or TTRL, which is a railcar leasing company in India. This is a joint venture with Touax Group, a global asset management company, and Texmaco Rail & Engineering Limited, a rail solution provider in India. We are contributing our leasing expertise while gaining meaningful exposure to India, a growing rail market.

While we do not expect material P&L contribution in 2026 as a joint venture completes its additional fleet build-out, we are excited about this JV's ability to generate solid returns and meaningful growth. In summary, we delivered strong EPS growth, closed a significant transaction that demonstrates the value embedded in our fleet, and maintained the leasing metrics that matter most, utilization, renewal success, and FLRD. Rail Products had a difficult quarter on margin. Inquiries are growing and our full-year expectations are unchanged. The market environment is improving. Trinity is built to capture that improvement. I'm proud of how this team is executing, closing significant transactions, navigating a complex operating environment, and accelerating into a strengthening market. The platform is sound, the leasing business is strong, the strategic moves we are making are the right ones, and the team is focused on delivering in the second half.

I'll now turn the call over to Eric, who will take you through the financials and our updated guidance.

Thank you, Jean, and good morning, everyone. Before we go through the financial statements, I wanted to quickly talk through the second quarter railcar partnership transaction with Napier Park. As you will recall, we completed the first piece of this transaction in the fourth quarter, moving the TRP 2021 fleet to wholly owned and the Triumph fleet into our managed fleet, and recording a non-cash gain in that exchange. In the second quarter, we contributed our remaining membership interest in the Tribute partially owned fleet for an 11.2% limited partnership interest in Napier Park SPE Holdings. The Tribute fleet is now part of our managed fleet, and we no longer have direct ownership interest in TRIP Holdings. Because the book value of this fleet was well below the market value, we recorded a non-cash pre-tax gain of $132 million in the second quarter.

It is worth noting that while these transactions have simplified our financial statements and have allowed us to unlock significant value in our railcars, there are other notable impacts to our financial statements, especially in comparisons to prior periods. Starting with the income statement. Revenues for the quarter were $485 million, down slightly, both sequentially and year-over-year, reflecting the deconsolidation of the partially owned leasing subsidiaries as these railcars move into the managed fleet. The partially owned railcar count and minority interest goes to zero, both expected outcomes of the partnership structure. Earnings per share in the quarter were $1.25, up both sequentially and year-over-year as a result of the $132 million railcar partnership gain. We also recorded a gain of $8 million in the quarter from lease portfolio sales. Moving to the cash flow statement, year-to-date cash flow from continuing operations was $172 million.

We've returned $71 million this year to shareholders through dividends paid and shares repurchased. Year-to-date net fleet investment was $126 million. Cash flow from operations with net gains on lease portfolio sales was $81 million in the quarter and $203 million year-to-date, reflecting significant cash generation even in a slower delivery environment. Turning to our balance sheet, we continue to work to strengthen and improve our financial position. We have liquidity of $1 billion. Our second quarter balance sheet now reflects the deconsolidation of all balances related to TRIP Holdings, both on the asset side with a lower property, plant, and equipment balance, and the removal of the associated partially owned debt from our balance sheet. Furthermore, the other assets line item includes our new equity method investment in the Napier Park railcar fleet.

Additionally, in the quarter, we amended and extended our $600 million corporate revolver to provide more flexibility and issued TRL 2025, Series 2026-1 secured railcar equipment notes to redeem in full the Series 2019-1 notes. The financing increased the loan-to-value on our wholly owned lease fleet to 70.8%, which is slightly above our targeted range. The higher advance rate on the fleet reflects the increased market value supported by higher lease rates on our fleet. Our unencumbered fleet is approximately $900 million, giving us financial and operational flexibility. Now I'd like to give some thoughts on guidance for the rest of the year. We continue to expect 25,000 industry deliveries this year, well below replacement levels as customers manage through cost uncertainty and economic headwinds. Despite the softer delivery environment, we are maintaining capital discipline.

We are slightly lowering our net lease fleet investment to a range of $300 million-$400 million, with gains of $160 million-$180 million. Year to date, we have booked $162 million in gains, which means our guidance contemplates limited secondary market sales in the back half of the year. We are also holding our full year EPS guidance of $2.20-$2.40, and expect Rail Products Group full year segment margin to be in the 5%-6% range. This means we expect the Rail Products operating margin to normalize in the second half of the year as the headwinds we experienced in the quarter clear. We expect Rail Products deliveries in the second half to be higher than the first half, which brings meaningful operating leverage on our cost base and supports the full year margin trajectory.

To summarize, the balance sheet is stronger, liquidity stands at $1 billion, and our capital allocation priorities are unchanged. Disciplined fleet investment, active portfolio management, and returning capital to shareholders. The financial foundation is sound. The recovery drivers are in place. We are holding guidance. We look forward to demonstrating that in the second half of 2026. Operator, we are now ready for our first question.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then two. Our first question comes from Andrzej Tomczyk with Goldman Sachs. Please go ahead. Hey. Great.

Thanks, guys, for taking the time this morning. Appreciate the question. Just curious if we could start off on the tariffs just to get a little more clarity there. Our understanding is that the recent amendments to Section 232 investigations are imposing a tariff of up to 25% on the full value of tank cars imported into the U.S. Maybe if you guys could just speak a little more to your current understanding of the tariff situation, what's Trinity's current tank car backlog mix, and just sort of broad thoughts on how this might filter through the system. Appreciate it. Yeah. Thank you, Andrzej.

I'll start with that. As you know, our tank cars are manufactured in North America, under USMCA, and we continue to engage with the U.S. Customs and Border Protection. We actually filed a formal ruling request with the CBP, asserting our Section 232 exemption. Our legal basis is different from other builders who rely on an exemption known as the Instruments of International Traffic. When you look at this, we believe that our exemption is well-grounded and does not have an effect, but we are waiting on the news to come back from them if they still agree with that. When you look at it, we also have flexibility. Our Longview facility produces tank cars, rail tank cars, and we believe we produce more than any other builder in the U.S., so we have flexibility to move that production around.

When you look at the impact so far with those 232s, it has slowed the order rate for new tank cars. We are seeing that. We're working with our customers to make sure that even under USMCA, if we do end up with any tariffs, it would be at the lower 10% rate. We are building in flexibility for our customers. I want to go ahead and talk a little bit about the couplers because I think people are confusing those. There is an evasion case with a different builder on entry of rail cars with non-U.S.-produced couplers. We are not in that boat. We're not subject to that investigation, and we have a longstanding relationship with the U.S. manufacturer for those couplers. Actually, we've been paying up for those couplers for years.

Just want to make sure you understand those are two distinct areas, and the couplers doesn't apply to us.

Understood. I appreciate the distinction there as well. Maybe just quick follow-up. If the tariffs are sort of deemed to be put in place after the fact on a going-forward basis, would you escalate that in your contracts? Are you sort of expressing that with customers currently in conversations?

Absolutely. Those discussions are happening as contracts are built. The majority of all of ours have escalation as part of the contract, so those would pass on.

Great. Thank you. Maybe just touching on the quarter a little bit, you guys talked about the impact on rail margins, Rail Products, the 270 basis points. Those two pieces, the unplanned production interruption, and then the temporary realignment in Mexico. Could you maybe just split out the two, what was the impact on the production interruption and then in Mexico and maybe what drove those two unplanned interruption or events? Just going forward, any thoughts on how we can expect that tank car order mix to impact margins relative to your guidance? Thank you. Sure. First, we are deeply saddened by the tragic loss of one of our colleagues, and our thoughts remain with that employee's family, friends, and the coworkers.

The safety of our people is our highest priority, and any workplace fatality is upsetting to everyone at Trinity. Consistent with our prior practices, we have taken steps to reinforce our safety programs and identify opportunities to strengthen our processes. While I won't discuss the specifics of the incidents, we remain committed to continuously improving our safety culture and ensuring our employees have the training, resources, and support they need to work safely every day. That is the largest portion of the 270, but we also had some realignment of work in Mexico. Some of that was related to the tank cars.

As we look at going forward, the biggest impact and the reason we're saying we'll be at the lower end of the 5%-6% is we see a significant increase in deliveries for the second half of the year versus the first half of the year. That operating leverage will allow us to go ahead and regain some of the efficiencies that have been lost earlier in the year. We don't expect a repeat of the incidents from the first half to occur. I think that explains the majority of the 270 for you.

Yeah. Andrzej, I'll just add that as you think about the rest of the year, we have very good visibility into the back two quarters of the scheduled production. The guidance range anticipates the tank freight mix, and we don't expect that to really be changing. What Jean's referring to, the tariffs affecting tank car decision-making, that really gets into 2027 more so than the back half of 2026.

Great. That's great color. Then just on that sort of margin trajectory into the back half with the improvement in deliveries, is there any contemplation of the 3Q versus the 4Q in terms of you thinking that production will ramp sort of more into the year-end? I know last year margins in manufacturing was actually higher in the third quarter. I don't know if we should be expecting similar in the back half. Just any thoughts there in terms of cadence would be helpful as well.

We're already set to make the production ramp that we need to do, I wouldn't expect any large swings quarter to quarter.

Great. Thank you. Maybe just on the FLRD, I wanted to switch there because it looked like a nice change in the prior downward trend. It rose to 3.5% this quarter. Maybe just talk about what's driving that and expectations for that FLRD going forward.

Well, all of the metrics that we follow that support that FLRD, the utilization remains high. When you look at the renewal rate, it went up to the 75%. Inflation remains high. Material costs continue to rise. All of those give us a headroom to continue to look at raising those lease rates and are supportive of that. A lot of what you saw in Q1 was a mix of car types. I think you see a little bit of that in the second quarter too. That will impact that rate, but we see headroom on the lease rates going forward.

Understood. Thanks everybody for the time this morning. Really appreciate it. Thank you.

Thank you. Our next question comes from Harrison Bauer with Susquehanna.

Please go ahead. Great. Thanks for taking my questions.

I want to extend my condolences to your colleague. Sorry to hear about that. Glad you're taking steps on safety going forward. Maybe moving to just a couple quick follow-ups on the quarter, more specifically. You offered the disruption and the effect on margins. Do you have a delivery or shipment account that affected in the quarter, or is that strictly a cost action? That's 1. 2, just thoughts on how the India JV is going to flow through the P&L. Is that going to reflect in your total lease fleet? I know you've made some actions most recently on kind of cleaning up the NCI line. Just curious how we should expect just the financial statement of that new JV into next year.

Okay. I'll go ahead and start. We did have the delay of some deliveries due to the disruptions in the second quarter, but we didn't lose those. You'll see those flow into later quarters for us. I'll let Eric talk to you about the India JV.

Harrison, the Indian JV, we're very excited about it. We're going to account for that under the equity method of accounting. It will be an investment that'll broken out in our other assets. You'll see that when we file the Q later today. Thus, because we're doing that, it will come through another income kind of below the segment line. Will not be how we used to do the TRIP transactions. In this year, we don't expect much of an impact. The capital we provided, we're excited about it. It's more growth capital for the business. Long-term, we think that's a very good market, and we thought it was the right way to approach the market by partnering and really prove out from a distance, it looks like a great market, and we're going to prove that out with our partners.

Okay, great. Thank you for both of the color on those. Maybe just touching on the unchanged guidance. You left that at the same $220-$240 range. It sounds like the Napier Park deal, that was largely in line with expected. After the second quarter, Rail Products profits came in a little bit lower than expected. Can you maybe offer or walk us through what's keeping that guidance unchanged? Particularly with the margin outlook in that segment lowered for the balance of the year, and why maybe the guidance was not at least trimmed on the higher end or lowered. Thanks. Sure. I'll go ahead and start on that.

The basis for maintaining really comes down to what we're expecting out of the Rail Products Group and the fact that we're talking about a significant increase in the deliveries and the operating leverage that we'll get from that. We are maintaining the 5%-6% range. We just guided to the lower part of that range. We did not lower the 5%-6%, and that will account for the majority of the hold in the $220-$240. Leasing continues to operate well, and we expect that to continue to happen. We do have some gains into the back of the year, they're not significant, and that's from the secondary market sales. It's really coming down to Rail Products.

Okay, great. Thanks for the color. I want to dive a little bit into maybe the book-to-bill on the Rail Products side. It's nice to see that approaching 1, albeit on a significantly lower historical delivery account. Could you help offer any color or further color on what's driving this delay of inquiry conversion into firmer orders? How much are the uncertainty around tariffs regarding paint cars influencing that and whether or not the orders, any way to split the orders between freight cars or tank cars, just to get a sense of how that mix is building up into next year.

I'm going to start with, in the third quarter, the first month, we've seen a pickup in new car orders. Not going to give you the amount, but it's noticeable compared to the second quarter. When you look at that, the majority are in the freight car side, but we are getting tank car orders come through also. Uncertainty will, and has been delaying people's choices to go ahead and place orders on tank cars. Some of them are looking at the timing of the need to replace cars, the need to scrap some of the older cars and having to make that choice. When we look at the fact that material costs are continuing to go up, I think it's just a choice that they have to make on when they pull the trigger and make those orders come through.

Like I said, it's good to see in the first month, the pickup in the third quarter of new cars coming through in orders.

All right. Great. Thanks for that. Any thoughts on backlog visibility into 2027? What do you need to see in order levels for the balance of the year to start filling out any production white space? We know you have a long-term supply agreement. Any color on when we might expect any re-up on that? I believe that goes through the balance of 2028. Any thoughts on how that might be split up between next year and the following year? Just any thoughts on what you're seeing in terms of visibility on 2027 capacity being filled?

Yeah. Harrison, as far as 2027, our backlog is roughly about half the industry. As you mentioned, part of that is made up with the multi-year agreement we have with GATX that runs through 2028, and that's fairly even over those years. There is still work to be done and orders to be filled to get to 2027. We feel like this year is going to be around 25,000 units. We do anticipate sitting here today that there will be a step-up in that and for next year, and we think it's around 35,000 units. That does imply that order activity will need to pick up between now and then. As Jean mentioned, the first month of the quarter is off to a good start. We see the fundamentals there. Rail traffic's still improving. Jean mentioned all the PMI indexes, we see the fleet in very good balance.

Cars and storage are down to less than 20%. We do feel like the momentum is coming. The tariff headwind and the uncertainty is certainly that it's a headwind that's causing some customers to pause, we're confident that's going to get cleared up sooner rather than later. We just need clarity. Once we have clarity, we think the volume will come.

Absolutely. Maybe just to close on me on the leasing side, particularly around net fleet investment, with that coming down a little bit this year, can you walk through what your proceeds or gains assumption is in vetting your guidance, and how are you thinking about your net fleet investment with regards to investing in new railcars that you're building versus what seems to be the rising opportunity of buying used books out as a larger percentage of growing your lease fleet versus building yourself? Thank you. Sure. Yeah, you're right.

We are actively participating in what we consider the direct origination market, which is the new railcar market, then the secondary market. We've been fairly active in both. The primary market is we're still focusing there, with lower volumes that are happening on the industry side. We certainly are seeing opportunities to invest on the existing market. As far as just the guidance, we're still at that $160-$180 on the gains, that does have both buying and selling of investment. That gets us in line with our three-year targets that we have of $750 million-$1 billion. We feel good about that target, and we feel good long term about the ability.

Our platform has the ability to originate a lot of lease content, whether that's on the direct side or on the secondary market side, we'll continue to participate there and create value for shareholders.

Jean, Eric, thank you for all the time today.

Thank you. Thank you. This concludes our question and answer session.

I would like to turn the conference back over to Jean Savage for any closing remarks.

Well, thank you for joining us today. Our second quarter results reflect a strengthening leasing business and specific transitional headwinds in Rail Products that we've quantified and are working through. We closed the Napier Park transaction as signaled. We're holding our full year guidance, and the platform is positioned to deliver the second half. Thank you for your continued interest in Trinity.

The conference is now concluded. Thank you for attending today's presentation.