Stifel Cuts Trinity (TRN) EPS by >40%

Stifel analyst, Michael Baudendistel, cut his estimates dramatically on Trinity Industries (NYSE: TRN) after it cut guidance by more than 40% for 2016. No change to Buy rating because of the valuation but the analyst acknowledges that the fundamentals could deteriorate further.

4Q15 EPS of $1.30 were above the Street consensus of $1.09, but benefited by roughly $0.22 from higher than expected gains on sale of railcars.

The big news in the company’s earnings release though was the company’s 2016 guidance, which calls for EPS in a range of $2.00-$2.40. This guidance was well below the Street consensus of $3.64.

The only prior guidance for 2016 the company had provided was its expectation that railcar deliveries would range from 27,000-30,000 units in 2016 (an expected decline from record deliveries of 34,295 units in 2015). In Thursday’s press release, the company cut the delivery guidance to a point estimate of 27,000 units, the low end of its prior range.

What was more surprising, however, was the negative variance for both implied ASP and Rail Group operating margins. The company guided to a 2016 Rail Group operating margin of approximately 15%, which was the biggest component of the miss. In providing the margin guidance the company cited a significant negative change in mix, degradation in pricing beginning in the fourth quarter, the negative effects of operating leverage, and incremental costs associated with realigning the company’s production footprint.

Cutting 2016 and 2017 EPS estimates from $3.65 and $3.05 to $2.15 and $1.90.

Maintaining Buy rating because valuation is already at a depressed level, but fundamentals are weak currently with an outlook for declines in railcar production, backlog and margins. PT goes to $20 from $27

For an analyst ratings summary and ratings history on Trinity Industries click here. For more ratings news on Trinity Industries click here.

Shares of Trinity Industries closed at $16.43 yesterday.

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