The Greenbrier Companies Inc (GBX) Q4 2022 Earnings Call Transcript

The Greenbrier Companies Inc (NYSE:GBX) Q4 2022 Earnings Call dated Oct. 27, 2022.

Corporate Participants:

Justin Roberts — Vice President and Treasurer

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Adrian J. Downes — Senior Vice President, Chief Financial Officer and Chief Accounting Officer

Analysts:

Justin Long — Stephens — Analyst

Lorie L. Tekorius — President and Chief Executive Officer

Matt Elkott — Cowen and Company — Analyst

Bascome Majors — Susquehanna International Group — Analyst

Allison Poliniak — Wells Fargo — Analyst

Adam Roszkowski — Bank of America Merrill Lynch — Analyst

Steve Barger — KeyBanc Capital Markets — Analyst

Presentation:

Operator

Hello, and welcome to The Greenbrier Companies’ Fourth Quarter of Fiscal 2022 Earnings Conference Call. Following today’s presentation, we will conduct a question-and-answer session. [Operator Instructions] At the request of The Greenbrier Companies, this conference call is being recorded for replay purposes.

At this time, I would like to turn the conference over to Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts, you may begin.

Justin Roberts — Vice President and Treasurer

Thank you, Andrea. Good morning, everyone, and welcome to our fourth quarter and fiscal 2022 conference call. Today, I’m joined by Lorie Tekorius, Greenbrier’s CEO and President; Brian Comstock, Executive Vice President and Chief Commercial and Leasing Officer; and Adrian Downes, Senior Vice President and CFO.

Following our update on Greenbrier’s performance in 2022 and our outlook for fiscal 2023, we will open up the call for questions. In addition to the press release issued this morning, additional financial information and key metrics can be found in a slide presentation posted today on the IR section of our website.

As a reminder, matters discussed on today’s conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we will describe some of the important factors that could cause Greenbrier’s actual results in 2023 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier.

And with that, I’ll turn the call over to Lorie. Good morning. Good morning. Thank you, Justin. And good morning, everyone. I appreciate you joining us today. Before returning to our results, I want to commend our business units and all our colleagues in production for completing another year of outstanding safety performance. Our recordable injury rate declined by nearly 16% and our DART rate was down 17% from 2021. This is the second year in a row with double-digit improvement, following steady improvements over the past three years. This impressive performance occurred at the same time we increased our global workforce by 35%, entering a 50% rise in enterprise-wide production rate. In North America, our production rate increased by 75%. Based on this higher production activity and workforce growth, it’s obvious why we are proud of our safety record. It demonstrates the importance Greenbrier places on the safety and well-being of our workforce. Now, turning to our business performance, the fourth quarter was Greenbrier’s strongest operating quarter of the fiscal year. The growing impact of our leasing platform, including continued strong syndication activity, helped drive record quarterly revenue against a volatile macroeconomic backdrop. Our performance this quarter highlights the value of our integrated business model as well as the strength of our leadership team. Aggregate gross margins and manufacturing margins continued to trend higher as we realized operational efficiencies and absorbed the dilutive impact of pass-throughs tied to input cost escalation. Our North American manufacturing business navigated a massive boost in output during fiscal 2022. In a traditional upcycle, such a significant increase in hiring and production rates would be daunting. In a year of emerging COVID variants, ongoing supply-chain disruptions and railway congestion, the ramp navigated by our manufacturing team is historic and heroic. I extend my thanks and the thanks of our Board and leadership team to all of our colleagues working on Greenbrier production lines around the world. And as we look across the globe, we know the economy faces headwinds from the Russian invasion of Ukraine. With winter approaching, escalating energy prices, together with record inflation levels and rising interest rates, present an unprecedented set of conditions. Economic forecasts predict a recession in Europe. We are focused on managing our operations on the continent through current and future challenges. We’re realistic and responsive to the economic conditions in Europe. Yet, there is still a sense of relative optimism in the rail freight sector. Traffic volumes are holding up well, and rail freight is playing an increasingly important role in the transportation of critical goods in response to the invasion of Ukraine. Europe’s lagging supply-chain has largely recovered from the disruption caused by the war, albeit with higher prices in most areas. Railcar delivery projections for the next few years are strong and back to pre-war levels. Our work with our customers has brought more certainty to our production costs, and our sales pipeline and backlog are growing again as new order inquiries remain stable. In our Maintenance Service business, we continue to gain momentum, demonstrated by increased margins. The action plan to increase efficiencies in our repair facilities, which included increasing headcount in certainty U.S. locations, is beginning to improve results. We’re cautiously optimistic about the moderating U.S. economy and expect recent economic volatility to ebb in calendar 2023 as the Federal Reserve smooths its pace of additional interest rate hikes. Sustained monetary tightening may impact employment and economic growth, but we remain optimistic that the rail equipment sector can withstand a gradual cooling of the economy. Supply-chain issues have improved but are nowhere near resolved. Continuing challenges include the impact of ongoing congestion on the rail lines, a shortage of available labor in certain geographies, and limited access to certain components. We expect these headwinds to diminish during the second half of our fiscal year. Overall, commodity prices, excluding energy, have declined from recent peak levels, which in the main should be favorable for rail freight traffic in the months ahead. As we enter the first quarter of our new fiscal year, we’re encouraged by the momentum in our business. As a team, we’re focused on a few key initiatives that are rooted in our core values of quality, customer service, and respect for people. These initiatives are focused on continuing our manufacturing excellence, expanding our services business to reduce the cyclicality of Greenbrier’s financial results, ongoing investment and development of our workforce, continuing our commitment to ESG, and ongoing policy advocacy to ensure our perspective on issues is understood and addressed. I plan to discuss these initiatives and our business outlook in greater detail at Greenbrier’s first Investor Day scheduled for early February. We look forward to sharing more details on this important event soon. Greenbrier’s Board and leadership team balance capital deployment between organic growth opportunities, short-term high-return internal projects and returning capital to shareholders. For the last few years, our primary focus has been on safeguarding the business through liquidity preservation until economic stability normalizes. As a result of recent stock market volatility and to drive long-term shareholder value, we believe there may be a near-term opportunity to repurchase shares through our existing share repurchase authority at what we perceive are discounted levels. Share repurchase activity supplements the growth initiatives I highlighted and demonstrates our continued balance sheet strength, cash-generating abilities, and focus on returning value to shareholders. When I consider the value creation opportunities for Greenbrier, I see a very attractive offering. A stable and reliable dividend, assets that are strong cash generators, a healthy business with robust market share and a growing leasing and services platform. As we enter fiscal 2023, I’m highly confident in our team’s ability to seize the opportunities before us and to navigate unforeseeable challenges. And now, I will turn it over to Brian to discuss the railcar demand environment and our leasing activity.

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Thanks, Lorie, and good morning, everyone. In Q4, Greenbrier secured new railcar orders of nearly 4,800 units valued at $620 million. We delivered 5,800 units in the quarter. For the fiscal year, we received global orders of 24,600 units or $2.9 billion, resulting in a book-to-bill just north of 1.2 times.

Our diversified backlog currently stands at nearly 30,000 units with a total value of $3.5 billion. As a reminder, our new railcar backlog does not include 2,300 units valued at more than $170 million that are part of Greenbrier’s railcar refurbishment program. Our refurbishment program is another example of why freight rail is one of the most environmentally-friendly mode of surface transport.

Despite macroeconomic concerns, Greenbrier’s order pipeline remains strong, and we continue to see healthy railcar orders from all categories of customers. Also, there is the emerging strength of our leasing business. Total railcars and storage have been at cyclical low for the past several months, indicating high fleet utilization. Of the 276,000 railcars in storage, over 50% have been idled for over one year, suggesting that a large portion of the fleet in storage are retirement candidates.

We expect industry utilization to remain strong into 2023, as scrapped cars are expected to exceed new railcar deliveries for the third consecutive year causing the North American fleet to shrink. The combination of a shrinking fleet and decreased railcars in storage increases railcar utilization and adds pressure on fleet availability in North America. These dynamics have contributed to a continued strong North American leasing market for new originations and lease renewals. And the significant expansion of our lease fleet over the last 18 months has proven to be well-timed.

Our leasing team continues to perform ahead of expectations as we scale this business with an own fleet totaling 12,200 railcars at the end of the fiscal year. This represents a 40% year-over-year increase in the size of our own fleet. Lease pricing on renewals has increased into the double-digits in fiscal 2022, while our fleet utilization remained strong at just over 98%. We are very focused on protecting our economics through our lease agreements and by hedging our debt balances to factor for interest rates. During the quarter, we funded $75 million of our $150 million term-loan upsize, and fixed it via an interest rate swap. All leasing debt is non-recourse and has a remaining term of just under six years on average.

Also, during the quarter, we finalized a renewal of our leasing warehouse debt facility to extend the borrowing turn from three years while reducing pricing levels. Syndication activity in Q4 totaled 1,300 units, capping a very busy fiscal year. As a reminder, the allocation of syndication revenue moved from manufacturing to our Leasing & Management Services segment during fiscal 2022 in order to provide greater transparency on the positive impact of our enhanced leasing strategy and our financial reporting.

Our end goal remains to grow Greenbrier’s consolidated margin. Greenbrier’s management team is experienced, and our business model is flexible. We are energized and optimistic about our ability to serve our customers and to perform well in our markets. This leaves Greenbrier well-positioned to successfully navigate these next stages of recovery from the pandemic and the prevailing forces at work in the economy at any particular time.

Adrian will now speak to the highlights in the fourth quarter.

Adrian J. Downes — Senior Vice President, Chief Financial Officer and Chief Accounting Officer

Thank you, Brian, and good morning, everyone. As a reminder, quarterly and full-year financial information is available in the press release and supplemental slides on our website. Greenbrier’s Q4 performance represented the strongest quarter of our fiscal 2022 year as a result of increased deliveries, strong syndication activity, and improved operating efficiencies. I will speak to a few highlights from the quarter and full year and provide a general overview of fiscal 2023 guidance.

Notable highlights for the fourth quarter include record quarterly revenue of $950.7 million, an increase of nearly 20% from Q3. Aggregate gross margins of 13.4% reflect improving operating efficiencies, higher deliveries, and strong syndication activity in Manufacturing and Leasing & Management Services. Selling and administrative expense of $68.8 million is higher sequentially, reflecting increased employee-related costs and consulting expenses. The timing of incentive compensation trends with the cadence of earnings. Interest expense of about $18 million is a result of higher borrowings, increases in interest rates on our floating rate revolving facilities, and foreign exchange expense.

Volume tax rate at 35.1% was higher sequentially due to the mix of foreign and domestic pretax earnings and discrete items. We also recognized about $1.3 million of gross costs, specifically related to COVID-19 employee and facility safety.

Net earnings attributable to Greenbrier of $20 million generated diluted EPS of $0.60 per share. EBITDA of $88.8 million, or 9.3% of revenue. Notable highlights for the full-year include deliveries of 19,900 units, an increase of over 50% from the prior year. Net earnings attributable to Greenbrier of $47 million or $1.40 per diluted share on revenue of nearly $3 billion. Net earnings attributable to Greenbrier grew by 45% in 2022. EBITDA was $231 million, or 7.8% of revenue. EBITDA increased by nearly 60% versus the prior year.

Greenbrier’s liquidity increased to $690 million by the end of Q4, consisting of cash of $543 million and available borrowings of $147 million. We generated nearly $180 million of operating cash flow in the quarter. The increased liquidity and operating cash flow reflected better operating results and improvements to working capital and the receipt of $76 million of the tax refunds associated with the CARES Act. The remaining tax refund of roughly $30 million is anticipated to be collected in fiscal 2023 and is an addition to Greenbrier’s available cash and borrowing capacity. We have no significant debt maturities until 2026.

Because of the strength and flexibility of our balance sheet, we continue to be well positioned to navigate market dynamics. In fiscal 2023, we expect liquidity will continue to grow due to higher levels of cash from improved operating results, improved working capital efficiency, and increased borrowing capacity resulting from more railcars placed on our balance sheet.

On October 21st, Greenbrier’s Board of Directors declared a dividend of $0.20 — $0.27 per share, our 34th consecutive dividend. Based on yesterday’s closing price, our annual dividend represents a yield of approximately 3.9%. Since reinstating the dividend in 2014, Greenbrier has returned over $395 million of capital to shareholders through dividends and share repurchases.

Our Board of Directors remains committed to a balanced deployment of capital, designed to protect the business and simultaneously create long-term shareholder value. As already mentioned earlier, we believe there are near-term opportunities to repurchase shares at what we perceive are discounted levels. Greenbrier has $100 million authorized under our share repurchase program, and we will use this capacity opportunistically based on fluctuations in the price of Greenbrier’s shares and within the framework of our broader capital allocation plan.

Shifting focus to our guidance and outlook, based on current business trends and production schedules, we expect Greenbrier’s fiscal 2023 outlook to reflect the following. Deliveries of 22,000 to 24,000 units, which includes approximately 1,000 units from Greenbrier-Maxion in Brazil. Revenues between $3.2 billion and $3.6 billion. Selling and administrative expenses are expected to be approximately $220 million to $230 million. Gross capital expenditures of approximately $240 million in Leasing & Management Services, $80 million in Manufacturing, and $10 million in Maintenance Services. Proceeds of equipment sales are expected to be approximately $100 million.

We expect to build and capitalize into the lease fleet approximately 2,000 units in 2023. These units are firm orders from leasing customers and are included in backlog, but are not part of our delivery guidance. As a reminder, we considered a railcar delivered when it leaves Greenbrier’s balance sheet and is owned by an external third party.

We expect full-year consolidated margins to be in the low-double-digits.

Our business units and our colleagues throughout Greenbrier have achieved many accomplishments, particularly during a year marked with unforeseen challenges. Our experienced management has a track record of success in identifying and seizing opportunities while navigating unexpected events. Greenbrier is supported by a robust backlog, which provides strong earnings visibility. Our liquidity and balance sheet strength protect our business during volatile times and positions us to be opportunistic. As we turn the page to the next fiscal year, we are well positioned to enhance shareholder value into fiscal 2023.

And now we will open it up for questions. Andrea?

Questions and Answers:

Operator

[Operator Instructions] And our first question will come from Justin Long of Stephens. Please go ahead.

Justin Long — Stephens — Analyst

Thanks and good morning. Maybe to start with the comment you just made, Adrian, on margin expectations in fiscal 2003. I believe you said low double-digit gross margins. If I look at what you reported this quarter, you were close to 13.5%. So can you give a little bit more color on the full-year outlook and why it might imply something below where we’re exiting this fiscal year?

Adrian J. Downes — Senior Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah, we had a very strong Q4, and there is still some uncertainty heading into next year with supply chain issues, with the war. So we would see margins improving in the back-half of next year. And typically our business is back-half weighted in terms of our earnings and volume.

Justin Roberts — Vice President and Treasurer

And Justin, this is Justin. Good morning. The one thing I would say is, I think bear in mind that, it takes a lot to move margin percentage on a full-year basis, so we do expect to see strong performance, and we don’t believe that being in the teens is out of the question as we head towards the back-half of the year. But it’s not going to be necessarily a full 12 months, just based on what we see at this point.

Justin Long — Stephens — Analyst

Got it. And maybe similarly, I was wondering if you could give any color on the cadence of production and earnings over the course of the year. And then just one other thing I wanted to clarify on the revenue guidance, does that include the 2,000 units that you were expecting to bill for the lease fleet or exclude that?

Adrian J. Downes — Senior Vice President, Chief Financial Officer and Chief Accounting Officer

It excludes that. So we don’t recognize revenue on that, because those assets stay on our balance sheet.

Lorie L. Tekorius — President and Chief Executive Officer

But I would add they’re generating revenue through our leasing operations, so it’s just not the manufacturing revenue and gross margin, but those assets are deployed and generating lease return.

Justin Roberts — Vice President and Treasurer

And then on the cadence of activity, we do see about kind of a 40% to 60% split first-half, second-half, and probably maybe a 45%:55% actual delivery split, given that some of our back-half production is more heavily weighted towards the syndication. So this is a matter of we’re building more cars through our lease model. They’re going on to the balance sheet in Q1 and Q2 and then we’ll be syndicating a strong volume of that in Q3 and Q4.

Justin Long — Stephens — Analyst

Got it. And that 40% to 60%, was that earnings related comment?

Justin Roberts — Vice President and Treasurer

Yes.

Justin Long — Stephens — Analyst

Great. Very helpful. Thanks for the time.

Justin Roberts — Vice President and Treasurer

Thank you, Justin.

Adrian J. Downes — Senior Vice President, Chief Financial Officer and Chief Accounting Officer

Thank you.

Operator

The next question comes from Matt Elkott of Cowen. Please go ahead.

Matt Elkott — Cowen and Company — Analyst

Good morning. Thank you. So your backlog ASP is the highest you’ve ever had. It’s also up 11% from a year ago. Is this mainly the pass-through of higher commodity prices, or is there also like a mix effect? And what I’m trying to gauge, I guess, how does core pricing factor in? Is it possible to gauge if it’s a positive or a negative? I know it might be a bit more complicated than that, but just any color on the ASP at the end of fiscal 2022 would be great.

Justin Roberts — Vice President and Treasurer

Yeah, definitely, Matt, I’ll start and then Brian will actual-speak from his knowledge and experience. But I would say that definitely there is some escalation of pass-through and materials and things like that embedded in that pricing, although we do have a profitable mix that we are building in there. It is a little more weighted towards general freight. But we have shown a tendency to be able to build those types of cars profitably, especially the more niche products like automotive and boxcars. But I would also say, I think, and Brian, please step in about core pricing, but it’s definitely been improving throughout the year.

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Yeah, core pricing has improved. I think you hit at that. It’s partially mixed, partially pass-throughs. There’s less tank cars being produced. These days a lot more general freight cars, but as Justin points out, a lot of the general freight cars are everything from coil steel to wood chips, DDGs, grain, a number of different things. And some of those are very profitable assets as well. So it’s — the ASP is more a product of the mix. And then certainly the pass-through has some impact as well.

Matt Elkott — Cowen and Company — Analyst

So Brian and Justin, I think that Justin’s comment about — it’s still a more a freight-heavy mix, but is it more freight-heavy than last year or less? I mean, just relative to last year, is the mix more towards freight or tank relative to 2021, 2020 –?

Justin Roberts — Vice President and Treasurer

It’s a good question, Matt. It’s definitely more heavily weighted towards freight car going into 2023.

Matt Elkott — Cowen and Company — Analyst

Got it. Okay. And then your managed fleet declined a bit, I think down 3% from last quarter. Is that — is there anything meaningful behind that?

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

I think it’s more a matter of — occasionally we do —

Lorie L. Tekorius — President and Chief Executive Officer

Transition.

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Transition away from certain types of customers, and sometimes the overall product isn’t necessarily the best fit, but we still are excited about that business and do feel that it’s a good long-term value-add for Greenbrier.

Matt Elkott — Cowen and Company — Analyst

Okay, that makes sense. And then just on the general demand environment, we’re hearing about tightness in multiple types of freight cars, even shortages in some kinds. Can you just talk maybe about the different types of freight cars and where you’re seeing the biggest tightness and the highest demand?

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Yeah, it’s Brian again. We’re seeing tightness really across all sectors. One of the big phenomena that’s going on right now is, of course, the low river levels in the Mississippi River, which is putting a lot of strain on grain type of assets. But it’s really broad-based across all groups. I’d say probably the area where it’s still not as robust as it has been in the years is on the tank side. But that’s really because we don’t have any big catalyst, like the big ethanol buildout, or crude-by-rail buildout. You are more servicing kind of the general market at this stage with chemicals and upstream and downstream products. So. But it truly is and truly remains very broad-based across multiple commodities.

Matt Elkott — Cowen and Company — Analyst

Got it. Brian, do you get the sense that this — the tightness, the shortage in certain types of cars is going to be alleviated before it starts affecting the rail network in a negative way?

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Yeah, I don’t think so. If I understand your question correctly, no.

Matt Elkott — Cowen and Company — Analyst

Okay. Got it. And just one — maybe one final question to Lorie. Do you still feel the same about share repurchases after today, Lorie?

Lorie L. Tekorius — President and Chief Executive Officer

We consider just cancelling today’s call actually.

Matt Elkott — Cowen and Company — Analyst

I would have thought you would have brought that comment, but yeah.

Lorie L. Tekorius — President and Chief Executive Officer

Well, I think in today’s volatile market, it’s important to reinforce that our Board of Directors and the leadership team thinks about how we deploy capital. And just a reminder that we do have authorization to repurchase shares if we feel like it’s a good use of our resources.

Matt Elkott — Cowen and Company — Analyst

Great. Thank you very much. Appreciate it.

Operator

The next question comes from Bascome Majors of Susquehanna. Please go ahead.

Bascome Majors — Susquehanna International Group — Analyst

Thanks for taking my questions. If I look at delivery guide of, call it, 23,000 at the midpoint and I add the 2,000 that you’re planning to build for your own lease fleet, can you share — I mean, you’ve talked about 1,000 in Europe — I’m sorry, 1,000 in Brazil, can you share what the Europe assumption is in there roughly and kind of walk us to what you’re assuming that you build in North-America this year?

Adrian J. Downes — Senior Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah. So, I would say that Europe is around kind of in that 3,000, kind of 3,500 range kind of give or take. But that’s what we’re seeing at this point. With 1,000 in Brazil, you can say kind of we’re heading towards about 20,000 cars being delivered out of North America, and that would imply about 22,000 cars are being built.

Bascome Majors — Susquehanna International Group — Analyst

Okay. And is there a share gain assumption in there or — just thinking about your normal kind of 40 give or take percent market share, I mean, that would imply a North American industry build of somewhere in the 50,000, 55,000 range, which I think is a bit higher than most people are expecting. Can you walk us through kind of how to reconcile those two?

Adrian J. Downes — Senior Vice President, Chief Financial Officer and Chief Accounting Officer

Well, I think we would say that our delivery guidance is based off of our backlog and our production schedules. And we don’t have any explicit market share assumptions baked in or any gains. It’s more just a matter of this is the way our production schedules have laid out. This is what we see for the year, and we are pretty robustly booked in Europe and North America. We do have a little more open space in Brazil at this point. We don’t necessarily say that we’re seeing — going to expect a much — a railcar build north of 50,000 in 2023, but bear in mind, 2022 and 2023 do have a pretty substantial increases in delivery expectations for North America. So, again it just comes back to these are the orders we have and the orders we’ve been able to take, and it’s helpful to have a 30,000-car backlog.

Lorie L. Tekorius — President and Chief Executive Officer

I was going to say that, that is it proves the point of why we continue to say that having the backlog we have provides us great visibility. I think we’re actually booking some production now into calendar 2024, and we’re feeling as good as you can feel, from a manufacturing perspective, having a lot of the ramp behind us. So that gives us confidence as we look across our production lines.

Bascome Majors — Susquehanna International Group — Analyst

On the ramp, that leads into my next question. Can you talk about where you are on labor or any other investments to get to the run rate that gets you where you need to be to hit the guidance that you’ve laid out there? Just curious if we are 80%, 90% of the way there or even closer? Thank you.

Lorie L. Tekorius — President and Chief Executive Officer

I would say that we are fairly close there. I mean, we are not immune to the challenges that are being faced by a number of companies across the United States in particular, with attracting and retaining a skilled workforce, more so at our U.S. facilities. We’re very fortunate at our facilities in Mexico that we are — have a good workforce. We’ve got good relations with our workforce so that as the business activity fluctuates, we’re able to bring back that solid workforce and do it in a way that we keep our workforce safe. We continue to build quality railcars for our customers. We’re also looking at things that we’re doing for our workforce across the board of thinking about are our wages appropriate based on where we are with inflation and other market drivers. So I think we’re doing a number of right things, but it is definitely a — I would say that we’re pretty much there in bringing back the bulk of the workforce, but we’ll continue to have some challenges.

Bascome Majors — Susquehanna International Group — Analyst

On the margin front, can you talk a little bit about the gap in margins between your different locations, be it Mexico versus the central U.S. versus Europe? Just curious if there is a addition by subtraction angle here as you bring margin ups in one of these regions, it does impact the consolidated margin pretty nicely. Thank you.

Lorie L. Tekorius — President and Chief Executive Officer

I would say that we’re fortunate that we have fairly steady margins at our various facilities. They each have benefits that they bring to the consolidated results. We’re mindful of the car types that we build in different locations, leaning on the strength of that particular location, whether it be facility layout or workforce, maybe robotics or access to componentry. I don’t — there’s not one particular footprint or production line that carries the day or drag things down. And I think we’re seeing steady improvement in Europe. I mean, it’s been a little bit more difficult for that group just because of the recent impacts of the war and the step-up in cost. But again, the team there did some great collaboration with our customers to work through something that I don’t think that environment has seen maybe ever. I think that we’re a little bit more accustomed to some of that volatility and input cost here in North America. So I don’t think that there’s any one particular area that’s a drag or a superstar.

Bascome Majors — Susquehanna International Group — Analyst

Thank you. And last one from me. Can you talk a little bit about the syndication market? Has a higher cost of capital changed the depth or makeup of who you’re seeing bidding on railcars that you put into those channels? And just any thoughts about how that could evolve and whether or not the rising lease rate has been sufficient to keep up the expected return for the people who are playing in that market? Thank you.

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Yeah, this is Brian. So it’s a good question, and we haven’t seen any change in liquidity and the syndication market. Keep in mind that the way that we price deals is that we have interest-rate adjusters and so we tend to keep up with the debt — the rising debt costs. And the players that we’ve partnered with are long-term players in the marketplace. And so as we look forward, we continue to see a robust and really unaffected syndication market.

Bascome Majors — Susquehanna International Group — Analyst

Thank you.

Justin Roberts — Vice President and Treasurer

Thanks, Bascome.

Operator

Your next question comes from Allison Poliniak of Wells Fargo. Please go ahead.

Allison Poliniak — Wells Fargo — Analyst

Hi. Good morning. Just, Lorie, I just want to get your view here from the client — the customer perspective. It seems like an unusually rational freight car market in terms of demand this cycle. With your sense, is this really just a replacement-driven demand market or do you feel like there is some incremental adds in certain verticals? Just any thoughts there.

Lorie L. Tekorius — President and Chief Executive Officer

Yeah. Thanks. It is unsettling to see how rational things are going right now, which makes it almost feel irrational. I would say that it is broadly replacement demand. As Brian I think indicated in his prepared remarks, we’ve been — the North American market has been scrapping at a pretty rapid clip. I think that our customers — and Brian can add on to this, but our customers certainly have more that they would like to put on the rails but they are struggling with the railroad performance and some of the fluidity issues there. So I think as some of that settles out, we might see a little bit more growth and focus on increasing transportation via the rail. That’s one of the positive spots I would say in Europe as they are definitely much more focused on this transition to goods on the rails as opposed to the highways, which is why we’re seeing that expectation. We’re seeing that strong pipeline with our customers, as they’re looking to grow and grow their fleets, as well as to replace some aging equipment. Brian, anything you’d add?

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Yeah, no, I just would piggyback off of what you said. It’s one of the reasons why we continue to remain pretty excited about the long-term future of rail is there is a tremendous amount of pent-up demand. The rationalization is being brought on by the lack of fluidity in the rail network today. Otherwise, we probably would have been in the typically — the typical hockey-stick cycle that rail is so accustomed to. So as railroads continue to improve which they are and as velocity continues to improve, it’s going to give them an opportunity to increase their market share and for customers who want to use rail, which there is quite a number of them to be able to add assets. And I think that’s where our long-term play is even through these turbulent economic times.

Allison Poliniak — Wells Fargo — Analyst

Got it. That’s helpful. And then I just want to ask on maintenance. It seems like a lot of the benefit that you had in the margin this quarter was really Greenbrier-driven less so on the volume side. Can you maybe talk a little bit more? I know you said that there is some, to some extent, labor, but what you’re doing there and just how we should think of that, that margin through cycles? Just do we take a step-up here from the efficiencies you’re seeing or sort of too soon to tell on that side? Just any thoughts.

Lorie L. Tekorius — President and Chief Executive Officer

Yeah, I would say that the maintenance business is probably the toughest part of all of our businesses. I’m proud of what that group has been able to do by focusing on the workforce that we have, thinking differently about how we bring them in, how we train them. This is — it’s difficult work oftentimes and not the most glamorous locations or conditions. As we grow our fleet of railcars that we own and manage, having a strong network is going to be important as we maintain our own fleet. Granted that you can’t always do that, because it depends on geographies, but I’m pleased with the progress that they’ve made, and I know that they’re very focused on continuing their efforts.

Allison Poliniak — Wells Fargo — Analyst

Great. Thank you.

Operator

The next question comes from Ken Hoexter of Bank of America. Please go ahead.

Adam Roszkowski — Bank of America Merrill Lynch — Analyst

Hi. This is Adam Roszkowski on for Ken Hoexter. Thank you for taking my question. Maybe just a question on the backlog. It is up. It is the second quarter of sequential declines. Maybe just talk a little bit about that softening and some of the end-market demand exposure there.

Justin Roberts — Vice President and Treasurer

I think it’s more a matter of not necessarily a weakening environment. It’s more a matter of us continuing to exercise discipline when deals don’t necessarily meet our hurdle economics. And bear in mind that we’re booking out 9, 10, 11 months on certain lines, 15, 16 months on other lines. And so because of that robust nature of our backlog, we’re not always able to hit our customers’ delivery requirements. So we continue to see robust activity. We saw that in fiscal Q4. We continue to see robust activity subsequent to that and continue to kind of expect to see that for the future. Brian, I don’t know if you have any other color?

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Yeah, absolutely. I mean, first of all, I agree Justin’s. We’re being selective at this stage on what orders we consider, but I can tell you that the cadence of orders continues to be very much in line with previous quarters. So. And the sales pipeline inquiries continue to be strong, so we’re still building a tremendous volume, in fact in some respects record volumes of inquiries or opportunities. But given that we have a nice long backlog, and we have visibility well into our next fiscal year, it’s an opportunity to be a bit more selective as well.

Adam Roszkowski — Bank of America Merrill Lynch — Analyst

Got it. Appreciate it. And then maybe just a broad question on the expansion of the services business to reduce cyclicality. Thinking over the next couple of years, where do you see sort of an optimal mix? And what are some of the decisions on your end that go into that? Thanks.

Lorie L. Tekorius — President and Chief Executive Officer

Sure, so we have the fortunate position to be able to talk — be talking to a broad number of customers. I’d say our leasing and services team has done a great job in a short amount of time that we have had the GBX leasing facility or platform created where we’re developing that diversified portfolio of railcars. So I think as our markets remain — and demand remains diversified, that will give us a great opportunity to continue to add. We do have the flexibility because of our capital markets group to be able to syndicate if we don’t feel like it’s the right time to be adding to that lease fleet. But I think from a long-term perspective, I would see just a steady step-up in investment in those leasing assets, because they do provide that stability in cash flows and earnings that’s a nice offset to the typically more cyclical manufacturing. Again, right now with manufacturing, we’re having some nice steady rational activity, so that’s great. So I’d love it if both manufacturing and our leasing platform continued on this upward momentum neck and neck with each other and stable.

Adam Roszkowski — Bank of America Merrill Lynch — Analyst

Got it. And then just one last one, you mentioned most of the order activity is replacement demand. Is it a matter of congestion, scrapping, when are you viewing this to maybe inflect more into new activities?

Brian J. Comstock — Executive Vice President, Chief Commercial and Leasing Officer

Yes. So this is Brian. A lot of the activity today is — I would say it’s twofold. There’s a lot of scrapping going on, as people have seen over the last couple of years. High scrap prices and an aging fleet, particularly when you think about boxcars and old 70-ton Plate C boxcar fleet, and you think about the Gondola fleet, they continue to have very high attrition rates over the next four to five years. So that tailwind will continue. You’re also seeing some uptick in biodiesel facilities and other organic growth. So it’s not just at this stage, for the record, replacement demand. There is some organic demand going on as well. Where we see the real opportunity long term is as the railroads become more fluid, we have a number of shippers that want to do even more. Some of it for ESG compliance reasons. Some of it just because it’s still the best mode of transportation. And with the railroad situations becoming what they are, the Colorado River and mainly the Mississippi, which is really the workhorse of the U.S., there’s opportunities for railroad to continue to increase share as they gain more and more fluidity. So again, we see it kind of a three-legged stool.

Adam Roszkowski — Bank of America Merrill Lynch — Analyst

That’s it from me. Thank you so much.

Lorie L. Tekorius — President and Chief Executive Officer

Thank you.

Justin Roberts — Vice President and Treasurer

Thanks, Adam.

Operator

The next question comes from Steve Barger of KeyBanc Capital Markets. Please go ahead.

Steve Barger — KeyBanc Capital Markets — Analyst

Thanks. Just want to make sure I understand the margin commentary. We should expect manufacturing gross margin or consolidated gross margin in the first half will run below what you saw in 4Q?

Lorie L. Tekorius — President and Chief Executive Officer

We don’t give any explicit guidance, Steve, and again we’re kind of focused more on the overall of fiscal ’23 without giving explicit guidance that we think it will be low double-digits, possibly weighted more towards the back-half. But as I think about it, we finished the fourth quarter pretty strong. We’re happy with what we’ve done, and we expect to continue to improve on what we’ve done now. Again, you’ve seen us in years past, right, there’s going to be some volatility when you start stepping down into the segments, manufacturing versus syndication activity, versus our maintenance activity that make those consolidated margins, maybe not always be on a perfect trajectory.

Justin Roberts — Vice President and Treasurer

And the one thing I would add, Steve, is with the high volume or a large percentage of our railcars that are being produced that are going on to the balance sheet, we have less syndication activity occurring. So we do not see a step backwards in manufacturing margins. Want to be very clear about that, but the more profitable syndication part of our business is going to be back-half-weighted, and that’s what’s driving the earnings cadence.

Steve Barger — KeyBanc Capital Markets — Analyst

Yeah. Understood. I certainly am happy to hear that you’re not going to step backward in manufacturing margin. But just to help level set expectations, when you look at mix and obviously there’s challenges in Europe right now and just general economic conditions, would you expect first half ’23 EPS can exceed last year’s first half of $0.70?

Justin Roberts — Vice President and Treasurer

Yes.

Steve Barger — KeyBanc Capital Markets — Analyst

Perfect. Thanks. And Lorie, you said Greenbrier’s assets are strong cash generators. But operating cash flow was negative over the last two years, and after net capex, free cash flow was lower than that. Are you saying positive operating cash flow and positive free cash flow after net investment are achievable this year?

Lorie L. Tekorius — President and Chief Executive Officer

Yes, that is what we believe.

Steve Barger — KeyBanc Capital Markets — Analyst

That’s great to hear. And finally, just one last one from me. SG&A as a percent has been volatile over the past couple of years, the topline has moved around. If you hit your revenue goal for the year, how should we think about SG&A spend in dollars for fiscal ’23?

Adrian J. Downes — Senior Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah, we’re guiding to $220 million to $230 million for the year, obviously —

Steve Barger — KeyBanc Capital Markets — Analyst

Oh, great. Sorry if I missed that.

Adrian J. Downes — Senior Vice President, Chief Financial Officer and Chief Accounting Officer

Yeah.

Steve Barger — KeyBanc Capital Markets — Analyst

All right. Thanks very much.

Lorie L. Tekorius — President and Chief Executive Officer

Thanks, Steve.

Justin Roberts — Vice President and Treasurer

Thank you, Steve.

Operator

Our last question will come from Justin Long of Stephens. Please go ahead.

Justin Long — Stephens — Analyst

Thanks for taking the follow-up. I just wanted to circle back on some of the questions around manufacturing margin specifically. So it sounds like you’re not expecting a step-back. I’m guessing that’s for the full year, but is there any color you can give on that cadence of manufacturing gross margins that you would expect similar to what you said on consolidated margins?

Justin Roberts — Vice President and Treasurer

Yes, this is Justin. And I’ll evidently go out on a limb on this one. So we do not see a step-back in manufacturing margins at all. And especially in the first half of the year, and we do expect to see some expansion, ideally kind of throughout the year. So I think you saw a relatively large step-up from our fiscal Q3 to Q4. And with the majority of the ramp behind us, this is more a matter of continuing to take cost out of the system, fine-tune the efficiencies. And at this point, we expect to make positive progress on that activity throughout the year.

Now, the thing we’ve learned over the last two years is there’s a lot of volatility in the world. So. But that’s what we see based on our production schedules, based on our backlog, and it’s going to be a good year.

Justin Long — Stephens — Analyst

Got it. And then last thing I wanted to ask about was non-controlling interests, that’s something that can swing the numbers around a good bit. Any thoughts on where you could shake out in fiscal ’23?

Justin Roberts — Vice President and Treasurer

Yeah, that’s a good question, Justin. And it really as you said, it is — definitely, it can be very volatile depending on our production activity in Mexico and what’s going on in Europe. So we would see it being probably higher than it was in fiscal 2022, but not necessarily doubling or tripling at this point. Our production plan is relatively stable in Northern Mexico, and then it’s a matter of kind of getting into the earnings ramp in Europe that we expect.

Lorie L. Tekorius — President and Chief Executive Officer

And Justin, just to be clear, it would also be the timing will be impacted by syndication timing.

Justin Roberts — Vice President and Treasurer

Very much. That’s a great point, Lorie, thank you.

Justin Long — Stephens — Analyst

Makes sense. I appreciate the time. Congrats on the quarter.

Lorie L. Tekorius — President and Chief Executive Officer

Thank you, Justin.

Justin Roberts — Vice President and Treasurer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Justin Roberts for any closing remarks.

Justin Roberts — Vice President and Treasurer

Thank you very much, everyone, for your time and attention today. If you have any follow-up questions, please reach out to investorrelations@gbrx.com. We are very excited about the year and are proud of what the team has accomplished in the last 12 months. Thank you and have a great day.

Operator

[Operator Closing Remarks]