Leasing services company GATX (NYSE:GATX) reported revenue ahead of Wall Street’s expectations in Q3 CY2024, with sales up 12.6% year on year to $405.4 million. Its non-GAAP profit of $2.50 per share was also 27.9% above analysts’ consensus estimates.
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GATX (GATX) Q3 CY2024 Highlights:
- Revenue: $405.4 million vs analyst estimates of $391.7 million (3.5% beat)
- Adjusted EPS: $2.50 vs analyst estimates of $1.96 (27.9% beat)
- Management raised its full-year Adjusted EPS guidance to $7.60 at the midpoint, a 1.3% increase
- Gross Margin (GAAP): 76.3%, up from 72.8% in the same quarter last year
- Active Railcars: 102,697, up 2,041 year on year
- Market Capitalization: $4.67 billion
Company Overview
Originally founded to ship beer, GATX (NYSE:GATX) provides leasing and management services for railcars and other transportation assets globally.
Vehicle Parts Distributors
Supply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Transportation parts distributors that boast reliable selection in sometimes specialized areas combined and quickly deliver products to customers can benefit from this theme. Additionally, distributors who earn meaningful revenue streams from aftermarket products can enjoy more steady top-line trends and higher margins. But like the broader industrials sector, transportation parts distributors are also at the whim of economic cycles that impact capital spending, transportation volumes, and demand for discretionary parts and components.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, GATX’s sales grew at a sluggish 3.9% compounded annual growth rate over the last five years. 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. GATX’s annualized revenue growth of 10.1% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
GATX also discloses its number of active railcars, which reached 102,697 in the latest quarter. Over the last two years, GATX’s active railcars were flat. 
This quarter, GATX reported year-on-year revenue growth of 12.6%, and its $405.4 million of revenue exceeded Wall Street’s estimates by 3.5%.
Looking ahead, sell-side analysts expect revenue to grow 7.2% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and illustrates the market believes its products and services will face some demand challenges.
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Operating Margin
GATX has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 26%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, GATX’s annual operating margin rose by 6.3 percentage points over the last five years, showing its efficiency has meaningfully improved.
This quarter, GATX generated an operating profit margin of 31.3%, up 2.7 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.
Earnings Per Share
Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
GATX’s EPS grew at a decent 9.3% compounded annual growth rate over the last five years, higher than its 3.9% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into GATX’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, GATX’s operating margin expanded by 6.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For GATX, its two-year annual EPS growth of 12.8% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q3, GATX reported EPS at $2.50, up from $1.47 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects GATX’s full-year EPS of $7.78 to grow by 3.3%.
Key Takeaways from GATX’s Q3 Results
We were impressed by how significantly GATX blew past analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates and it raised its full-year EPS guidance. Zooming out, we think this quarter featured some important positives. The stock traded up 2% to $133.56 immediately following the results.
GATX put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment.We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy.We cover that in our actionable full research report which you can read here, it’s free.