Trinity (TRN)

Railcar products and services provider Trinity (NYSE:TRN) missed Wall Street’s revenue expectations in Q3 CY2025, with sales falling 43.2% year on year to $454.1 million. Its GAAP profit of $0.37 per share was 5.7% above analysts’ consensus estimates.

Company Overview

Operating under the trade name TrinityRail, Trinity (NYSE:TRN) is a provider of railcar products and services in North America.

Heavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.

Competitors of Trinity industries include Greenbrier (NYSE:GBX), FreightCar America (NASDAQ:RAIL), and private company American Railcar Industries (now part of ITE Management).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Trinity’s demand was weak over the last five years as its sales fell at a 2.2% annual rate. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Trinity’s recent performance shows its demand remained suppressed as its revenue has declined by 11.5% annually over the last two years. Trinity isn’t alone in its struggles as the Heavy Transportation Equipment industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, Trinity missed Wall Street’s estimates and reported a rather uninspiring 43.2% year-on-year revenue decline, generating $454.1 million of revenue.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Trinity has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 21.2% gross margin over the last five years. Said differently, Trinity had to pay a chunky $78.82 to its suppliers for every $100 in revenue.

Trinity produced a 31.1% gross profit margin in Q3, up 9.9 percentage points year on year. Trinity’s full-year margin has also been trending up over the past 12 months, increasing by 5.5 percentage points. If this move continues, it could suggest an environment where the company has better pricing power and stable or shrinking input costs (such as raw materials).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Trinity has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.8%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Trinity’s operating margin rose by 5 percentage points over the last five years, showing its efficiency has meaningfully improved.

This quarter, Trinity generated an operating margin profit margin of 26.1%, up 12.5 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in 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.

Trinity’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Trinity’s EPS grew at a solid 11.3% compounded annual growth rate over the last two years, higher than its 11.5% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.

Diving into Trinity’s quality of earnings can give us a better understanding of its performance. Trinity’s operating margin has expanded over the last two yearswhile its share count has shrunk 1.9%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, Trinity reported EPS of $0.37, in line with the same quarter last year. This print beat analysts’ estimates by 5.7%. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Trinity’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 15.4%, meaning it lit $15.38 of cash on fire for every $100 in revenue. This is a stark contrast from its operating margin, and its investments in working capital/capital expenditures are the primary culprit.

Taking a step back, we can see that Trinity’s margin dropped by 23.4 percentage points during that time. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Trinity burned through $199.3 million of cash in Q3, equivalent to a negative 43.9% margin. The company’s cash burn increased from $45.4 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Trinity’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 10.5%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Trinity’s ROIC averaged 3.5 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Trinity burned through $396.4 million of cash over the last year, and its $5.94 billion of debt exceeds the $66.3 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Trinity’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Trinity until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by Trinity’s optimistic full-year EPS guidance, which blew past analysts’ expectations. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its revenue missed. Overall, this print was mixed. The stock remained flat at $27.83 immediately after reporting.

Updated: December 3, 2025 at 10:52 PM EST

Before investing in or passing on Trinity, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Trinity doesn’t pass our quality test. To kick things off, its revenue has declined over the last five years. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its cash profitability fell over the last five years. On top of that, its cash burn raises the question of whether it can sustainably maintain growth.

Trinity’s P/E ratio based on the next 12 months is 14.7x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $25.50 on the company (compared to the current share price of $27.56).