TRINITY INDUSTRIES INC

Segment Performance

I'll take you through both segments, starting with Leasing and Services.

Leasing and Services

Our Leasing and Services business performed well in the third quarter. Core leasing revenue was down year over year, reflecting a smaller consolidated fleet following the railcar partnership transactions we completed over the last year. That decrease was partially offset by higher rents, higher management fees, and the fleet investment we have made over the last year.

Our lease fleet utilization was 97%, and our renewal success rate was 89% with renewal rates 4.1% above expiring rates. The Future Lease Rate Differential, or FLRD, was essentially flat this quarter, driven by higher expiring rates and a less favorable renewal mix, largely the result of having repriced nearly our entire fleet into a higher-rate environment. Lease rates have not yet kept pace with asset values and inflation. We are focused on maximizing the yield on our assets, and the environment remains favorable for continued lease rate increases.

Our Leasing and Services segment operating margin of 34.2% reflects a higher percentage of segment activity coming from lower-margin businesses, such as maintenance and services, as those areas continue to grow.

Over the last few years, we have improved the performance of our maintenance network to navigate the increase in tank car compliance work. As this work moderates, we announced plans to repurpose our Jonesboro maintenance facility to a storage and mobile repair facility. Current and expected volumes can be efficiently supported across our remaining four facilities, which allows us to improve utilization across the network. Working with local and state resources, we are supporting our affected employees to help identify alternative opportunities.

Net fleet investment in the quarter was $115 million, bringing our year-to-date total to $241 million. The secondary market remains very active and strong, and we continue to participate as both a buyer and a seller.

I also want to highlight a small acquisition we completed in October. We acquired the assets of Rubber Lining Specialists, LLC, an Orange, Texas-based provider of specialized rubber lining, corrosion and abrasion protection, inspection, and repair services. This acquisition expands our capabilities in supporting and servicing rubber lined railcars.

Rail Products

In Rail Products, we are encouraged by the momentum in the market. We increased deliveries by 29% sequentially and still recorded a book-to-bill above 1.0x, with orders of 2,190 and deliveries of 2,030 in the quarter. We also completed 355 railcar conversions. Higher steel prices should support more conversions in the future.

Segment revenue reflects the higher delivery volumes. Segment margin in the quarter was 9.0%, which benefited from a gain on the sale of a portion of our Longview facility. Without the $13.4 million gain, segment margin would have been 5.1%, a significant step up from the second quarter. We continue to expect a full year segment margin between 5% and 6%. This business benefits from significant operating leverage, and we would expect to see the margin improve as volumes rise.

As we discussed last quarter, we are undertaking a large project to modernize and consolidate our Longview tank car facility. This project is ongoing and progressing well. It reflects our strategic decision made a year ago to expand our U.S. manufacturing footprint, a decision we especially value given today’s uncertain trade policy environment.