The Greenbrier Corporations, Inc. (NYSE:GBX) Q2 2024 Earnings Convention Name April 5, 2024 11:00 AM ET
Firm Contributors
Justin Roberts – Vice President of Company Finance and Treasurer
Lorie Tekorius – President and Chief Govt Officer
Brian Comstock – Govt Vice President and President, The Americas
Adrian Downes – Senior Vice President and Chief Monetary Officer
Convention Name Contributors
Justin Lengthy – Stephens Inc.
Matthew Elkott – TD Cowen
Harrison Bauer – Susquehanna Monetary Group
Ken Hoexter – Financial institution of America Merrill Lynch
Steve Barger – KeyBanc Capital Markets
Operator
Hi there, and welcome to the Greenbrier Corporations Second Quarter of Fiscal 2024 Earnings Convention Name. Following right this moment’s presentation, we are going to conduct a question-and-answer session. [Operator Instructions] On the request of the Greenbrier Corporations, this convention name is being recorded for fast replay functions.
Presently, I wish to flip the convention over to Mr. Justin Roberts, Vice President and Treasurer. Mr. Roberts, it’s possible you’ll start.
Justin Roberts
Thanks, Gary. Good morning, everybody, and welcome to our second quarter of fiscal 2024 convention name. Right now, I am joined by Lorie Tekorius, Greenbrier’s CEO and President; Brian Comstock, Govt Vice President and President of The Americas; and Adrian Downes, Senior Vice President and CFO.
Following our replace on Greenbrier’s Q2 efficiency and an replace on our outlook for the rest of fiscal 2024, we are going to open up the decision for questions. Along with the press launch issued this morning, further monetary info and key metrics will be present in a slide presentation posted right this moment on the IR part of our web site.
Issues mentioned on right this moment’s convention name embody forward-looking statements inside the which means of the Personal Securities Litigation Reform Act of 1995. All through our dialogue right this moment, we are going to describe a number of the essential components that might trigger Greenbrier’s precise ends in 2024 and past to vary materially from these expressed in any forward-looking assertion made by or on behalf of Greenbrier.
Additionally, you will discover that right this moment, we are going to consult with the phrase recurrent income all through our presentation and feedback right this moment. Recurring income is outlined as leasing and administration companies income that excludes the influence of syndication exercise.
And with that, I’ll flip it over to Lorie.
Lorie Tekorius
Thanks, Justin, and good morning, everybody. Greenbrier as soon as once more delivered sturdy efficiency as we transfer by means of our fiscal yr. We’re seeing working efficiencies proceed to enhance, and we’re progressing on our organization-wide initiatives. We’ve got good momentum as we head into the second half of our yr and past. We stay assured in Greenbrier’s multi-year Higher Collectively technique and the three basic priorities underlying it.
As a reminder, first is sustaining our manufacturing management place throughout our geographies. Second is assembly our prospects’ wants whereas optimizing our industrial footprint for effectivity and margin enhancement. And third is the pursuit of sustained, disciplined progress in leasing and companies. By way of Higher Collectively, we’re dedicated to enhancing our manufacturing efficiency whereas rising recurring income and money move by investing within the lease fleet.
Turning to our outcomes. We generated over $860 million in income and earnings per share of $1.03. A consolidated gross margin of 14% represents our second consecutive quarter of mid-teens margins. It displays stable working efficiency in manufacturing and leasing and administration companies, partially offset by decrease wheelset volumes in upkeep companies because of a milder winter. Final quarter, we mentioned that one quarter of mid-teens margin was an amazing begin in the direction of our long-term strategic aim. It’s nonetheless not a development.
We’re persevering with to work on facility rationalizations in manufacturing and upkeep companies that commenced in fiscal 2023, advancing our make versus purchase technique and remaining centered on enhancing margins. We additionally proceed our lengthy observe file of product innovation whereas incorporating sustainability into our designs.
As you may recall in 2021, we launched our high-strength metal gondola. In Q2, we efficiently launched our extremely high-strength gondola. The gondolas used an progressive method for high-strength, lighter-weight metal, lowering every gondolas unloaded weight by as much as 15,000 kilos. We additionally efficiently constructed and examined a brand new 89-foot slab tilt flat automobile constructed for heavy industrial functions in addition to a brand new high-strength [boxed car door].
Our concentrate on innovation, manufacturing excellence and sustainability is incomes Greenbrier favorable notices. Just lately, CN acknowledged us for our efforts and dedication to sustainability as a part of its Echo Connections partnership program. That is the primary yr CN included suppliers to its recognition program, and Greenbrier was considered one of solely seven provide chain companions to obtain the award.
Whereas accolades are all the time good to obtain, most significantly, our emphasis on innovating and elevating our manufacturing experience helps our management place throughout the markets we serve. This efficiency continued in Q2 with Greenbrier receiving a pleasant stability of orders throughout our geographies.
Market situations for railcar leasing stay constructive. Our expanded leasing technique is gaining traction in each North America and Europe. It is a important factor of our multi-year plan and is anticipated to consequence within the doubling of recurring revenues inside the subsequent 5 years. Importantly, our stability sheet stays very wholesome, permitting us to put money into our enterprise whereas persevering with to return capital to shareholders. This has been our long-standing and most well-liked strategy to capital allocation.
I am happy to report our Board declared a quarterly dividend of $0.30 per share this week, representing our fortieth consecutive quarterly dividend. Within the meantime, the financial system in North America has been resilient. The likelihood of a tender touchdown is rising, and the Fed has signaled it’s going to doubtless make three rate of interest cuts by the top of 2024.
After all, this yr can also be a U.S. presidential election yr, to not point out nationwide elections within the EU and Mexico. Our present disciplined strategy in our core North American railcar market has attracted new capital to asset-based investing in railcars, which is encouraging.
In Europe, whereas the financial system remains to be lagging the U.S., the expansion projections have been development as soon as once more by the European Central Financial institution, however we’re constructing momentum. Secure demand throughout railcar sorts in each North America and Europe underpin new builds and lease renewals. The southern border stays a spotlight as we tackle developments that might influence deliveries from our suppliers or to our prospects in actual time. Border crossing points impacted us at varied instances in the course of the quarter, however the work carried out for our expert manufacturing and logistics colleagues have efficiently prevented extreme impacts on Greenbrier. Sustained excessive efficiency throughout our enterprise is in view.
Our industrial workforce with its highly effective lease origination capabilities continues to outperform, giving us wonderful near-term and longer-term visibility into manufacturing and steadily constructing our stream of lease revenues. We’re assured within the long-term technique and multi-year targets and look ahead to sharing our progress on future calls.
Now earlier than I conclude my remarks, I would wish to acknowledge the contributions of Adrian Downes, who has been at Greenbrier since 2013. As we introduced earlier this yr, Adrian will probably be stepping down from his position as CFO. Adrian service to Greenbrier throughout difficult instances, together with the pandemic has been important.
Throughout his time right here, Greenbrier strengthened its stability sheet and expanded its world operations platform, combine accounting and finance capabilities as we develop. We’re extremely grateful for his contributions to Greenbrier over time and want him all one of the best in his future endeavors.
Thanks, Adrian. And with that, let me flip the decision over to Brian Comstock, who will focus on our actions for the quarter in higher element and evaluation market situations.
Brian Comstock
Thanks, Lorie, and good morning, everybody. Throughout Q2, Greenbrier secured new railcar orders of 5,900 items price practically $690 million. Demand continues to be broad-based and various throughout most railcar sorts. As of February 29, Greenbrier’s world new railcar backlog was 29,200 items, valued at an estimated $3.6 billion. Backlog continues to be secure, offering important income visibility effectively into 2025.
Our industrial efficiency displays our main market place, sturdy lease origination capabilities and direct gross sales expertise. Worldwide orders accounted for about 40% of the exercise within the quarter, reflecting the persevering with momentum in Europe and Brazil. We’ve got been performing effectively regardless of a difficult backdrop in Europe, and our backlog stays very wholesome, due to a broad portfolio combine.
In Europe, volumes by means of our leasing distribution channel proceed to develop. Our capability to originate and syndicate leases is important to the long-term efficiency of our European manufacturing enterprise. We stay enthusiastic about our alternative in Europe, the place the rail trade enjoys compelling secular tailwinds.
We delivered 5,600 railcars to prospects in Q2, roughly the identical as final quarter. We elevated the midpoint of our supply and income steerage, indicating that deliveries will probably be weighted to the second half of the yr.
Second quarter gross margins of 10.8% declined barely from Q1, however nonetheless improved by 380 foundation factors in comparison with the second quarter of final yr. Whereas we’re engaged on quite a few actions to optimize manufacturing effectivity, a number of effectivity positive aspects we’ve got made over the past 12 months are being sustained. Enlargement of in-house fabrication for fundamental main components and subassemblies as a part of our make versus purchase technique stays on observe with the complete profit from in-sourcing anticipated to be realized by the center of fiscal 2025.
Leasing and Administration Providers additionally carried out effectively within the quarter. We’re steadily progressing to our said aim of doubling recurring income from leasing and administration companies. Recurring income is rising from varied sources, together with new railcars added to our lease fleet and lease renewals at extra favorable phrases. We grew our lease fleet by about 500 items or 3.5% in the course of the quarter.
As a reminder, we’ve got dedicated to speculate as much as $300 million per yr on a web foundation over the following a number of years to develop our recurring income so long as we achieve this in a fashion that meets our monetary standards. I wish to reemphasize that we’ll solely put money into the precise property with the precise lease phrases and counterparties, and we’re centered on railcar sorts that maintain our fleet portfolio stability.
We usually consider our financing methods and are taking a prudent strategy to financing progress of our lease fleet. Our common rate of interest of 4.5% on our non-recourse leasing debt is considerably decrease than present market rates of interest.
On the finish of Q2, our fleet leverage was 77% consistent with our focused fleet leverage framework. We leveraged railcar property and appraised truthful market worth, which leads to borrowing ratios which are greater on a web e book worth foundation. Our lease renewal charges proceed to develop at double digits and we’ve got efficiently renewed lease phrases whereas sustaining a constantly excessive fleet utilization of practically 99% in Q2. The leasing market stays wholesome, characterised by a shortage of in-demand railcar sorts and excessive fleet utilization amongst lessors.
Transferring in sequence with greater rates of interest, our lease charges stay compensatory leading to elevated charges for each new originations and renewals. We’ve got strategically staggered lease durations to minimize the influence of cyclicality and create alternatives for favorable renewals. We’ve got already renewed greater than half of our expiring leases this yr at extra favorable charges. Our workforce is engaged on the remaining lease renewals, and we’re assured we are going to end the yr efficiently.
Basically, the backdrop of North American railcar market stays stable with demand approaching substitute ranges. Whereas total visitors is projected to stay regular, there may be potential for inter-modal progress because of the present challenges on the Suez and Panama Canals.
These disruptions will doubtless redirect visitors to the West Coast ports, which advantages rail transport demand. Moreover, near-shoring tendencies assist long-term progress in visitors throughout the southern border. The provision of obtainable railcars remains to be close to trough ranges, which has led to strong lease fee progress, renewals and time period size. We’re assured we’ve got the precise technique in place to efficiently execute our plan on this atmosphere.
In Q2, we syndicated 1,400 railcars with a number of traders, producing sturdy liquidity and margins. The syndication market stays liquid with a stable urge for food for the asset class. The rail sector has confirmed to carry out effectively over financial cycles and we’re persevering with to see elevated syndication curiosity from new traders motivated [Technical Difficulty]. Lastly, Upkeep Providers efficiency was impacted by decrease wheelset and element volumes ensuing from an unusually gentle winter.
We’ve got a number of initiatives underway to enhance this unit’s effectivity by enhancing automobile move, materials planning and cycle time in any respect amenities. The backdrop for Upkeep Providers stays constructive over interim to long run, pushed partly by the final two peak tanker construct cycles that can require repairs and requalification over the following a number of years.
Now I will hand the decision over to Adrian, who will converse to our monetary highlights for the quarter.
Adrian Downes
Thanks, Brian, and good morning, everybody. Earlier than transferring into the highlights of the quarter, I would wish to remind everybody that quarterly monetary info is on the market within the press launch and supplemental slides on our web site.
Greenbrier’s Q2 efficiency was strong in our Manufacturing and Leasing segments as highlighted by Lorie and Brian of their remarks. After protecting a number of the highlights within the quarter, I will present an replace to our fiscal 2024 steerage. Notable highlights for the second quarter embody various new railcar orders of 5,900 items valued at practically $690 million, the second highest over the previous two years. Deliveries of 5,600 items embody 300 items from our unconsolidated three way partnership in Brazil.
Consolidated income of $863 million grew sequentially because of a change in product combine, rising manufacturing volumes and progress in our Leasing and Administration Providers section. Mixture gross margin p.c was 14.2%, ensuing primarily from product combine, progress within the lease fleet and better lease charges.
Promoting and administrative expense of roughly $64 million elevated sequentially primarily because of greater employee-related prices. Earnings from unconsolidated associates of $4 million greater than doubled from the primary quarter primarily because of greater earnings from our Brazilian three way partnership, that are anticipated to reasonable. Internet earnings attributable to Greenbrier of $33 million generated diluted EPS of $1.03 per share.
And at last, EBITDA for the quarter was $95 million or 11% of income. As we glance to liquidity, Greenbrier generated constructive working money move of over $99 million within the quarter, ensuing from sturdy earnings and a constructive web change to working capital. Moreover, Greenbrier’s Q2 liquidity remained stable at $581 million, consisting of $252 million of money and accessible borrowings of $329 million. Different notable financing objects within the quarter embody the retirement of the remaining $48 million of our 2017 senior convertible notes with money.
As talked about in our first quarter remarks, we’re offering a breakout between recourse and non-recourse activity within the footnote part of our 10-Q below notes payable and revolving notes. Greenbrier’s debt composition is now composed of extra non-recourse money owed than recourse. This emphasizes our dedication in the direction of lowering and retiring our recourse activity as money flows enhance and underscores our prudence with how we handle our capital construction and stability sheet.
As Lorie talked about, Greenbrier’s Board of Administrators declared a quarterly dividend of $0.30 per share. Primarily based on yesterday’s closing worth, our annual dividend represents a yield of roughly 2.3%. Together with exercise from the second quarter, Greenbrier has returned practically $510 million of capital to shareholders by means of dividends and share repurchases since reinstating our dividend program again in 2014 and these are actions that our Board and administration workforce stay dedicated to.
We consider this can be a nice strategy to create long-term shareholder worth, and we are going to periodically consider will increase to our quarterly dividend and look to repurchase shares opportunistically.
Lastly, shifting focus to our steerage and enterprise outlook. Primarily based on present tendencies and manufacturing schedules, we’re elevating the underside finish of our 2024 income and supply steerage, updating our capital expenditure forecast and reaffirming our gross margin outlook.
We’re elevating the underside finish of our deliveries to 23,500, which incorporates roughly 1,400 items from Greenbrier-Maxion in Brazil. We’re rising the decrease finish of revenues to $3.5 billion. Promoting and administrative expense is anticipated to be roughly $230 million to $235 million. Capital expenditures have additionally been up to date, forecasted expenditures in our Manufacturing section are anticipated to be round $140 million, which incorporates spend associated to in-sourcing actions adopted by $15 million in our Upkeep Providers section.
Gross funding of roughly $350 million in Leasing and Administration Providers is unchanged and consists of present yr capital expenditures in addition to transfers of railcars into the lease fleet which are manufactured and subsequently held on the stability sheet in 2023. Proceeds of kit gross sales have been adjusted to roughly $75 million. And mixture gross margin p.c for the full-year is anticipated to be within the low to mid-teens.
General, I’m happy with the efficiency within the second quarter and all through the primary half of the yr, which has put Greenbrier on stable footing for a powerful end to the yr. As we head into the second half, we’re supported by a strong backlog, ample liquidity and a powerful stability sheet. We’re assured our outlook for fiscal 2024 is constructive with earnings anticipated to develop.
And now this will probably be my closing earnings name at Greenbrier, I wish to take this chance to say thanks. I’m privileged to have spent 11 years at Greenbrier, each as a Chief Monetary Officer, and previous to that, Chief Accounting Officer. As Lorie talked about, so much has been achieved over this time interval and Greenbrier has an amazing management workforce bolstered by a powerful stability sheet and enhancing outcomes. I wish to thank our Board of Administrators, shareholders and Lorie, for the alternatives and assist throughout this time. This has been an amazing place to work. And though I will probably be leaving this position, I’ll nonetheless be concerned as a strategic adviser to assist with the transition course of and different initiatives. Thanks.
And with that, we are going to open up for questions.
Query-and-Reply Session
Operator
We’ll now start the question-and-answer session. [Operator Instructions] Our first query right this moment comes from Justin Lengthy with Stephens. Please go forward.
Justin Lengthy
Thanks. Good morning. And Adrian, congrats.
Adrian Downes
Thanks very a lot.
Justin Lengthy
So perhaps to start out with a query on the gross margin outlook. You reiterated that outlook for the full-year, the low to mid-teens, however by means of the primary couple of quarters, we’re monitoring on the excessive finish of that vary. And the steerage additionally implies that manufacturing ranges within the second half will probably be greater than the primary half. And I might suppose that will create some constructive working leverage. So is there something that you’d sort of level to that might drive a sequential moderation of margins? Or do you are feeling like the upper finish of that gross margin outlook is most cheap as we sit right here right this moment?
Lorie Tekorius
So I will give a few temporary feedback. We’re excited in regards to the progress we have made for the primary half of this yr. We’re enthusiastic about what we see within the second half of the yr. So I believe that we’ll proceed the regular progress. We’re aware that we’ve got to place one foot in entrance of the opposite on daily basis to maneuver ahead, and that is what we’re doing. And I believe the final six months or two quarters are exhibiting others that, that is what we’re able to, and I anticipate us to proceed on a modest trajectory.
Justin Lengthy
Okay. Bought it. And perhaps for my second query, I needed to ask about orders and see for those who might present any further shade on how orders progressed by means of the quarter month-to-month. I do know there will be some seasonality round year-end. After which something you possibly can share on the third quarter up to now and what you’ve got seen so as and inquiry ranges relative to 2Q?
Brian Comstock
Thanks, Justin. It is Brian. It is a good query as a result of, as you realize, popping out of the vacations, sometimes, it is a bit of bit slower, and the cadence is just about consistent with your expectations. We got here out of the vacations. Individuals are actually again doing their jobs. And what we noticed by means of the quarter is a development of elevated orders, notably in North America because the quarter progressed. I might say that this quarter is off to a really sturdy begin as effectively. So pipeline remains to be stable. Visibility remains to be strong, and the automobile sorts are fairly various.
Justin Lengthy
Okay, nice. That is good to listen to. I recognize it.
Operator
The following query is from Matt Elkott with TD Cowen. Please go forward.
Matthew Elkott
Thanks. Good morning. Staying on the order query, Brian. It is good to see a stable quantity for the quarter and that the exercise remains to be sturdy within the third quarter. The ASP declined by respectable quantity, I believe, 16% Q2 versus 1Q. Is {that a} operate of the worldwide portion being greater this quarter than final quarter? Or is there the rest in there?
Brian Comstock
It is a bit of bit, Matt. Sure, it is a bit of little bit of all the things. On the finish of the day, it is combine as ordinary, but additionally the combination of worldwide orders has some headwinds to the common ASP as effectively. Nevertheless, from a pricing perspective, what I may give you is that nothing has actually modified within the trade. It is nonetheless very disciplined. And we’re seeing – we’re nonetheless seeing good pricing out there.
Matthew Elkott
Okay. That is good to listen to. After which staying on sort of the combination query, however going to manufacturing, the good thing about product combine in manufacturing for income. Is that going to show right into a headwind going ahead and thus the dearth of what one would anticipate greater margin than you are guiding?
Justin Roberts
So I believe, Matt, we do not anticipate to see a cloth shift in our combine at this level. What we might say is we’re – the rationale we elevated the underside finish of our vary is we see extra upside over the again half of this yr. And a part of that is simply in all probability being conscious that we live in a really fluid time, fluid financial system. And whereas we do have excellent visibility in manufacturing, simply attempting to be sure that we’ve got a bit of little bit of warning in our remarks at instances and in our outlook.
One factor we proceed to study is that there’s – this can be a very fluid world, a really fluid financial system. And what we see may be very, very nice outlook, sturdy orders, sturdy backlog, nice momentum in manufacturing and manufacturing. However we – I suppose we’re simply attempting to be sure that we aren’t going to get too far out over skis and overpromise. However at this level, I am taking a look at Lorie and Brian proper now as we’re nearly – or successfully a month into our Q3, and we do not see any important modifications from our trajectory.
Lorie Tekorius
And Matt, perhaps simply so as to add, whereas we love having a giant backlog, stable provides us the power to plan our manufacturing strains and be very environment friendly. On the similar time, we’re investing notably in Mexico with our in-sourcing mission that we’ll proceed so as to add to efficiencies in our price, which can improve our margins.
Matthew Elkott
Okay. Bought it. And Lorie and Justin, you guys alluded and Brian alluded to Intermodal presumably beginning to recuperate late this calendar yr. These are decrease ASP automobiles, however are you able to speak in regards to the margin impact? Would they be margin dilutive? Or are they margin impartial, regardless that they’re decrease ASP?
Lorie Tekorius
I might say they’re both margin-neutral or their margin profit is determined by. However so that you’re proper off the topline, however we might anticipate to take care of the margin. And really, I believe now that I am rapidly pondering by means of math in my head, a decrease gross sales worth with good margin {dollars} must be a profit to margin proportion.
Matthew Elkott
Bought it. Nice. Sure. Thanks very a lot.
Operator
The following query is from Harrison Bauer with Susquehanna Monetary Group. Please go forward.
Harrison Bauer
Hello. That is Harrison on for Bascome Majors. Thanks for taking my questions right this moment. Lorie and Brian each talked about the milder winter affecting the upkeep enterprise, however now that is been income dropping for 3 quarters sequentially after which income have dropped the final two, might this be a broad cyclical adjustment or perhaps prospects – particular prospects pulling again the usage of their community? After which when would you anticipate stabilization and perhaps what a few of your trajectory for the upkeep enterprise going ahead?
Justin Roberts
Hey, Harrison, that is Justin. Good to listen to from you right this moment. I might say that really this enterprise has all the time had some seasonality and cyclicality, so that you just see a run-up in our fiscal Q2 within the winter after which an extra step up in our fiscal Q3 within the spring as a result of the winter does drive volumes within the wheel enterprise after which there is a spring restocking after which This autumn and our fiscal Q1 positively have some, I might say, extra normalization.
So we see this as a broader – this is not a change within the enterprise, that is extra of simply the traditional seasonality we see within the winter time, did not manifest this yr. So it isn’t a giant cyclical shift within the enterprise. It is extra of simply – no issues didn’t manifest as they traditionally do. And we’re transferring into our Q3 and enterprise varied remedial actions to sort of be sure that our volumes are going to manifest as anticipated, and that we’re, I would say, managing the fee construction and overhead as proactively as attainable. I do not know if there’s the rest you want so as to add, Brian, on that.
Brian Comstock
No, I believe you hit it completely, Justin. The seasonality sometimes is over two, two and a half quarters. We’re already seeing that reasonable as we transfer into this subsequent quarter, and we’re not projecting any main shortfalls transferring ahead in that enterprise.
Harrison Bauer
Thanks for that. And for my second, now that the North American manufacturing manufacturing fee and margin profile appears to be stabilizing with stable order restoration sequentially. Are you able to share some up to date ideas on what your final margin vary you’d anticipate to generate manufacturing with a mid-cycle backdrop? After which from the place we sit right this moment, if orders are secure, would you anticipate the next or decrease margin perhaps simply directionally for fiscal 2025? Thanks.
Lorie Tekorius
Nice query, Harrison. I might say that if I look out into 2025, and we’ve got stability and the sort of visibility that we’ve got proper now, I might anticipate to be on the higher finish of the vary that we supplied. I do know that the women and men which are working particularly inside our manufacturing group in addition to our industrial group. We’re all the time discovering methods to enhance the throughput in order that we will drop extra of the income by means of some margin and to the underside line.
Operator
The following query is from Ken Hoexter with Financial institution of America. Please go forward.
Ken Hoexter
Nice. Good luck to Adrian and congrats on the workforce on constructing the backlog. However perhaps if I can, Lorie, unpack that margin – your a number of margin outlook a bit of bit higher. I suppose, close to time period, I do know you simply gave a long-term 2025, however given your low to mid-teens outlook, are you continue to anticipating manufacturing margins to remain at double digits right here for the second half? After which do you anticipate to see upkeep margins. I did not fairly get the reply there. Are you anticipating them to return to double digits? Or perhaps you may give your ideas on that.
Lorie Tekorius
Thanks, Ken. I hope I did not misspeak, however we aren’t anticipating low to mid-teen margins. We’re anticipating mid-teens margins with the expectation that we’ll proceed marching by means of this fiscal yr on a stable trajectory.
Justin Roberts
And on a consolidated foundation.
Lorie Tekorius
And on a consolidated foundation, sure, thanks, Justin. From the Upkeep Providers enterprise perspective, we do – as Brian mentioned, we’re taking a lot of actions to consider how we’re operating that enterprise, how we’re interested by, how we schedule tools into these retailers to pressure effectivity. That is a part of the reorganization of a few of our actions and mix a few of our working assets round engineering, high quality and issues like that, in order that we will take the strengths that we’ve got in our manufacturing operations and share these extra broadly with our rail companies group and vice versa, take a number of the strengths of what we been in a position to do in these restore retailers and share these with our manufacturing amenities. So I might say we do anticipate within the third quarter, the [indiscernible] margin and we anticipate to proceed on the general path for consolidated margins to enhance.
Justin Roberts
And if I might simply draw a agency line below your manufacturing query, Ken, we don’t anticipate manufacturing margins going backwards a lot much less dropping again into the one digits at this level on a gross margin foundation, simply to be very clear about that.
Lorie Tekorius
Thanks, Justin.
Ken Hoexter
Very useful. After which Lorie, if I can revisit – I believe it was perhaps Matt’s first query on the ASP decline. I suppose if I simply take a look at the backlog, complete income per ASP per automobile, proper, by way of your complete backlog, it fell, as you talked about. Is that – I simply wish to revisit, is that only a combine difficulty by way of what you are promoting versus something happening within the trade? I simply wish to make clear that one reply there.
Justin Roberts
So it is – sorry, you have been asking, Lorie, however I’ve a tough time not speaking. So it is a mixture of combine. After which there may be some as you are effectively conscious, we do have the power to escalate and deescalate uncooked enter prices on our backlog. And in order there may be some moderation on our enter prices, primarily metal, metal surcharge and whatnot, that pricing comes down a bit of bit, too. The piece to essentially reiterate is that on a core pricing foundation, the pricing that drives profitability and on lease charges, that’s being disciplined, that’s secure to up sort of throughout the assorted automobile sorts.
Ken Hoexter
All proper. That is useful. Oh, go forward.
Lorie Tekorius
I mentioned, effectively mentioned, Justin.
Ken Hoexter
Nice. I recognize your time and ideas. Thanks guys.
Operator
The following query is from Steven Barger with KeyBanc Capital Markets. Please go forward.
Steve Barger
Hey guys, good morning. Slide 12, with the fleet levered to 77% of e book worth, do you anticipate incremental debt from right here to primarily simply fund additions to the lease fleet at that ratio plus or minus?
Lorie Tekorius
Sure.
Steve Barger
And is lease fleet leverage the first metric that you just’re centered on going ahead? Or is there a web debt-to-EBITDA goal for the corporate. I am simply attempting to suppose the way you’re altering your mindset to consider the stability sheet.
Lorie Tekorius
Properly, so I might say that as we take into consideration our lease fleet and the leverage related to that, as Brian had talked about, we’re very disciplined about what we’re placing on our stability sheet after which we wish to leverage it appropriately locking in rates of interest, interested by the time period, interested by the situations. I believe the workforce has completed a extremely of – being out there on the proper time and having the precise form of flexibility in the kind of debt that we placed on our stability sheet. We’ll think about the market as to what is going on on at that time limit as to what’s the precise debt. I believe with the money move that we’ll be producing from the leasing enterprise in addition to the margins in our different companies, we might anticipate to be paying down a few of our company recourse debt over time.
Steve Barger
Okay. A few extra leasing questions. The Slide 10, I believe, says common time period is 4.2 years. What’s that for latest renewals?
Brian Comstock
So many of the renewals are coming in considerably longer. We’re seeing 5 to seven years on common. That is what’s citing. As you look quarter-over-quarter, you will discover that it brings it up. But it surely takes numerous renewals to maneuver it incrementally past the 4.2 years. So – however many of the renewals are sort of coming in on the 5 to seven-year vary.
Steve Barger
Bought it. Thanks. And I do know the lease fleet remains to be comparatively small however rising, it’s clearly a spotlight initiative for you. Do you anticipate placing out a lease renewal index just like the LPI or the FLRD?
Lorie Tekorius
We have been simply speaking about that the opposite day and attempting to determine what acronym we might give you. Sure, [indiscernible] that, however we do not have something to unveil right this moment.
Steve Barger
Okay. Nice. Thanks.
Justin Roberts
Steve, that is Justin actual fast. To reply the query, I do know you often ask is we do anticipate the again half of the yr to be stronger from an working money move perspective, after which that may even generate some free money move that we will deploy into delevering and different points of our enterprise.
Steve Barger
I recognize you anticipating that for me. Properly, and that is good to listen to. I look ahead to seeing that constructive free money move. Thanks.
Justin Roberts
Positively.
Lorie Tekorius
Thanks Steve.
Operator
This concludes our question-and-answer session. I wish to flip the convention again over to Lorie Tekorius for any closing remarks.
Lorie Tekorius
Thanks, sir. I recognize everybody’s time and a spotlight. I do know Justin will probably be talking with a few of you later right this moment. Thanks and we look ahead to sharing progress sooner or later.
Justin Roberts
Thanks, everybody.
Operator
The convention has now concluded. Thanks for attending right this moment’s presentation. You could now disconnect.