GATX Corporation Stock

Hello, everyone. Thank you for joining us, and welcome to the GATX 2026 Third Quarter Earnings Call. [Operator Instructions]

I will now hand the conference over to Shari Hellerman, Head of Investor Relations. Shari, please go ahead.

Thank you, Holly. Good morning, and thank you for joining GATX's 2026 third quarter earnings call.

I'm joined today by Bob Lyons, President and Chief Executive Officer; Tom Ellman, Executive Vice President and Chief Financial Officer; and Paul Titterton, Executive Vice President and President of Rail North America.

As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10-K for 2025 and our other filings with the SEC.

GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. Earlier today, GATX reported 2026 third quarter diluted earnings per share of $2.92 compared to $2.25 in the third quarter of 2025. For the first 9 months of 2026, GATX delivered diluted earnings per share of $8.11 compared to $6.46 for the same period in 2025. The 2025 third quarter and year-to-date results include a net positive impact of $0.15 per diluted share from tax adjustments and other items. These items are detailed in the supplemental information section of our earnings release.

I'll briefly address each of our business segments. After that, we'll open the call up for questions. At Rail North America, market conditions remain positive. Leasing fundamentals benefited from a favorable supply-demand environment and strong interest in existing fleet assets. These conditions continue to support attractive renewal economics and secondary market opportunities across the fleet.

The renewal success rate was strong at 86.1% and fleet utilization increased to 98.4% at quarter end. The renewal rate change of GATX's Lease Price Index was positive 12.4% with an average renewal term of 52 months. We continue to successfully place new railcars under our committed supply agreement with a diverse customer base. We've placed about 10,300 railcars under our 2022 Trinity supply agreement.

Our earliest available scheduled delivery under this agreement is in the second quarter of 2027. Demand for our railcars in the secondary market remained exceptionally strong during the quarter. Net gains on asset dispositions in Rail North America were $50.3 million in the quarter and $167.8 million year-to-date.

Additionally, we continue to realize benefits from the acquisition of Wells Fargo's rail assets. Integration efforts have progressed well, and we are leveraging GATX's scale, customer relationships and portfolio management capabilities across the larger fleet. We also benefited from higher management fee income during the quarter, driven in part by asset sale activity within the Brookfield-owned portfolio.

Turning to Rail International. Performance was solid in the quarter. GATX Rail Europe's fleet utilization improved to 96.1% at quarter end, and we continued pushing up renewal lease rates for various car types. In India, we further expanded the fleet during the quarter while maintaining full utilization. Across Rail International, we continue to see attractive opportunities for investment and growth. Engine Leasing delivered excellent results during the quarter.

Portfolio performance remains strong as healthy global air travel activity continue to support high utilization and attractive lease rates. At RRPF, we continue to deploy capital into attractive opportunities with investment volume at the joint venture approaching $1 billion year-to-date. During the quarter, GATX repurchased approximately 442,000 shares for $78.5 million.

Year-to-date, we've repurchased more than 732,000 shares for approximately $130 million. Finally, we now expect 2026 full year earnings to modestly exceed the upper end of our previously announced guidance range of $9.90 to $10.30 per diluted share. This guidance excludes any impact from tax adjustments and other items.

And that concludes our prepared remarks. I'll hand it back to the operator so we can open the line for questions.

[Operator Instructions] Your first question comes from Ben Mohr with Citi.

I wanted just to maybe start off asking about the LPI. It looks like it's softer than expected at the 12.4%. You've not yet lapped the 2Q hopper impact and yet it stepped down from 2Q. So just wanted to see if that was the only driver or if there were other drivers on top of the 2Q hopper impact that won't get lapped until 2Q of next year. And your full year LPI target, I think to date has been the lower end of your previously guided high teens to low teens range for '26. So just wanted to see your outlook on that as well, please.

Ben, this is Paul speaking. Happy to answer that question. I think Bob will probably chime in as well. But broadly speaking, I think it's important to understand with our LPI, it's done on a trailing 12-month basis. And so one thing that's happening over the course of this year is each successive quarter is incorporating another quarter of GABX. So by the end of this year, we'll have GABX fully incorporated. I should say, the former Wells Fargo fleet, which is known as GABX.

But as well, I would say you have that going on, you have mix and then you do have the continued impact of the sand cars. So really, all 3 of those things are impacting the LPI. I will say broadly, when we think about sequential pricing in the fleet, we are actually seeing across most of the fleet flat to slightly up sequential pricing. So certainly, the pricing climate for our fleet overall is, I would say, becoming increasingly favorable, although the LPI, as you pointed out, has been lower for the reasons I just described.

Ben, it's Bob. Thank you for the question. And I just wanted to add regarding the LPI, just doing a little back-of-the-envelope math, the difference between, call it, a 12% LPI and a 17% LPI in a given year is less than $5 million of revenue on an annual basis, and that's off our revenue base of about $2.4 billion. So when you really kind of pencil out the impact of the LPI, the variance in any given year, it's -- the impact on our revenue line is de minimis. Now obviously, that accumulates over time and gives you a different answer. But in the present year or in '27, for example, it's not that material.

Great. My next question then is on the -- what you've mentioned, the higher management fee in the quarter on the higher asset sale activity in the Brookfield-owned portfolio for Rail North America. And it looks like that's tied to North America remarketing that's also been very strong in 3Q. So maybe sort of a multipoint question. Are you still holding your $200 million target for Rail North America remarketing for '26? And if so, should we expect kind of the positive lumpiness in 3Q to step down to a meaningful step down in 4Q and then that should drive a lower management fee, sort of your other revenue in Rail North America for 4Q as well?

Yes, Ben. So I'll try to take both parts of those questions. One, you alluded to it in your question, but just so that everyone is totally clear, GATX earns 2 different types of management fees related to the Wells Fargo Rail transaction. First, we earn a fee, and this is what you were referring to, for managing the long-term lease portfolio, which is wholly owned by Brookfield.

Second, we earn a fee for managing the operating lease portfolio joint venture with Brookfield. And today, we own 33.5% of that JV. So as you noted, the first fee is what's up sequentially this quarter. So for the first 2 quarters, we earned about $2.8 million in fees in each quarter. And this quarter, it was almost $15 million, so a meaningful increase. And that increase was driven by the fact that under certain conditions, GATX earns additional fees for asset sales out of that portfolio.

Now of course, the decision on whether -- what to sell and when to sell are ultimately made by Brookfield, but GATX gets paid a fee for making recommendations and executing on those sales. So that's part of the increase. Related, but separately, in our own business, the secondary market continues to be strong. And we do expect to exceed slightly the $200 million that we mentioned at the beginning of the year for asset dispositions. As we've discussed many times, calling the exact timing on when those sales close is challenging, but we certainly do expect directionally to do a bit better than we originally anticipated.

Wonderful. My last question is looking out longer term, there's been some investor interest on a longer-term growing narrative for nat gas for data centers where behind-the-meter prime power generators would be driven more by nat gas turbines or reciprocating engines fueled by nat gas, given there's not enough grid to go around for all the data center build. I wanted to ask you, from your view, how much of this could be an opportunity for you? Are your tank cars suited to moving this expansion in nat gas presumably as LNG?

Yes. So this is Paul speaking, Ben. It's a good question. So for the most part, nat gas moves by pipeline in North America and really throughout the world. LNG tank cars are today quite rare and are extraordinarily expensive to construct. There are certainly folks talking about LNG by rail, but that's not a market in which we play today, and it's not clear under what conditions we might play. So I would say any contribution to our business from that would be speculative at this point.

Your next question comes from the line of Andrzej Tomczyk with Goldman Sachs.

Just curious to start off on the guide for modestly exceeding the top end of the $9.90 to $10.30 earnings range for this year. Could you help maybe frame up how you guys are thinking about what modest means? And if there's any drivers that could cause you to exceed your expectations for modestly beating the top end? I know it seemed like the third quarter from our perspective was a pretty healthy beat versus expectations. So just trying to grasp sort of the strength versus your expectations here heading into the fourth quarter.

Yes. Thanks for the question, Andrzej. So I'll first kind of recap what's happened so far and then our decision to take -- to revise the guidance to modestly exceeding the top end of the range. So for the first 9 months of the year, most things were generally in line with our expectations coming into the year. Despite economic and geopolitical uncertainty, the favorable supply-demand dynamics continued to drive positive results for Rail North America.

And the GATX Rail Europe team continued to successfully navigate a challenging economic environment. Similarly, we had strong Engine Leasing results and the RRPF JV with Rolls-Royce performed well. Really 2 factors drove our decision to take -- to revise our guidance description for the third quarter. First, as talked about on the last question, the secondary market remains strong. And second, as talked about on the last question, we earned more for managing the long-term lease portfolio that Brookfield owns than we expected to. So both of those reasons are driven by factors that have some lumpiness to them. And so quantifying the exact amount that we might exceed the high end of the range is going to be dependent on the timing of future opportunities there, which is why we left it where we did.

Yes, Andrzej, it's Bob. I'd also add, too, with remarketing income, it gets a little bit more challenging to call that precisely in the fourth quarter because the buyer universe, they're approaching their year-end as we are, but they may have different capital allocations and that they can extend this year or they want to extend it in the first quarter. So we have to work with those potential buyers and at times, try to recognize what their needs are and what their capital plans are. So it gets a little bit more difficult to predict in the fourth quarter.

Understood. I was curious on just the repricing runway of the acquired assets following the Wells Fargo integration. If you're able to share maybe what percent of the acquired operating fleet has now repriced to the current market levels? How much is left to price or maybe sell in the secondary markets? And how does the embedded renewal pricing delta on that specific pool of cars compared to legacy GATX equipment?

Yes, I'll start first, Andrzej, by just saying the average term in the portfolio that we purchased was very similar to our own. So we're going to renew the same amount of cars out of the joint venture that GATX would renew in a given year, 18,000 to 20,000 or somewhere in that range. So there's no significant lumpiness to how that portfolio will renew.

We haven't disclosed or broken out the data with regards to the difference in their embedded lease rate and rollover versus ours. And quite frankly, we're managing the entire business as one. Our sales team doesn't differentiate at all between a GATX wholly owned car and a joint venture car because keep in mind also, over time, they'll become wholly owned cars that we're buying that -- we'll likely buy that joint venture down over time. So we're not looking at it as 2 discrete fleets. And certainly, that will be even more the case going forward.

Understood. And wanted to just touch, while we're talking on Wells Fargo, the maintenance expense within North America, I think seemed to dip down sequentially. Last year, I think it went up 2Q to 3Q. Could you just speak to how the synergies are tracking on the Wells Fargo integration and maybe any specifics on the maintenance runway as well?

Yes. So really, the story there is very consistent with what we've talked about over the last couple of quarters. So in the near term, we knew that we would be in a position to rationalize the third-party maintenance that's being provided and to challenge the providers in a way that as an owner of maintenance facilities ourselves, we can do that Wells Fargo couldn't. And we're seeing improvement in that area and continue to expect to see that going forward. So the run rate that we've seen so far this year, you would expect to continue for the full year.

Yes. And I think if you took our gross maintenance expense year-to-date and annualized it, you come up with $502 million or $503 million. And our guide for the year back in January was about $500 million. So there are some puts and takes between the wholly owned -- our legacy portfolio and the joint venture cars, but we're coming in right in line with what we expected, and we had baked into that some of those synergies already that we're realizing.

And maybe just hitting a little bit on the secondary market activity within rail leasing, and it does seem like that's potentially driving the higher end of the range guidance as well or above the higher end of the range. That's been an area of strength this year and over the recent years. I'm just curious if you could share sort of the types of the profiles of buyers, whether that's institutional funds, shippers or competing lessors that are providing liquidity there. And then I know it's probably a little early, but any indication on what we should anticipate for the pace of gains into 2027 as well? That would be super helpful.

Yes, Andrzej, good question. And we continue to see a really wide buyer universe. The breadth and depth is quite strong. If we're putting a book out in the marketplace or one of our competing lessors is doing the same, there's a good list of 25, 30 different types of institutions.

Other lessors is really the primary source. We occasionally will sell cars back to shippers that happens at times, but it's primarily that lessor universe, and it continues to be extremely robust. One thing playing into that is, as we've talked about is the supply dynamic in the marketplace right now. There's not a lot of new cars on order. I think the expectation for this year is quite low from a cyclical standpoint in terms of new car orders.

So if you're an existing lessor with an established base of cars and you're looking to add, you're going to do it in the secondary market. And so we see ample opportunity and really, we don't see that abating anytime soon, absent some bigger macro factor.

Very helpful. And maybe just to close off for me and sort of relatedly as well. I wanted to touch on the tariffs and how that's impacting buyers' decisions as well. I think the tariffs, the idea is that they could elevate the new build replacement economics and the cost of a new car. So are buyers incrementally using that to tap the secondary market as well? Is that causing them to sort of delay new car orders as well? And do you see this dynamic sort of creating a floor for asset values here?

So Andrzej, this is Paul speaking. Certainly. This is Paul speaking. And just to address that, I think it's worth a little context here. So with respect to tariffs on new railcars right now, the only railcars that are technically subject to tariffs are tank cars.

So freight cars, which constitute the majority of the new car market are not currently subject to any tariffs. And the tariff situation is fluid in the sense that there are Section 232 tariffs that have been imposed but not enforced, and then there are antidumping tariffs that are under discussion right now for tank cars. So it's a very fluid situation here right now.

What I would say is, obviously, should tariffs be imposed, it would increase the cost of acquisition of tank cars. But GATX is actually extremely well hedged because, of course, it's one of the largest owners of an installed fleet of tank cars, effectively, any increase in the cost to replace that fleet will improve the value of our installed fleet, and that should manifest through lease rates. So it's an evolving situation, but I think that gives you a sense of where we are right now.

Your next question comes from the line of Brendan McCarthy with Sidoti.

I wanted to start off on the Rail North America utilization rate, up about 40 basis points sequentially. I think we talked about the Wells portfolio having utilization of under 98%, maybe in the 97% range at acquisition date. I guess, are you seeing a benefit from better placement of cars or maybe it's remarketing activity? And I guess, do you expect that utilization rate to continue to grind up back towards that 99% level?

So this is Paul speaking, and thank you for the question. Yes, we've had success placing idle cars out of the former Wells Fargo portfolio that's in the joint venture. And really, that's what's driving the improved utilization performance. And really, what I would say is there aren't necessarily any specific markets within any specific car types. It's really been broad-based success with our team placing cars, and we would expect that success to continue. We'll still have the headwinds from the small cube covered hopper fleet serving the sand market. So that will continue to be something of a utilization headwind.

But outside of -- and I will say we've had good success even placing small cubes. But outside of the small cube market, it's been very positive and really trending, I would say, at least as well as we expected coming into this.

Got it. And on the remarketing income side, about $168 million year-to-date. Is the expectation for any potential outperformance above that $200 million threshold? I guess, do you expect any outperformance to come from the legacy side of the fleet? Or is the Wells side potentially going to go above that $70 million number?

Yes. So obviously, as Bob mentioned earlier, we really try to think of this as a single portfolio, and that's how we operate the business. But just based on the numbers that you've seen year-to-date, it's more likely that the outperformance would be legacy cars as opposed to the JV cars.

Okay. Understood. And I think last quarter, you mentioned the Wells, the JV expected to contribute maybe double the original $0.20 to $0.30 EPS expectation for the year. Is that still a reasonable expectation for you?

It is. And really, it's driven by the -- primarily by what we talked about earlier in the call, which is the fees that are earned on the portfolio that Brookfield owns.

Okay. Understood. And just last question on capital allocation. It looks like share buybacks were more outsized in the quarter. Obviously, leverage has remained in place and you've continued to -- you exercised, I think, one of the joint venture options. I guess how can we think about the buyback activity going forward? Is it going to be perhaps a larger source of capital going forward?

Yes. So what I'll do there is just reiterate the way we think about capital allocation period. So we've mentioned many times, first and foremost, we really seek to make economically accretive investment. Right with that, we're very cognizant of the leverage and other credit metrics. You mentioned leverage staying even and to maintain our strong investment-grade credit rating. And then we return excess capital to shareholders. We regularly do that via the dividend.

And at times, we supplement that with stock buyback. And really, what's happened this year is despite a really strong investment year outside of the Wells Fargo Rail acquisition, we still expect to do about $1 billion of investment, but that is a little bit lower than what you've seen in the last couple of years. So it's not surprising you'd see a little bit more in the stock buyback side.

Yes, Brendan, it's Bob. I'd just add, too. I like to think we remain very disciplined around that capital allocation concept of 3 things. The first being the investment. That's what we believe shareholders invest in GATX for us to do is to put capital to work in assets at accretive economics, keep the balance sheet in good shape, keep leverage in good shape and then return excess. So we revisit that concept constantly here at GATX.

Your next question comes from the line of Justin Bergner with Gabelli Funds.

A couple of clarification questions. You mentioned the $0.20 to $0.30 JV contribution. Is that inclusive of now the extra benefit from managing the Brookfield assets? Or would that extra benefit be on top of the $0.20 to $0.30?

Yes. Great clarification, Justin. Thank you. So all along, we've been talking about the totality of the investment activity and -- investment and related activity with that acquisition. So it includes the performance of the JV, the management fees earned from the JV, the incremental SG&A that we have in order to provide those services and the fees earned from the Brookfield wholly owned portfolio. So it's all of that together.

Yes. And Justin, the $0.20 to $0.30 is what we thought coming into the year. Back in July, we said it would be double that, and we're very confident in that level.

Yes. And year-to-date, it's been in the range of $0.50. So we're well on the way.

Year-to-date, it's already at $0.50. Okay. Got it. So it was more consistent with the doubling you spoke about in July. Okay. That's very helpful.

Yes. Correct.

And then just on the benefit from helping Brookfield sell their fully owned cars, I assume that, that's in that other revenue category of Rail North America. And are there any costs associated with it? Or is it mostly drop-through to the bottom line, that revenue?

So there would be, but they're a little difficult to tease out. It would be part of the incremental SG&A. So if you look at what we expected coming into the year, we said SG&A would be up about $30 million on a normalized basis versus a year ago. And we said the vast majority of that would be related to the Wells Fargo Rail acquisition and related activity.

So all of that together is the cost side shows up in SG&A. Everything you see in that other revenue line related to the management fee activity is just the revenue side. It's not net of anything.

And that SG&A is coming in about right where we thought it would come in. So we're managing -- the team is managing that quite well.

Okay. So not too much additional cost to generate that extra revenue for managing the Brookfield sales. It seems like.

Yes, Justin, just to be sure you understand that, the incremental SG&A we're talking about is mostly related to the operating lease JV that we have with Brookfield, where we're at 33.5% ownership. Yes, there is some additional incremental SG&A related to the long-term lease portfolio, but that would be relatively small.

Okay. And then does that mean that you're now managing a slightly smaller or not -- you're getting management fees on a slightly smaller Brookfield fully owned fleet because you've helped sell a decent amount of cars?

Correct.

Okay. Got you. Nice work overall. On the maintenance side, just to clarify, the maintenance benefits that you're seeing near term from the Wells Fargo, those are more about better managing third-party maintenance? Or are you actually starting to in-source some of that maintenance already?

So Justin, it's Paul speaking. We have not yet in-sourced any of the joint venture maintenance. As we talked about coming into the year, our shops are really full of our own work, and so there really wasn't much of an opportunity to do that. We are going to be laying the groundwork to be able to take in some of that joint venture work, and we're hoping that at some point, potentially later next year, you'll be able to see some of the benefits of that.

When we announced the transaction initially, we said it would probably be a 2- to 3-year period before -- just because of the demand of our own fleet and our shops would likely be 2 to 3 years before we started to even move some of the joint venture cars into the -- into our maintenance network. And so we're really digging in and putting the pieces in place to begin doing that on a modest level in 2027, but the expectation is we'll step that up sequentially after next year.

Okay. Great. And maybe lastly, the Rail International performance seemed to improve nicely on a sequential basis. It could just be noise, but is there anything you wanted to highlight there in terms of what's going well or what's progressing as expected?

Yes. So in general, we came into the year expecting a challenging economic environment. And indeed, we've seen that. The team has done a really good job -- have done a really good job navigating through that. As we noted in the press release, there's really 2 factors driving the comparison year-over-year.

One is that the fleet has grown, thanks largely to the DB Cargo acquisition that we did last year. And then in addition to that, there is some FX benefit that we've seen.

Your next question comes from the line of Ben Mohr with Citi.

Yes. I wanted to touch on interest rates as it looks like maybe that's been what's driving some negative sentiment on your shares the last few months and yet your fundamentals remain very strong. Your favorable supply-demand is much more of a meaningful driver in the short term within the year as you've shared in the past. So it seems like that's very much working.

When we look at Fed funds futures, it's showing another 50 bps of hikes likely through the end of 2027. So likely maybe 2 more hikes. I wanted to get your updated views on all of this. Are your fundamentals expected to continue to remain strong? You've got your debt size kind of -- and your leasing portfolio immunized, you're using interest rate swaps to convert the floating to fixed. And then beyond the year, we should see higher interest rates kind of play out as a benefit for you in higher lease rates. So wanted just to kind of get an overall update on your view of the picture on the interest rate headwind that's more sentiment driven whereas your fundamentals remain very strong.

Yes. So Ben, as you know, we certainly take a long-term approach to everything, and that includes the way we finance. Less than 10% of our debt is floating rate. We finance -- a wide variety of ways. But by far, the biggest is accessing the capital markets with 10-year plus debt. So we have long-term debt, mostly fixed. And so the short-term impacts are not particularly meaningful to us because of the way we've structured the portfolio. You alluded to the fact that interest rates increasing can help lease rates. That is absolutely true.

But similarly, that's more of a long-run phenomenon as well. In the short term, it's always supply-demand dynamics that drive the lease rate market by market. But over a long enough period of time, you certainly should expect to see a positive impact on lease rates with increasing interest rates. So at the same time, that cumulative effect could impact GATX from a funding perspective, given the long-term way we fund, you would also see that benefit showing up in the lease rates. So in the near term, both are pretty insulated. In the long term, they are correlated.

Yes. As we've always said, as a hard asset owner, and it's the same for any hard asset owner, somewhat of an inflation element is a good thing, and we benefit. We'll take that benefit. It sure, it raises the cost of a new car. But when you own 200,000 installed base, you get the benefit there, far outweighs the increased cost on any incremental cars we're bringing into the fleet. I think between Tom and I and Paul, we've all been here 30 years. I don't think there's any year ever during that period where we thought too much about near-term interest rates. It's not a driver of our business.

Wonderful. And then just one last one from me on the Engine Leasing RRPF JV side. It looks like last quarter, you had a very strong RRPF equity method earnings of roughly $50 million. This quarter, it stepped down to roughly $46 million. And my sense is probably that's more lumpiness than anything else. So I wanted to get your sense on that and what to expect for 4Q in that RRPF of equity method and whether your full year segment profit for Engine Leasing still holds?

Yes. So actually, the quarter-to-quarter variance that you mentioned is pretty stable for that business. Things do tend to move because of the gain on sales. One question we normally get, we didn't this quarter, so I'll just provide it anyways, is the split between operating income and remarketing income in that business. And both for the quarter and year-to-date, it's about 2/3, 1/3, 2/3 on the operating side, 1/3 on the remarketing side. And that's really what drives that variability.

As far as the Engine Leasing segment, we do expect it to outperform beginning of year guidance, consistent with the second quarter where we took guidance up, but it's not being driven by the JV. It's driven primarily by the GATX Engine Leasing wholly owned portfolio. And we talked about the reason for that last quarter and a strong maintenance reserve realization that we saw in the second quarter.

The other thing to call out, Ben, is that in the third quarter of 2025, there was a $10 million of pretax insurance proceeds related to engines in Russia, which we normalized.

We have reached the end of the Q&A session. I will now turn the call back to Shari for closing remarks.

Before Shari closes, I just want to mention one thing. We talk often about how we're economic animals at GATX, and that includes everyone around the table. I also happen to be a lifelong Milwaukee brewer fan. And before I walked in here, somebody offered me $100 every time I offered up a baseball-related phrase on the call. So I just want to finish by saying we are hitting on all cylinders. Our commercial team continues to win by hitting singles and doubles, and everyone on the team is contributing. So by my count, I just made $300. Thank you all for your time.

And I'd like to thank everyone for joining us this morning. Please feel free to reach out to me with any follow-up questions. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the GATX 2026 Second Quarter Earnings Call.

[Operator Instructions]

I will now hand the conference call over to Shari Hellerman, Head of Investor Relations. Shari, please go ahead.

Thank you, Julian. Good morning, and thank you for joining GATX Corporation's 2026 Second Quarter Earnings Conference Call.

I'm joined today by Bob Lyons, President and Chief Executive Officer; Tom Ellman, Executive Vice President and Chief Financial Officer; and Paul Cherton, Executive Vice President and President of Rail North America.

As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts.

For more information, please refer to the risk factors included in our earnings release and those discussed in GATX's Form 10-K for 2025 and our other filings with the SEC.

GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

Earlier today, GATX reported 2026 second quarter diluted earnings per share of $2.84. This compares to 2025 second quarter diluted earnings per share of $2.06.

Year-to-date 2026, GATX delivered diluted earnings per share of $5.19 compared to $4.21 for the same period in 2025. I'll briefly touch on each of our business segments, and then we'll open the line for questions.

In Rail North America, market conditions remain constructive. Fleet utilization remained high at 98%, and our renewal success rate was strong at 82.6%. The renewal rate change of GATX's lease price index was 16.8% with an average renewal term of 54 months.

Leasing fundamentals driven by favorable supply-demand dynamics continue to support attractive renewal economics across most car types. We also continue to realize benefits from the Wells Fargo Rail acquisition as integration efforts progressed and the combined fleet continues to perform well.

Additionally, we continue to successfully place new railcars from our committed supply agreement with a diverse customer base. We've placed about 9,500 railcars from our 2022 Trinity supply agreement.

Our earliest available scheduled delivery under this supply agreement is in the first quarter of 2027. We capitalized on strong demand for railcars in the secondary market during the quarter, resulting in meaningful asset remarketing activity.

Our gains on asset dispositions were $67.7 million in the quarter and totaled $117.5 million year-to-date. Outside North America, GATX Rail Europe delivered a solid performance, achieving 95.3% fleet utilization at quarter end despite challenging economic conditions.

At GATX Rail India, demand for railcars remains robust, and the fleet was fully utilized. Rail International's investment volume was approximately $46 million during the quarter, reflecting continued fleet growth as we took delivery of new cars in Europe and India to meet customer needs.

Turning to Engine Leasing. The segment delivered excellent results in the second quarter, supported by favorable market fundamentals and continued air travel trends, which drove strong demand for aircraft spare engines.

We also identified attractive investment opportunities through our 50-50 joint venture with Rolls-Royce. Finally, as we noted in the earnings release, we are raising our 2026 earnings guidance to a range of $9.90 to $10.30, reflecting our strong year-to-date performance, healthy leasing fundamentals in the North American rail and engine leasing markets, the benefits from the Wells Fargo Rail acquisition, and the positive outlook for our businesses.

And with that overview, Julian, let's open the line for questions.

[Operator Instructions]

Your first question comes from the line of Ben Mohr with Citigroup.

Congrats on the beat and raise. The first one I've got is, along with your EPS guide raise, do you plan to give corresponding full-year targets updating from what you gave at the beginning of the year for revenue, remarketing, segment profit, and SG&A?

Ben, it's Bob Lyons. We don't plan to go through line by line as we did at the beginning of the year. What I can tell you is that midyear, we're essentially very close or slightly above the guidance that we provided almost across the board, line by line.

Slightly ahead on remarketing income, slightly ahead on segment profit at North American Rail and at Engine Leasing. And those are really driving the guidance change.

But if I look, whether it's revenue, SG&A, some of the key line items, we're still right where we thought we'd be. The $200 million of remarketing income split $130 million between GATX and $70 million at the joint venture still is in line with our expectations.

And regarding your LPI, the 16.8% looks like it's driven by some sand mix in the quarter. Maybe a 2-parter. Can you share what LTI would have been without this extra sand mix, maybe a rough estimate?

And then the other is, do you still see high teens, low 20s for the full year?

So Ben, this is Paul speaking. I'm going to comment just qualitatively on that. As you know, we don't do car type-specific breakouts in terms of the components of LPI just as a matter of policy.

But qualitatively, what I'll say is this: when we took on the Wells Fargo portfolio, we knew what the portfolio was. We knew we were getting sand exposure.

So really, everything going on in sand, first of all, is consistent with our expectations. But beyond that, we did have an outsized remarketing quarter for sand, which explains the impact for that.

We will have more sand exposure for the remainder of the year. But again, overall, what I'll say is it's consistent with our expectations and consistent.

We value those sand cars appropriately. So obviously the rates are low, they're not concerning from that standpoint.

Yes. And Ben, it's Bob. I'd add too that there's a bit of an anomaly there because the actual level of renewals, just the pure level of renewals, was higher than we anticipated.

We actually expected to get some of those cars back. And when you get them back, they come out of the LPI entirely. But we actually renewed more than anticipated, which is a good thing economically for the shareholder, good thing for P&L long term, but a negative on LPI.

So a bit of an unusual element to the number this quarter.

And we noticed engine leasing other income; that $13.7 million stepped up. Can you share what's behind this? And then how we should model this, what the trend should be for this line going forward?

Yes, Ben, this is Tom. From time to time, we collect maintenance reserves from customers to ensure that funds are available for required maintenance when those events become necessary.

If it ever becomes evident that these funds are no longer required for maintenance, they're taken into income. Typically, this happens as part of an end-of-lease activity.

Given the nature of how maintenance reserve releases are recognized, they tend to be lumpy. And Q2 happened to be a particularly significant quarter for this type of activity.

So we wouldn't expect that level to necessarily persist quarter-to-quarter. But over longer periods of time, it is fairly predictable. And this kind of activity regularly happens within the JV portfolio, and we expect it to regularly happen within the wholly owned portfolio as well, but to be a bit lumpy in nature.

Last one for me, Rail North America maintenance expense looks like it stepped up to the $130 million handle versus before, actually not that much, but about a couple of million there, or about $10 million, $11 million.

Can you share a view on how the qualification tests are coming along? What drove the step-up? Should we still view it as a 120-ish run rate going forward? Or is this the new run rate?

So Ben, I'll start with some of the numbers, and then I'll let Paul add some color commentary on what he's seeing on the ground.

So as far as the maintenance expense number, we're very much in line with what we expected coming into the year. Coming into the year, we thought it would be in the $500 million range. And year-to-date, we're at around $250 million. So exactly on target.

We expect that to be a bit lumpy quarter-to-quarter. So I would look more at the total year type of numbers than I would at what happens in a given quarter.

Yes. And this is Paul speaking. I'll just add. From a maintenance demand standpoint and a compliance demand standpoint, the year is really unfolding more or less as we expected.

So no surprises there. The volume of repair is consistent with what we thought coming in.

Your next question comes from the line of Andrzej Tomczyk with Goldman Sachs.

I was just curious to start off on the gains on sale in the second quarter. I know it popped up.

I'm curious, though, because I remember, I think last quarter, the JV only saw about $2 million of gains relative to the $70 million full-year target for the JV, I think it was. Any update on what the JV experienced in terms of gains relative to your core business in the second quarter?

And then on that full-year target, how you would expect to trend for the JV versus the separation of the JV.

Yes, Andrzej, you might recall from last quarter that we noted that we expected the first quarter of gains from the JV portfolio to be pretty limited as we focused on integration.

So if you look at what happened in the second quarter, it's roughly 1/3 of what we expect for the entire year. So very much on pace. And our $70 million number that expectation has not been changed.

In contrast, if you look at what's going on in the legacy portfolio, we're definitely running ahead of where we originally anticipated we would. And it's likely that for the full year, we'll be a bit better than that $130 million, and that was one of the things that drove our decision to take up guidance.

Yes. And I'll just add a couple of numbers around that. If you look at the year-to-date 6-month numbers for net gain on disposition, we're at $118 million.

You can call it $25 million of that roughly is the joint venture, and about $95 million of that, roughly $94 million of that, is in the legacy versus the $130 million we said coming into the year.

So consistent with what Tom said, we're well ahead of where we thought we would be on the legacy portfolio through the first 6 months, and we'll probably exceed that a little bit, the $ 130 million.

And then with the joint venture, right in line with what we thought in terms of timing and amount.

And on the Wells Fargo benefits, I think $0.30 benefit expectation is what you guys had previously talked about. Is that still the expectation or the run rate you guys are on currently?

And then I just had a question as you integrate the Wells Fargo fleet into your own, the revenue per active carload, I think, will be going down from a mix perspective. How do we think about that going forward and when that sort of normalizes?

Yes. So let me take the first part of that question. So as far as what we expected coming into the year, we thought it would be between about $0.20 and $0.30 of EPS. And at this point, we definitely believe we will exceed that, and we'll probably be at least double that number.

There are 3 aspects to things driving that contribution. Management fees that we earn, the day-to-day performance of the portfolio, and then the remarketing gains.

We already talked about the remarketing gains and said that those are likely to come in about where we thought. But we think it's likely that the other 2 aspects of that will be better than anticipated.

You may recall that Bob mentioned even before we one day start doing maintenance on our own facilities, we would see opportunities to enjoy benefits as we apply our rigor at looking at third-party maintenance performance. And we're seeing that.

We're seeing ourselves do a little bit better than anticipated on the day-to-day running of the portfolio. Also on the potential upside, part of the way management fees are structured for the portfolio that is wholly owned by Brookfield is that we have the potential to earn fees for asset sales.

And just like the strong secondary market in our legacy portfolio and the JV portfolio, it's a strong market on that side as well. And so there's the potential to have some upside there.

So again, when you translate all of that, we'll probably be at least double what we thought we'd be coming into the year.

And on your comment or question about revenue or revenue per car, the only comment I'll make there is a cautionary one, which is it's really difficult to try to glean any consistent trend out of that data point, given that we're selling assets and adding assets.

The portfolio is very dynamic, not static. So it's changing every single quarter. And it also comes back to when assets are sold. If they're sold right at the end of the quarter, if they're sold at the beginning of the quarter, it can have a pretty meaningful impact if you're looking just at revenue per car.

So I understand the reason for the attention on that number, but I'll just add that note. It can be a little bit difficult to really dig into that one and draw any meaningful conclusion from it on a trend basis.

And I'll just add that mix as well affects that. The revenue on a railcar with an OEC of $100,000 is very different than the revenue on a railcar with an OEC of $300,000. And our fleet has a diverse mix.

So depending on what's coming in or out of the fleet, you can have a very different revenue per car profile.

And Andrzej, finally, on that point, we've mentioned before that when we do asset sales out of whatever portfolio, we're primarily selling for portfolio optimization purposes.

In other words, the quality of the portfolio that we have remaining is stronger after an asset sale than before. So if you simply look at quarter-over-quarter revenue, you're missing the fact that when you sell assets, some of the costs go away as well.

One obvious example is ownership costs like depreciation. So when you look at the total impact on the portfolio, that's really the way to think about this rather than the revenue line in isolation.

Maybe just shifting gears a little bit to tariffs. Just trying to get some clarity here from a high-level perspective, our understanding is that some of the tariffs on tank cars, at least imported into the U.S., have been reassessed, and potentially there's a 25% or 10% to 25% tariff on the imported value of those tank cars.

Curious if you guys are hearing that at all from the manufacturers, if that's factoring into any of your buying decisions, and just how to think about that dynamic going forward?

Yes. So this is Paul speaking. And what I'll say is you're correct about the existence of the Section 232 tariffs.

What I will say is this, it's a very fluid situation, and we've disclosed this previously, contractually, as the buyer of railcars will ultimately be economically responsible to the extent tariffs will be assessed.

Having said that, to date, we've had no material impact on GATX from any tariff assessments. And really, at this point, because the situation is so fluid, that's all we can really say at this point.

I will say this, it's not affecting our investment behavior. Most of the new railcars we're taking today are taken under the supply agreement, and really, our investment behavior under the supply agreement has remained consistent.

So even at the margin, your behavior around tank car orders hasn't really been impacted by those changes?

Not to date. No.

And then maybe just lastly for me, I'm curious about the ISM positivity of Lee. I know rail carloading growth has also seen some improvement, especially around ex-intermodal as well, maybe some broadening out of the volumes.

Does that bode well for sort of lease rates from your perspective?

Are there customers saying, "Hey, rail volumes are growing again, we're going to start leasing more cars? What are you hearing from the customer perspective there?

Sure. This is Paul again. Yes, I mean, obviously, we always like to see carloads rising. So certainly, the year-to-date metrics are positive. And really, the areas where we're seeing that are intermodal, agricultural, and chemical.

Those are the 3 biggest segment drivers. And obviously, we have a fleet that serves all 3 of those segments. So that is certainly positive. I would say, though, to zoom out for us really, what we've been saying for quite some time now about the supply-led market is really what drives our positivity about the business.

The fleet is shrinking, which is a positive for us. The North American fleet is shrinking. And if you combine that with rising carloads, that's a fairly good story for us.

And so ultimately, we see that as carloads grow, more demand for our fleet, and as the North American fleet shrinks, less supply. So we certainly see that as a supportive dynamic, and I think that's why our pricing and utilization have remained in a fairly attractive place from our standpoint.

Your next question comes from the line of Brendan McCarthy with Sidoti.

Just wanted to have a follow-up question on the guidance increase. It looks like you're taking up guidance to $0.30 at the midpoint.

But you just mentioned you're potentially expecting maybe double the EPS expectation from the Wells Fargo rail portfolio, which I guess, according to math, would be roughly an incremental $0.25. So is it fair to think about that $0.30 midpoint increase?

Is it fair to think about that breakdown as $0.25 coming from the Wells portfolio and then maybe the remaining $0.05 coming from incremental legacy remarketing income?

Yes. So there's obviously a lot of different pieces that are moving here. And directionally, for sure, that is one of the pieces.

We also mentioned the possibility for improved asset sales. And then finally, I would note that the engine leasing business may do a bit better than we anticipated as strength continues in that market.

So we have a few different areas that we could see some benefits. And that's one of the key reasons that you get that range as opposed to a single point.

And on the engine leasing business, it looks like the second quarter saw a nice increase at the JV.

What was the breakdown there between remarketing gains and operating gains?

Yes. For year-to-date, we're at about 70% from operating income and 30% from remarketing type activity.

So for the quarter, that mix was more 60-40, with 60% being the operating component.

So the first quarter, we mentioned, was very heavy on the operating income, and we expected that to normalize over the course of the year.

Okay. And how did the internal portfolio perform in the second quarter? And maybe you can touch on the CapEx outlook there. I don't think any engines have been added to the internal portfolio year-to-date. But what are your thoughts there for the rest of the year in terms of CapEx?

Yes, Brendan, it's Bob. I'll take that one. So yes, the portfolio of wholly owned engines is static currently.

We have not put into our forecast or into our CapEx plan any addition to that. When we did those investments originally over the course of the prior few years, really going back to the pandemic era, we added those engines at a point in time where it was really an opportunistic purchase, opportunistic acquisition.

It made sense for Rolls-Royce. It made sense for GATX. But we didn't expect that that would be a steady supply of 10 or 15 engines a year because, as things improved, there would be other alternatives for Rolls-Royce in terms of financing those engines with other parties or selling to third parties.

So we're well over $1 billion invested. Those are going to be great, very strong, high-return assets for GATX for a long time. There may be opportunities, spot opportunities to add to the portfolio, but there's no programmatic outlook for that.

We haven't factored that in any of that into our guidance or CapEx plan for the year.

I appreciate the detail. Just last question for me on the LPI. And I'm not sure if you're able to provide this level of detail, but just maybe under the assumption that you renew roughly 10,000 railcars per quarter, can you give us an idea of the magnitude of the sand service railcar renewal during the quarter? And maybe how much of that total composition for the quarter was made up of the sand cars?

Yes. This is Paul speaking. Unfortunately, we don't, as a matter of policy, disclose car type-specific write-downs.

What we can tell you was second quarter was a significantly outsized quarter for sand car renewals. And to reiterate the point that Bob made, that was actually a positive thing from our standpoint because we achieved higher renewal success than we thought.

And as you know, it is generally optimal for us to keep cars in service at the same customer versus to take them back. So we deliberately did something that was, in the short run, harmful to LPI, but in the long term, favorable to economics.

When we took over the Wells fleet, and again, this was all priced in. We knew what we were getting. We knew we were taking a large sand car fleet, and we also knew that the exposure in 2026 was going to be significant.

So all of this is expected, but it certainly has the effect that it has on the LPI.

Yes, Brendan, it's Bob. Totally understand your question and am trying to get as granular as you possibly can. I would just note, we're in a very competitive marketplace.

And I can guarantee you our competitors are all listening to this call right now, and they would be thrilled to know what our renewal schedule looks like over the course of the next few quarters by car type, as we would be to know what theirs is.

But there is some limit on what we're kind of willing to provide publicly.

Your next question comes from the line of Harrison Bauer with Susquehanna.

Some follow-ups first on some of the renewals. Any color that you're able to provide on LPI in terms of legacy versus wells, if you can't provide anything specific to sand?

And then any color around the average renewal term has continued to inch down really throughout the last 2 years or so. Anything to read on that or how you're approaching length of terms and your contract renewals?

Yes. I'll start with the length of term. Anything up in that 50, 60-month range is a very good spot for GATX to be in.

Again, that number can move around quarter-to-quarter quite a bit or somewhat based on the types of cars that are getting renewed and where things are from a competitive standpoint, dialogue with our customers, what have you.

So while it has trended down a little bit, that's certainly not anything of great concern to me or to our team. And from a commercial perspective, we're still at a point where lease rates, as we've talked about in prior quarters, while they have leveled off, they've done so at a relatively attractive point.

So we're still locking in term and locking in very good long-term cash flow.

And then in terms of the LTI breakdown between legacy and the Wells Fargo portfolio, we mentioned previously that we're running this as a single integrated portfolio.

That's what our customers expect. That's what our JV partner expects. So no, we're not breaking out the LTI between those 2.

Maybe a little bit more thoughts I'd love to hear with regards to your approach on fleet growth over time.

Obviously, the Wells fleet can't add any railcars. But during the second quarter, it looks like you took out a little bit more than 4,000 railcars for overall North American service. What's the right level of attrition we should be expecting in that fleet over time into maybe next year?

And what would you need to see in the market in order to inflect and start actually regrowing your fleet again?

Yes. It's Bob. I'll cover the first point of that question, which is overall fleet size, and just share with you a little bit of our philosophy, which is we don't really focus intently on whether we have 200,000 cars one quarter or 198,000 in the next or 201,000 following quarter.

We have massive scale in this business. We have it before wells. We have it after wells 2x. And you need scale in this business for sure, to run our maintenance facilities efficiently, to have very good commercial presence in the market.

So having the size of fleet we have gives us all of that. So whether we have 200 or 198 in a given quarter, it's not a focal point of ours. What is a focal point of ours is optimizing the portfolio through remarketing, through smart, disciplined investment in adding cards of very specific types.

So if it makes sense for us in a given quarter, like it did this quarter, where we had really robust remarketing activity, incredible demand from a lot of different potential buyers in the secondary market, we'll sell down more.

That's perfectly fine. It's the right thing to do for the shareholders. It's the right thing to do for the business. And I'll let Paul comment a little bit more about what we would need to see for us to really turn up the North American rail investment volume.

Yes. Thanks, Bob. And really, ultimately, as Bob said, we're economic actors. And so we will add to our investments if and when pricing, whether that's in the secondary market as a buyer or in the new car market as a buyer when pricing makes sense.

And so that's going to be a combination of what we're paying for the assets, what it costs us to finance them, but also what the market will offer from a demand standpoint.

And so right now, it's been attractive to us to sell into the market on a net basis. And again, we're going to continue to be economic actors, and we'll turn up the investment side of things as and when we see demand characteristics that support investment at current prices.

Maybe just a quick point of clarification. Has there been any transaction between the legacy fleet and the JV fleet? And if that's something that we should expect the possibility of going forward, if it makes sense, I know you're approaching managing as a whole portfolio, but curious if that's something we could see.

No, there's no purchasing of cars from GATX at 100% level from the joint venture, and I wouldn't anticipate that to be the case.

If there are opportunities in the future where that might make sense, we'll certainly call that out for you all. But nothing to date and nothing expected.

Okay. And last one for me. I'm just curious if you have, or when investors would have visibility on re-upping your long-term supply agreement.

Any color you're able to give about how you're thinking about that in terms of the long-term context of your fleet management?

Sure. This is Paul speaking. And what I'll say is, for obvious reasons, we can't comment specifically on what our plans will be to re-up or not. But what I can say is, as we've said for many, many years, having a long-term supply agreement in place is a key pillar of our sourcing strategy.

It's how we meet the needs of our core customers year after year. And so you can expect that, over the long run, we're going to continue to, in one form or another, have long-term sourcing agreement or agreements in place.

And really, the timing of those will depend on a number of different factors. But certainly, it remains a core pillar of what we do.

Your next question comes from the line of Justin Bergner with Gabelli Funds.

It looks like a pretty good second quarter on top of a pretty good first quarter. So nice work. First question would be, as it relates to the guidance, is there anything that's a headwind to where you started the year?

I know you mentioned you're satisfied with how you're performing in Europe in a tough environment, but is the tough environment a potential headwind to your revised guide?

No. On the international side, yes, we came into the year we had expected our total segment profit on the international side to be somewhere in the range of $130 million or so.

We may run a little light of that. But even if we do, from a magnitude standpoint, it's not enough to really change our view on the guidance. It is a challenging market in Europe.

It has been for the last few years, really since the war in Ukraine started. There have been more economic headwinds than tailwinds there, but the team is performing extremely well.

They've done really well in terms of keeping cars on lease, moving utilization up, getting price increases, albeit not at the level seen in North America, but still, given the environment, that's an excellent performance.

So not an issue in terms of the guidance that we gave for the year.

Justin, if you changed your question slightly and instead of talking about headwinds, you talked about areas of uncertainty or variability.

We just reiterate what we said at the beginning of the year, which is, first and foremost, obviously, the situation in the world is a little bit uncertain. And one of the areas that we look at for sure is how that impacts us broadly, but specifically the global aviation market.

We note repeatedly that the timing of closing remarketing gains, whether it's in the rail portfolio or the engine leasing portfolio, is not always certain. We're very certain on the strength of it, but calling the exact quarter can be a bit challenging.

With respect to the other income in the engine leasing business of $13.7 million, which I think followed $3.1 million in the first quarter.

You mentioned that's normal in the course of ordinary course of business. But should I think of this income as sort of reflecting multiple years of service-related work that's releasing in 1 or 2 quarters?

Or should I think of the first half rate as being somewhat indicative of what could be achieved annually going forward in that part of the financials?

Yes. So I'll start, and I'll let Bob add on if he'd like to. But what I would tell you is you should not think of what happened in the quarter as a run rate just because it's very difficult to predict exactly the timing of those events.

It is absolutely true that the idea behind those maintenance reserves is that the cash is available if needed for maintenance. It's difficult to precisely say what that means in terms of the long-term life of the engine because, as noted, that primarily happens at the end of lease activity. And the degree to which that influences or does not influence the profitability of the engine over its whole life is somewhat dependent on the next lease you put it on, which likely will also have maintenance reserves.

And Justin, I'd just add that part of this relates to the size of the portfolio you have. In the joint venture, we have 450-plus engines.

Maintenance reserves happen all the time every single quarter. And with a portfolio of that size, it does tend to smooth out. Our portfolio of wholly owned engines is much smaller.

So when they occur, they'll likely be a little lumpier. But we've been in whether it's aircraft or aircraft engines, the leasing business since 1968, and maintenance reserves have been part of that program ever part of those businesses ever since. They're the norm in the industry.

It seems like that was part of the anticipated guidance and nothing changing there materially, right?

Correct.

And then lastly, your high renewal rate for the second quarter stands out, and obviously, that's great for the business. How does that tie into any further tightening you may be seeing in the industry, potential modest inflection in sequential spot lease rates or any other dynamics as the truck tightness filters through to rail carloads and potentially the leasing side of your business?

Yes. Thanks, Justin. This is Paul. And yes, I think you're correct to identify positive factors in the North American rail market.

Obviously, carloads are up. Obviously, there are a number of reasons for tightening of trucking. So those are certainly tailwinds for us. Obviously, it's difficult to predict, particularly with both truck capacity and carloads, exactly what direction they take from here.

There's certainly uncertainty. But we do view those favorably. As I also mentioned, we always look at the composition of the overall North American rail fleet for all owners. And that, as we've said, has continued to shrink. And so really, what I would say is the reason we feel positively about the leasing environment in North America generally is kind of the combination of those things.

There are reasons to believe that carloads well carloads have risen. And as you pointed out, truck capacity has tightened. We watch the overall North American fleet shrink.

And so I would say, overall, we see reasons to feel confident, certainly about a firm lease rate environment and a firm utilization environment as we've been talking about. Again, there's economic uncertainty.

So I hesitate to call an inflection point as you're describing. But certainly, I would reiterate that we feel positively about the commercial environment in which we're operating in North America.

Your next question comes from the line of Scott Scher with LMJ Capital.

A couple of questions. Can you comment on the fact that you pulled forward your purchase of the incremental 10%, I guess it was, or 7%, whatever it was, your option, you exercised it early.

Can you comment on that and the message that was sent with respect to your optimism about the Wells Fargo deal? And then I have 1 or 2 follow-ups.

So I'll just speak factually on it and then let Bob add on anything. We did not pull forward. The first option was set at June 30. And typically, what those options will be is to buy 10% of Brookfield's share or 7% of the JV.

The first year is a half-year option, so that was 3.5% total, but it was not a pull forward.

Yes. And Scott, our expectation going forward is that we're going to exercise those options, but they are options.

So we're not obligated. We'll review it every year. But the expectation is that we'll exercise those as we did on June 30 this year. I think, Tom, the total cash outlay on that first option. Total cash outlay was $66 million.

Okay. So I think it's been about 18 months since the announcement of the deal. So I just want to refresh my memory. So we bought that portfolio was sensibly book value. And in our first year, we are increasing our remarketing gains, some of which are attributable to the portfolio that we bought just 18 months ago at book value. Is that factually correct?

We actually bought it on January 1. We closed on the transaction in January. Yes, we announced on May 29, which happens to be our Chief Financial Officer's birthday.

We'll just add that. But we announced on May 29; we closed on January 1. And yes, we are selling assets out of the joint venture portfolio at above book value for assets that we bought on January 1.

And if I could just add, Bob. I was going to add that that's one of the things we liked about the Wells deal so much is most secondary market transactions in this business occur at a premium to book.

So by buying at book, we thought we were buying value. And I think what's happened since has demonstrated that.

I'm just reiterating that for the people that don't understand, who don't want to put a value on your remarketing gains.

I'm trying my best. If we do this each year and we buy our options and our option price is set at the time of the deal, which is extensively book value, then it's a foregone conclusion that we will keep booking gains unless somehow these assets were to go down in value.

If 6 months into it, if I bought something on January 1 and 6 months into it, I'm booking gains and the price was set last time without any incremental ups, then I'm going to keep booking gains, and I control the timing by which I book the gains, and I control the option, correct?

I would not argue with that assessment, Scott. That is correct.

So we're going to control the size of our portfolio over the next number of years, but our SG&A shouldn't go up.

So the operating leverage in the business should be enhanced over time. And as the portfolio goes up in size, we're not going to have to manage it. That's always been one of the nice things of the company. That's still a factor, correct?

Yes. Back in January, and I'll reiterate it again, we doubled the size of the fleet, literally doubled the size of the fleet, plus add on the managed portfolio that we're undertaking for Brookfield that they bought directly, which was north of $1 billion.

And by doing that, our SG&A this year will go up roughly 10%, and that includes kind of standard inflation SG&A increase of 3% or so. So we've been able to double the size of the fleet, add to our managed portfolio significantly, and we've added roughly 50 to 60 people and maybe 5% to our SG&A total.

So yes, lots of leverage in a positive way.

I wanted to get you to say that. Last question as it relates to the deal. You said at the time of the deal that the savings that were attributable to the maintenance network, bringing that in-house, would take time, probably 1 to 2 years.

Can you just give us an update on the timeline for those savings that presumably are a little harder operationally to get and might take some time? Can you give us a little update on that, if you would, and then I'll let you guys go.

Yes. Thank you. Appreciate it. That timeline is still the same, where it would probably be a couple of years before, from a capacity standpoint, we have the room to move some of the Wells cars through our own shops.

That's really driven by the fact that our wholly owned facilities today are at full capacity with the GATX legacy fleet. The Wells fleet is a little different because it's a freight car fleet.

We can manage that very effectively through the third-party network. I also said back in January that despite the fact that we're not moving those cars in the next year or 2 into our network, we would still see benefit.

We believed we would by managing that third-party network as tightly as we manage our own. And as Tom alluded to earlier in the call, we're already seeing the benefit of that, a little more materially than we probably expected, and that's part of the uptick in the guidance.

We felt very strongly that we could bring additional focus and attention on that third-party maintenance line, and we're seeing it in a positive way.

That's all good news. So a little metrics that are bouncing around as you bring in the portfolio of cars that are disparate from the ones you own and not cars that you historically have owned, sand cars and stuff like that, that's going to cause a little more volatility in some of the KPIs or some term that people created over the last number of years that really are generally relevant to the story here.

We bought 10 years' worth of purchases in one full swoop. We control the timing at which we buy them. We control the timing at which we sell them. And 6 months into it, we have complete evidence that we bought them at a good price.

So the KPIs month-to-month, 56, 56 months versus 58 versus 42 is completely irrelevant to what we think we accomplished, correct?

Well, Scott, as you know, we tend to think in terms of decades. So any performance metric on a quarterly basis or a monthly basis is not going to give us tremendous pause.

What we are optimistic and feel very good about is that 6 months after the acquisition, the theories under which we took the investment are playing out and probably playing out a little faster and a little better than we thought.

And I don't see that changing over the next 10 years.

We have reached the end of the Q&A session. I will now turn the call back to Shari for closing remarks.

I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Have a great day. Thank you.

That concludes today's call. Thank you for attending. You may now disconnect.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the GATX 2026 First Quarter Earnings Call. [Operator Instructions]

I would now like to turn the call over to Shari Hellerman, Head of Investor Relations. Shari, please go ahead.

Thank you, Tiffany. Good morning, and thank you for joining GATX Corporation's 2026 First Quarter Earnings Conference Call. I'm joined today by Bob Lyons, President and Chief Executive Officer; Tom Ellman, Executive Vice President and Chief Financial Officer; and Paul Titterton, Executive Vice President and President of Rail North America.

As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release and those discussed in GATX' Form 10-K for 2025 and our other filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

Earlier today, GATX reported 2026 first quarter diluted earnings per share of $2.35. This compares to 2025 first quarter diluted earnings per share of $2.15.

I'll briefly address each of our business segments. After that, we'll open the call up for questions. Despite heightened macroeconomic uncertainty, our businesses delivered results in line with expectations in the first quarter. At Rail North America, demand for railcars in the existing fleet remains steady. As noted in the earnings release, starting this quarter, Rail North America metrics and statistics reflect the combined legacy fleet and the Wells Fargo fleet. At the end of the first quarter, Rail North America's fleet utilization was 98.1%. This was consistent with our expectations given the inclusion of the Wells Fargo fleet, which was at 96.5% utilization entering 2026.

Renewal activity remains strong. The renewal success rate was 79.1%, and we continue to achieve lease rate increases while extending terms. The renewal rate change of GATX's lease price index was 22.3%, and the average renewal term was 56 months.

With a little over 2/3 of the combined fleet repriced in the current favorable lease rate environment, we see meaningful runway to enhance financial performance across the remaining fleet.

We continue to successfully place new railcars from our committed supply agreement with a diverse customer base. Through the first quarter, we've placed over 8,400 railcars from our 2022 Trinity supply agreement. Our earliest available scheduled delivery under the supply agreement is in the fourth quarter of 2026. Additionally, supported by robust secondary market, we generated about $50 million in gains on asset dispositions in the quarter.

At Rail International, railcar demand in Europe remained steady despite ongoing macroeconomic pressure in the region. Fleet utilization at the end of the first quarter was 94.7%, unchanged from the prior quarter. In India, policy support and economic growth continue to drive strong demand for railcars. GATX Rail India's fleet utilization remained at 100% at quarter end.

Within engine leasing, our joint venture with Rolls-Royce and our wholly owned engine portfolio produced excellent operating results in the quarter. Lower earnings at RRPF compared to the prior year quarter were driven by the timing of remarketing activity, which, as we've discussed, can be lumpy from quarter-to-quarter. Demand for aircraft spare engines remains strong, supported by resilient global passenger air travel. So we continue to closely monitor the evolving geopolitical environment and its potential impact on air travel trends.

With that quick overview, we can open the line up for questions.

[Operator Instructions] Your first question comes from the line of Andrzej Tomczyk with Goldman Sachs.

I was just curious, starting off with the integration of Wells Fargo fleet and the recent deal. Just wanted to dig a little deeper on how integration is going there, if you're able to share any milestones or updates there? And then just a reminder on how we should think about synergies in 2026 and 2027.

Sure, Andrzej. It's Bob Lyons. I'll take that one to begin with. And first of all, the integration is going very well, probably ahead of where we anticipated we would be today. As we noted back in January, we did the cutover of all of the fleet data in one step on January 1, and that was a major undertaking, and it was very successful. We've onboarded a number of new employees, many from Wells Fargo. We're thrilled to have them here with us. And the original headcount numbers that we laid out and the expectations for that incremental SG&A are all in line.

From a customer perspective, the reaction has been very positive. Any time there's a change of this magnitude, there's always things to work through like contract structures and billing and cash distributions, et cetera. And we're addressing issues as they come up, but there's been 0 surprises. On top of that, we've added about 300 new accounts through the acquisition, new customers, bringing our total customer base well over 1,000. And many of those are companies we've done business with before in the past. So we know who they are, and they're all in industries that we know really well. So the learning curve was not very steep. By and large, the largest customers in the portfolio are names that we know very well.

And as I laid out in terms of -- back in January, the full year impact of the joint venture would be somewhere in the $0.20 to $0.30 range, and we're certainly on target for that.

Great. And as a follow-up, do you believe there will be more consolidation in the leasing space sort of over the medium-term? Or is it sort of the case that most of the major players are set in a good place at this point? And maybe just broadly how you're assessing competition in the space and how that shows up in bidding activity of late, whether that's on the buy or sell side?

Yes. I wouldn't really want to speculate on other potential transactions in the marketplace or consolidation in the marketplace. That's a bit difficult for us to predict. And given the size and scale we're at today, we're really focused on making sure we maximize the returns on our portfolio.

Competitive landscape, it's a competitive market. That's not going to change. There's a number of big full-scale lessors that we compete with on a regular basis. And then there's a far lengthier list of institutions that have fleets in the sub-100,000, sub-50,000 car range that are extremely active in the marketplace. We see them often when we compete for transactions in the secondary market, other portfolios that get offered. And they're very active buyers of GATX' assets. And we saw that in this quarter, and we expect to see it through the full year where that secondary market is incredibly robust.

Capital continues to flow into this market. A lot of people recognize the value proposition that owning railcars presents. And so we're seeing a lot of activity and a lot of interest in our secondary market offerings.

Understood. And just in terms of the overall GATX North America consolidated fleet now, where do you see that overall fleet in sort of 3 to 5 years from now, if you could share how you're thinking about adds versus selling or scrapping of the fleet over the near- to medium-term? Because I know historically, you sort of balanced out your fleet between what you add and sell over a given period. Sort of just wondering if we should think the same way going forward if it's largely flattish for the foreseeable future.

Yes. Just from normal fleet activity, I would say that's a fair assumption right now. Obviously, if we see opportunities to buy additional railcars in the secondary market or direct new cars, we'll do that. And same on the sell side. As we're always looking what's the best way to generate the most attractive return for our shareholders and optimize our portfolio. So we're always going to look at sell opportunities. But from a kind of forecasting budgeting standpoint, I'd start in the same place we do, which is kind of keeping the flat -- the fleet generally in the same car count that we're at today.

Got it. And then just one more for me on leasing. One of your peers recently indicated that they believe the market value of their fleet is 35% to 45% above its book value. I was just curious if GATX has assessed that same metric in terms of market value versus your lease fleet -- the market value of your lease fleet relative to the book. And I know you have the engine leasing as well, so maybe you possibly break those out. However you guys think about it? I was just curious if you had any thoughts there.

Yes, Andrzej, this is Tom. So what I'll tell you is, obviously, we are very active in the secondary market in both the North American rail market and the aircraft engine leasing market. And you can see from the consistent returns that we deliver, if you look over the last decade, we've averaged over $70 million a year in gain on sale of assets. So clearly, there's a lot of value there. A theoretical quantification probably doesn't provide a ton of value since we see it in a very practical way when we receive actual cash for the assets we sell.

Yes, I would just add to that, too. I mentioned previously that we -- there's a lot of capital that over the course of the last 10 or 15 years has come into the railcar leasing space. We continue to see it. And it's -- while we have to deal with that from a competitive standpoint from time to time, we understand the logic. These assets are tremendous stores of value. They generate outstanding cash flow, very high-quality cash flow over very long periods of time, and they're attractive assets to own for a lot of different types of institutions. So yes, we do think about that, and we try to optimize that when we're both buying as -- in the most disciplined manner we can and then also optimizing the fleet and taking those opportunities to sell assets to others.

Understood. And then just last for me, shifting once to engine leasing. I was just curious, are there any incremental thoughts related to the airline industry capacity impacts into your engine leasing business with Spirit now going away and also just broadly in the geopolitical and elevated commodity price environment, if that's impacting lease rates at all? And then I just think the engine leasing affiliates was down year-over-year, as you mentioned. Curious what drove that and if you expect engine leasing to the affiliates to be back to year-over-year growth here in the near-term?

Yes, Andrzej, I'll start with the back half of your question first and then come back to the front half. So income from operations in the engine leasing business was actually up year-over-year, and that was due to more engines on lease at higher lease rates. As you know, as those of you who have followed us for a while know, remarketing income in the engine leasing business can be very lumpy. And indeed, it was very lumpy in the first quarter. The remarketing income as a percent of earnings from the joint venture was less than 10% in the first quarter. Over the last couple of years, it's been about 1/3 of our total earnings. And indeed, last year, it was around 1/3. But if you looked at quarter-to-quarter variations last time, it was between about 15% on the low end and almost 70% on the high end. So it can move quite a bit quarter-to-quarter.

We expect when the year is over, it will be generally consistent with what we've seen historically. So the first quarter, the driver of what was a little bit lower quarter than we've seen in the last couple was less remarketing income. But I want to be very clear that, that is unrelated to what's going on in the world right now. It's still a very strong market for remarketing of that asset class. And we just expect that, that first quarter is normal variation in what is historically very lumpy.

As far as the first part of your question, as I mentioned through the first quarter, the business performed very well, continue to be strong supply-demand dynamics in the industry, a lot of demand for our engines, and we expect that to continue going forward. Having said that, obviously, there's a lot going on in the world right now, and we'll continue to watch and monitor the situation.

Yes. If you look at the income contribution from RRPF from the joint venture over the course of the last many years and try to identify a pattern quarter-to-quarter in earnings, you would find there is no pattern. It can move pretty dramatically each quarter. At the beginning of the year, I said we expected segment profit in engine leasing to be in the $180 million to $185 million range, which was up from 2025, and we still expect that.

Your next question comes from the line of Ben Mohr with Citigroup.

Congrats on the beat. I wanted to ask for some clarification on your NCI that looks like it's additive. It was subtracting the net loss. Presumably, this is the amount left out going to Brookfield. And so I just wanted to see whether that should reverse to be a subtraction from net income in future quarters.

Yes. Ben, there's kind of 2 parts to that question that I want to add. First of all, if you go back to the guidance that Bob provided, it was the total impact of the Wells Fargo rail transaction. So in addition to what's going on in the joint venture itself, you need to look at the management fees that are earned and the incremental SG&A that GATX takes on. When you take those items into consideration, the first quarter was a net positive, all of those combined.

And importantly, going on to the second part that I want to hit, that was with very low asset disposition gains from the joint venture. Bob mentioned at the beginning of the year that we expected those gains to be about $70 million over the course of the year. In the first quarter, it was about $2 million. And that was expected. We expected that we would not do a lot of asset sales in the very first quarter as we focused on integration, but we continue to expect to do that over the course of the year. So again, reiterating total impact in the quarter was positive, and it should be more positive going forward as we do some of those asset sales.

Appreciate that. And very good print on the LPI, in my opinion, the 22.3% relative to your full year guide of high-teens to 20%. We were coming in, in the -- around the 20% for the quarter. So that's a nice beat. Would you say this is indicative of more sustained strength and catch-up renewal rate gains to be expected over the next couple of years? Or is this somewhat high based on lumpiness just for this quarter?

So Ben, this is Paul speaking. I'll take that. And let me just, I think, start with the broad statement that the North American rail market continues to be supportive of solid performance in our business. The same supply-demand dynamics that we've talked about for a number of quarters now continue to persist, which is to say that we're not seeing a lot of new cars enter the market. High scrap prices are causing a lot of older cars to exit the market, and that is causing net fleet shrinkage across the North American rail fleet. And of course, that's very favorable for us in terms of maintaining utilization and maintaining pricing. So overall, we've said for a while, the environment is supportive. We continue to see that supportive environment. We don't talk about specific guidance beyond the current year. What I'll say is, we feel very comfortable with the LPI guidance we provided for the year -- for the full year. And again, we continue to see broadly supportive conditions for our business.

Great. And next slide, I'd like to ask about your renewal success rate that's now in the high-70s from the mid-80s average from last year. You noted 4Q was a step-up just based on sort of intra-quarter lumpiness, if you will. So I would love to hear from you whether this high-70s could indicate some impact from the Iran conflict? Or is it just a step down in the quarter, we should expect it to come back to the mid-80s average going forward?

Ben, I'll start. It's Bob, and then Paul will add to that. But coming into the year, back in January, when we gave guidance on the LPI and a host of other metrics, we also provided one for the renewal success rate. And at that point, I said it would, in all likelihood, be in the high-70s to low-80s. That was our expectation coming into the year. The 91% or so, whatever that we achieved in the fourth quarter in my 30 years at GATX, I've never seen one with a 9 in front of it. Around 80% is pretty typical if you took a very long-term average. And so that's what we guided to, and that's where we came in for the quarter.

And Paul can add any additional color he'd like.

Yes, sure. I mean you asked about any impact of the Iran conflict. And what I'll say is, while certainly our customers express concern, we all express concern. Overall, we're not seeing really any significant deterioration, broadly speaking, in market conditions for leased railcars across North America. So certainly, again, everyone is concerned. But if you look at the first quarter, I wouldn't say we've seen significant impacts in the business so far, broadly speaking.

Okay. Great. And then next, I'd like to ask about sort of the higher-than-expected stepdown in your ending balance of combined North America railcars. It looks like the 98,535, added would be the Wells, which is a somewhat dramatic step down from the 100,000 that we started with and also higher scrapping and higher sold in this quarter. So just wanted to ask about puts and takes there. Why was it that the add is 98,000 versus 100,000.

Thanks, Ben, for the question. This is Paul speaking again. I think you've got to also include the boxcar fleet, which we report on separately from the overall fleet, which is just under 110,000 cars at the end of the quarter. So I think that's a part of it. Broadly speaking, what I'll say is additions and subtractions from the fleet in the first quarter were more or less as expected. And so we really, I would say, that's kind of the answer to most of the questions on this call, which is that things have gone more or less as expected since the acquisition of the Wells Fargo fleet.

Sorry, Ben, I would just say if you took the 98,000 on the fleet and the non-boxcar fleet and then roughly another 3,000 plus on the boxcar side, that gets you to the 101,000 that we talked about back in January when the transaction closed.

Great. Appreciate that. One last one for me. A pretty remarkable step down in North America maintenance expense. It looks like that's at 27.6% of revenue we were at 31%, sort of assuming the qualification test would keep it more elevated. How should we think about that going forward that the maintenance expense level as a percentage of revenue should revert back up to sort of the 30% range from last quarter? Or have you taken additional steps and this is sort of we're seeing more synergy -- cost synergy realization in play?

So Ben, this is Paul speaking. I'll start. And basically speaking, in any given quarter, there can be noise in maintenance. And so for us, what I would say is, we are standing by the full year guidance we gave for maintenance. I wouldn't read too much into the performance specifically in the first quarter. So I would say we're sticking to the overall full year guide on maintenance.

And that guide then was in the range of $500 million. So if you annualize the first quarter, you'd come out a little less than that, more in the $485 million range. But as Paul mentioned, things can move around a little bit from quarter-to-quarter. But for the full year, we still expect to be right in the range we previously guided to.

Your next question comes from the line of Harrison Bauer with Susquehanna.

Maybe starting off just a follow-up on the LPI. I just want to confirm that, that is on the entire North American fleet and not just the legacy fleet. And then building off of that, could you walk through any differences that you're seeing in repricing on your legacy versus the Wells fleet as it relates to bringing up the profitability of a lot of that newer fleet that you've brought on?

Yes. So the LPI for Q1 does not include any material impact from the acquired Wells Fargo fleet. So going forward, obviously, over time, the more and more of that -- the Wells Fargo fleet will be included in the LPI. But even with that in consideration, the full year guidance we provided of high-teens to low-20s remains the guidance we're providing.

Okay. That's helpful. And then maybe just taking a step back longer term, Paul, at the recent REF conference, you've outlined a fairly credible case of railcar production potentially being lower for longer for at least the medium plus term. I'm curious, as you already have an avenue to grow your fleet through owning more of the Wells portion of this JV going forward, can you update your views on maybe your long-term supply agreement with some of the railcar manufacturers? Do you expect a difference in maybe your buying new versus used? And then just general updates or thoughts on how you expect to replenish your fleet over time?

Sure. So what I'll say broadly speaking is nothing about the Wells Fargo acquisition has changed our long-term view of supply, which is we're going to continue to buy railcars in a variety of different ways. We'll have our programmatic multiyear supply agreements. We'll buy in the spot market, and we'll buy in the secondary market. And so that broad diverse approach to procurement is going to continue to be the case. Obviously, we're not going to comment on any specific procurement efforts, but we would certainly expect that going forward, those same 3 prongs will apply. And of course, you're aware that we're in the midst of a current long-term supply agreement, which we'll continue to perform on. And then eventually, we'll replace that with subsequent supply agreement when that runs out. So really nothing has changed in terms of our overall fleet procurement strategy.

Understood. And sort of building off maybe secondary market discussion, can you -- gains came in fairly strong in the quarter, sort of in line with expectations. You mentioned that the Wells fleet wasn't a large contributor to that. Can you give any sense of maybe your assessment of the secondary market, if there's -- maybe the quantity versus the pricing or maybe the gains per railcar, how we should be expecting that going forward? Do you think that a lot of the secondary market has been traded through at elevated asset prices and therefore, might be a bit headwind to gains as you look out to 2027?

Yes, Harrison, I'll start quick just to reiterate what the guidance was coming in the year on gains on dispositions, which was in the range of $200 million and that we still expect that to be the case. And as we said at the beginning of the year, we expected that to be split about $130 million on the GATX wholly owned side and then about $70 million from the joint venture. And as Tom mentioned, we really only got -- we really haven't started that sale process out of the -- for assets out of the joint venture that will come in the latter -- these 3 quarters of the year. And we still believe we'll be right in that $70 million range.

And I'll let Paul comment on just the overall activity in the secondary market.

Yes. The overall activity remains very robust. Certainly, it's not an original statement on my part to say that there's a lot of capital that wants to invest in railcars, Bob alluded to that earlier. That continues to be the case. And what's interesting right now because we're in such a muted new railcar environment, really the only place that capital can flow is into the secondary market. So for us as a seller, that's a very nice position in which to find ourselves. And we do see a very eager universe of buyers out there that we're interested in transacting with.

You asked about gain a car and that sort of thing. And what I'll really say to that is, we are opportunistic sellers in the sense that we're going to go where the relative value is most attractive to us, and that could be older cars or newer cars. It could be more expensive cars or less expensive cars. So there's really no particular metric I could give you in terms of the specific metrics like that. We're going to seek the highest economic value as we sell, and we've been very good at that, but that means that what we sell and to whom we sell will be pretty eclectic depending on where the opportunities are.

Yes. And as we talked about back in January, the last time we hosted a conference call, now with 2x the fleet that we had previously, we have a lot more options and a lot more ways to go to market to meet that demand from those secondary market buyers. So we're in a very good spot.

Your next question comes from the line of Brendan McCarthy with Sidoti.

Just 2 quick questions from me. I know you mentioned the lease economics continue to support a nice positive LPI for you, right in line with expectations. I did notice the average renewal term has kind of stepped down sequentially a little bit quarter-over-quarter. Are there -- can you discuss general lease renewal conversations, how those have evolved in the past quarter? And are you making any concessions on lease term or price or anything?

Yes. This is Paul. I'll start. That is, I would say, largely noise at this point. Every renewal conversation is different. And so we're certainly not seeing any kind of a significantly negative trend in terms of the achievable lease term that's out there. So I wouldn't read too much into that. Some of it may be, and I say may be related to the fact we have a different fleet mix right now, having added the Wells Fargo fleet. And so one of the things is just in different car type markets, sometimes the market term may be different. So some of this may just be mix. And if I sound like I'm speculating, I am because, of course, we're just in the beginning of digesting this fleet. But broadly speaking, I would say we feel pretty confident that there is, for the most part, what you're looking at is noise.

Got it. That makes sense. That's helpful. And then looking out at guidance, you affirmed 2026 full year guidance EPS. Now that we're 1 quarter through the year, a little bit through Q2, what at this point would cause EPS to come in at the lower end of that range versus the higher end?

Yes. So purely in terms of what drives near-term variability, the biggest one is remarketing, either in Rail North America or at the Rolls-Royce joint venture. But having said that, as we've noted several times, both those markets are very strong. It's just the size of it. And really what it comes down to when there's variability is almost always timing. You can't always predict exactly what quarter things will close.

We also mentioned last quarter that Rail North America has a big maintenance spend. And Bob reiterated today that we thought it'd be close to $500 million. So even a relatively small change there can be impactful and can show up. Importantly, I would also say we're assuming no material disruption to the global economy in general or the global aviation market in particular, and in particular, there to the wide-body long-haul routes. To date, we haven't seen material impacts, but we'll continue to closely monitor the situation in the world and in the Middle East.

Your next question comes from the line of Justin Bergner with Gabelli Funds.

It's a pity that Bloomberg misstated or perhaps overstated consensus expectations for the quarter, but it looks like a good start to the year regardless. Just wanted to kick off my questions regarding guidance and the components therein. Has anything changed? Was Rail International stronger than you expected? Or was that just a function of kind of a light first quarter comp in 2025?

Yes, Justin, it's Bob. Thank you for the question, and thank you for the opening comment. We appreciate that and recognize that as well. So as far as kind of the overall mix of the elements that drive the full year guidance, the first quarter was very much in line with what we expected as we kind of click through every single key element that drives that guidance. And we look through where we were at in the first quarter, whether it's lease revenue, whether it's gains on disposition or growth maintenance, segment profit at Rail International, everything kind of fell very close to in line. So I would say at this point, not a lot of variance from what we expected, and the quarter played out very much the way we expected.

And I'll turn it to Tom if he has anything he wants to add.

Well, Bob did a great job. I think -- and Paul said it earlier in the call that this recurring theme of things laying out according to our expectations. That's really the key statement is, again, if you went back and pulled up Bob's opening comments from last quarter and kind of tick through things like you said, you'd see that we're very much on line.

Okay. Great. That's helpful. You mentioned maintenance moves can change financial performance. Are you seeing any pressures on maintenance, I guess, beyond what you may have thought coming into the year from inflationary forces?

Justin, it's Paul. The short answer is no. By and large, as I said, there's noise in the first quarter as there often is. But from a maintenance standpoint, again, more or less, it's a boring answer at this point, but the year is playing out about as expected, and we continue to be able to support our existing guidance for that reason.

Okay. That's helpful. And then lastly, if I focus on the Wells JV kind of excluding the maintenance agreement, and I look at that noncontrolling interest line, what will cause that to become I guess, shall I say, not a source of income, but a source of expected cost as the year progresses besides higher gains on sale? Like what else would cause that negative $6.4 million to become closer to breakeven and potentially positive?

Yes, Justin, so I want to be sure I follow you directionally what you're getting at there. So the NCI number indicated a loss for the first quarter. And the key reason for that, as noted earlier, was relatively de minimis amounts of asset disposition gains. That really is the key item and stealing from the theme we keep going back to, if you look at what revenue was for the JV compared to what we expected it to be, very similar. The expense line, very similar. And that's not surprising because just like the GATX legacy fleet, most of the railcars in the fleet in a given quarter, nothing happens to. They don't renew, they don't expire. And similarly, the maintenance expectation for a large number of cars is fairly straightforward. So there's -- those things are the items that you could look for to change, but much like the general question on what could drive overall change. The biggest one would be if that $70 million didn't happen.

And then there's -- as you look for other potential sources, there's a lot -- there's a big gap between the impact of what those might be and that very first one of asset disposition gains.

That concludes our question-and-answer session. I will now turn the call back over to Shari Hellerman for closing remarks.

I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Have a great day. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the GATX 2025 Fourth Quarter Earnings Call. [Operator Instructions]

I would now like to turn the call over to Shari Hellerman, Head of Investor Relations at GATX. Please go ahead.

Thanks, Jordan. Good morning, everyone, and thank you for joining GATX's fourth quarter and full year 2025 earnings conference call. Joining me today are Bob Lyons, President and Chief Executive Officer; Tom Ellman, Executive Vice President and Chief Financial Officer; and Paul Titterton, Executive Vice President and President of Rail North America.

As a reminder, some of the information you'll hear through our discussion today includes forward-looking statements. Actual results or trends may differ materially from those statements or forecasts. For more information, please refer to the risk factors in our earnings release GATX's 2024 Form 10-K and our other filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

I'll start with a brief overview of our fourth quarter and full year 2025 results, then I'll turn the call over to Bob for additional commentary on 2025 and our outlook for 2026. After that, we'll open the call up for questions.

Earlier today, GATX reported fourth quarter 2025 net income of $97 million or $2.66 per diluted share, this compares with fourth quarter 2024 net income of $76.5 million or $2.10 per diluted share. Results for both periods include net positive impact from tax adjustments and other items of $0.22 per diluted share in 2025 and $0.17 per diluted share in 2024. For the full year 2025, GATX reported net income of $333.3 million or $9.12 per diluted share, this compares with net income of $284.2 million or $7.78 per diluted share in 2024. Full year results for both 2025 and 2024 include impact from tax adjustments and other items. A net positive impact of $0.37 per diluted share in 2025 and a net negative impact of $0.11 per diluted share in 2024. Additional details can be found in our earnings release.

And with that quick overview, I will now turn the call over to Bob.

Thank you, Shari, and thank you all for joining the call today. I'll open with some brief comments on 2025 performance versus the outlook we had coming into the year, and then talk a little bit about 2026 and what we see on the horizon. For those of you that participate in our calls regularly, we're usually very brief at the opening. But today, I'm going to take a little bit more time as I did last year at this time to talk through our outlook for the year ahead and recap a little bit about the past year.

First of all, I want to thank all the employees of GATX around the world for their outstanding efforts and contributions this past year, especially those who were central to the Wells Fargo Rail acquisition and the integration efforts, which are ongoing. We asked a lot from people, and they delivered across the board. And they did so because everyone sees the long-term benefit of this transaction.

Regarding 2025 results, we came into the year expecting EPS growth in the 8% range over 2024. And as reported this morning, our EPS actually increased 11% over 2024. Importantly, we achieved this strong EPS growth while posting another year of ROE above 12%. And I think this is important to point out because we continue to maintain a very conservatively structured balance sheet with leverage steady at [ 3.301 ]. On top of the positive EPS and ROE metrics, we continue to find investment opportunities. We put $1.3 billion of capital to work in what we believe will be attractive earnings growth and return opportunities for our shareholders.

Given the magnitude of the Wells Fargo Rail acquisition, it'd be easy just to jump past 2025 and focus on this opportunity, which we'll do. But I don't want to lose sight of how our business is delivered in 2025. So allow me a few minutes to recap some of the highlights. At Rail North America, we maintained utilization at 99%, we closed on over $640 million of new investments. We continue to invest in our own maintenance network, and we stayed focused on safety and customer service. Additionally, the secondary market was very robust and demand for GATX leased assets was strong. We capitalized on that by optimizing our portfolio and generating substantial remarketing income.

Within Rail International, coming into the year, we were hopeful that the economic environment would improve as the year progressed, but it did not. Despite these challenges, the team at GATX Rail Europe did an outstanding job by raising lease rates on many car types and holding utilization at solid levels. And on top of that, we closed a very large and important transaction, acquiring nearly 6,000 railcars from DD cargo. In India, the economic environment was very strong, and our results showed it as the GATX India team grew the portfolio to over 12,000 wagons.

Demand for spare aircraft engines was very robust in 2025, and we grew our asset base on earnings at both the joint venture and wholly owned levels. In fact, the earnings growth within engine leasing was the strongest among the various GATX businesses in 2025. We saw solid lease rate increases and substantial engine sale opportunities. Overall, I was very pleased with the operating performance across our businesses last year. And we've set the stage for a very solid year in 2026, one that will have a number of new and unique elements as we integrate the Wells Fargo rail portfolio and management activities into our daily operations.

So let's talk about 2026, and I'll start right there with the acquisition. There are 3 elements of the transaction that I'd like to recap. And for some, this will be a repeat but I think it's important because it helps set the stage for additional discussion. First, GATX and Brookfield formed a new joint venture that acquired 101,000 railcars from Wells Fargo Rail constituting all of their railcar operating leased assets. GATX owns 30% of the JV, Brookfield owns 70%, and we have the option to buy down Brookfield's interest over time. Second, Brookfield acquired approximately 22,000 railcars directly from Wells Fargo, those being under finance leases. And third, GATX will manage all the railcars involved in both transactions.

So I'll walk through each segment and our outlook for 2026, starting with Rail North America and some housekeeping matters to keep in mind. As we've previously discussed, GATX will consolidate 100% of the newly formed JV into our financial statements and show Rail North America as a single segment with consolidated operating metrics. U.S. GAAP requires consolidated financial reporting because we're the controlling partner from day 1. Among other things, that means that each line item of the income statement and balance sheet will include 100% of the combined balance of the legacy GATX business and the JV with any intercompany activity eliminated. Brookfield's share of the JV earnings will be recognized in a single line item on the income statement, net income attributable to noncontrolling interest. That will be deducted from net income to arrive at the net income attributable to GATX.

Now I know that's a mouthful and probably a little difficult to follow, but it will be much easier in Q1 and beyond when we have actual results to go along with the nomenclature. Reporting requirements aside, we have an obligation to our partner to treat all of the JV railcars exactly as we treat our legacy portfolio. In other words, we cannot and will not discriminate in any way. The GATX portfolio of 107,000 railcars and the acquired portfolio of 101,000 is now one fleet, 208,000 railcars fully under the control of GATX. And that's how we're going to manage the business. For example, if a customer has 500 cars renewing, some are with GATX, legacy fleet and some at the JV, honestly, they're indifferent as to who the owner is. All they want is 1 point of commercial contact, 1 renewal discussion, 1 maintenance plan, 1 fleet plan, et cetera, and that's what we're going to deliver.

On a macro level, we expect a similar operating environment in North America as we experienced in 2025. Looking at a few of the key commercial metrics for our consolidated Rail North American fleet, this is the full 208,000 cars. For the LPI, we expect to be in the high teens to low 20% positive following the 21.9% posted in Q4. This reflects the continuation of a very solid existing car market. The Wells Fargo fleet was running at approximately 97% utilization at closing. And factoring that starting point in, we expect utilization for the consolidated fleet to be 98% to 99% by year-end. And we expect our renewal success rate to be in the high 70s to low 80% range. Again, a really, really strong outcome. With those metrics in mind, I'll walk through our expectations for some key line items at Rail North America and noting that the vast majority of the variances versus '25 for those revenue and expense items that I'm going to talk about are due to the addition of the Wells Fargo rail fleet.

Looking first at revenue. In 2026, we expect Rail North America lease revenue to be in the range of $1.6 billion or approximately $550 million over 2025. As indicated by the LPI, we continue to benefit from opportunities to reprice leases into a strong existing car market. We also have other revenue, which is largely related to repair revenue. We expect that to be in the range of $160 million, up $25 million versus last year. As for asset sales and scrapping, which drive our net gain on asset dispositions, a very robust secondary market we experienced in 2025 shows all signs of continuing. In fact, given our increased scale, we're having a number of positive conversations with a range of secondary market participants about what GATX will put into the marketplace in the year ahead.

So in 2026, we expect approximately $200 million of net gains on asset dispositions versus $130 million last year. That's a material increase. But keep in mind that we now have a pool of cars to select from in terms of sale candidates, that's twice the size of our historical fleet. And we're going to continue utilizing the strong demand to optimize and rebalance the entire portfolio. Of course, along with all the benefits of an increased fleet size, we have ownership costs and maintenance costs associated with the new additions. Interest expense is expected to be in the range of $440 million in 2026, that's a $180 million increase over '25. Depreciation should be in the range of $520 million, a $230 million increase. And regarding maintenance expense, we expect to be in the range of $500 million in 2026, a $150 million increase over '25. And all of those increases are largely driven by the new fleet.

The last item to note is other operating expense, the bulk of which relates to items like car taxes, mileage charges, freight charges, et cetera, as we move cars around North America. And thankfully, we have a lot more cars to move around today. So we expect these expenses to be in the range of $85 million in the year ahead, about $25 million over last year. Bringing all this together, we expect segment profit at North America rail to be in the range of $415 million in 2026, that's a $55 million to $65 million increase over last year.

At Rail International, in Europe, the economic environment, we expect will remain challenging. However, the GATX Rail Europe team has done an excellent job investing in building the business, and we're going to see profit growth there. The same in India, although there we have the benefit of a very strong economic tailwind. Taken together, we expect Rail International segment profit to increase by $5 million to $10 million in 2026. At GATX engine leasing, the market environment remains quite favorable. Not only is global air travel strong, but the long-term trends in this market are positive.

In addition to base demand for new engines, you have the fact that the lead time to acquire a newly built engine or complete repairs on existing engines is extended. That's a continuation of a global supply chain constraints, but also a reflection of the fact that there's limited capacity to build or repair these very complex assets. That means the installed base of these assets is more valuable. We see that same trait in rail. In 2025, our RRPF 50% owned joint venture, invested over $1.4 billion, bringing its total asset base to over $5.7 billion. GATX has grown its directly owned engine portfolio to over $1 billion. Given our outlook for the engine investments, we expect Engine Leasing segment profit to increase by $15 million to $20 million in 2026 and this is after increasing almost $50 million between '24 and '25.

On SG&A, we continue to work hard to hold the line on costs. And for 2026, we came in at '24 -- for 2025, we came in at $246 million. We expect this to be in the range of $275 million in 2026. The majority of the increase is related to staff we've added for the acquisition. To put this in perspective and to highlight the scalability of our business, we added over 100,000 owned railcars and 22,000 managed railcars to our franchise, more than doubling the size of our owned and managed fleet while seeing an increase in SG&A of just over 10%. And that includes the standard cost and wage inflation we'd see in a normal year.

Putting all these factors together, we expect EPS to be in the range of $9.50 to $10.10 per diluted share in 2026, which would mark another year of record EPS. Importantly, this is roughly a 10% increase in EPS in a year in which we'll complete and integrate the largest acquisition in our history. For those who enjoy the vagaries of lease accounting, you know that acquiring one railcar is often dilutive in the early years of ownership from a GAAP income standpoint. Adding over 100,000 cars is 100,000x more challenging on that front. Yet, given the scalability of our platform, the management services we're providing and the fact that we acquired the assets at an attractive valuation, we still expect to generate strong EPS growth in the year ahead.

So I'd like to provide a quick update on the acquisition integration process because we're getting -- we have received a number of very good investor questions on this point. I'm pleased to report that the closing and the integration to date are progressing very well. As noted, we closed on January 1. And on that day, we did an IT cutover that entailed hundreds of thousands of data points, car files, contract records, mechanical records, customer data and myriad other supporting documents. The cutover went very well and I'd like to take a second just to thank the Wells Fargo Rail team for all of their work in assisting with that effort.

From a commercial perspective, our sales team hit the ground running. While we added some new customers through the acquisition, by and large, the biggest accounts are existing customers of GATX that we know very well. So all the customer interaction right now is under one umbrella. And with an expanded fleet, we will have more customer interaction than we've ever had before, and we believe we can bring additional value to our customers.

On maintenance, historical maintenance spend on the acquired fleet was in the range of $135 million annually. As a bank, Wells Fargo was not allowed to own its own shops, and therefore, it utilized third-party shops for 100% of this spend. As we've indicated before, given that the GATX shops are currently at full capacity, we'll continue to utilize those third-party shops for maintenance of the acquired fleet. Over time, based on investments we're making in our shops and efficiency improvements, we will have an opportunity to move some of this work in-house. That does not mean that we can't add value immediately in the maintenance process.

For example, previously, there were close to 80 shops providing service on the Wells Fargo fleet. In just 7 weeks of ownership, we've already paired this down materially and we'll keep doing so as we transfer work to our preferred third-party providers. In the process, we will find cost efficiencies. Just one example of how our team is integrating the fleet, applying their experience and expertise and bringing additional value for our customers and our shareholders.

So I'll close with comments on the dividend and the share repurchase, authorization that was announced today. Our Board has approved an increase in the quarterly dividend of 8.2%, and this follows several years of increases in the 5% range. The stepped-up percentage increase versus prior years reflects the Board's confidence and the strength and quality of our cash flow, the increased scale and strength of our global businesses and the positive outlook for GATX. So I appreciate the Board's confidence. And as always, we appreciate the support of our shareholders who have been with us for years and in several cases decades. The Board also approved a new $300 million share repurchase authorization as we exhausted the prior one, which was granted in 2019 in the fourth quarter.

We view stock repurchase as a tool to use periodically to return capital to shareholders. Our capital allocation has been consistent and clear. We believe our first mission is to acquire hard assets at attractive valuations to grow our business. Second, we'll do that while always managing our balance sheet and leverage prudently. And third, we'll return excess capital to shareholders, either through the dividend or share repurchase. Again, I want to thank the Board for their support in providing the authorization. So thank you for your patience. This was a much longer preamble than normal, but I hope you found it helpful as we are trying to provide some background and foundation as we look at the year ahead.

This is a very exciting time at GATX. A year of transition as we fully integrate the acquired fleet and bring all the assets fully under our commercial and operational control. And we have the foundation in place to execute on this while also pursuing and maximizing growth and return opportunities in all of our global businesses.

With that, let's go to Q&A.

[Operator Instructions] Your first question comes from Andrzej Tomczyk from Goldman Sachs.

Wanted to start off on the guidance for EPS. First, are you just able to frame up the magnitude of gains on sales factored into the low versus the high end? And then maybe just a question on if supply-demand tightens further for railcars through 2026, given below replacement delivery. Is that a scenario where you could see upside to your gains target through the year?

Yes. So maybe I'll start on the first part and then let Paul chime in on the second. So as Bob stated, we're targeting something in the range of $200 million for gains on sales. As you know, those tend to be pretty lumpy quarter-to-quarter. But if you look over the past few years on how the year has actually played out compared to what our original expectations were, that gives you a pretty good guidance to what magnitude the range might be. So something on the order of $10 million, $15 million either way is something that we've seen historically. But that's no guarantee for the future. It's really hard to say exactly how that will play out.

And then I'll just add to that. This is Paul speaking. We've talked about some of the benefits of the fact that new car production is down to levels that we have not seen in quite some time. And what I'll say is there remains a tremendous amount of capital that would like to be deployed in the railcar market, and we believe that capital and we're seeing evidence that, that capital is going to flow into the secondary market as it looks for investments. So if you're in a situation like we are where you're the largest owner of railcars in North America, that should be a very supportive environment to generate the secondary market gains.

Understood. And maybe just one follow-up there. Apart from the gains, what areas of the business could you see sort of more variability around the results in 2026 relative to the guidance you laid out between North America, international and engine leasing and then just maybe what's driving the variability across those segments?

Yes, Andrzej. So you definitely pointed out the biggest one in the way you teed up the original question, purely in terms of financial results, variance and projected remarketing gains, both at Rail North America and in our engine leasing business are the biggest source of upside or downside. And as I noted, that's particularly true because it can be difficult to precisely predict the timing of these asset sales.

But our guidance also assumes that we're able to manage the Rail North America maintenance spend, whether owned or third-party shops very tightly. As Bob mentioned in his opening comments, gross maintenance spend is projected to be approximately $500 million. So even a small percentage change in this line item could be impactful. We also assume no material disruption in the global economy in general or to the global aviation market in particular. Again, we highlighted the strength that we've seen in engine leasing, but it is a market that is subject to periodic disruption.

Makes sense. And just maybe following on the synergies from earlier. I was curious if you could give some more detail on synergies in total and maybe how we think about capturing the synergies through year 1. And then when you said previously year 2 would be more than modestly accretive. Are you able to put a frame around that if it's mid-single or high single-digit type accretion or even double digits depending on sort of what avenues you take with the business. Any framing there would be helpful. Appreciate it.

Yes, Andrzej, it's Bob. I'll start out, and Tom may jump in, but we gave the guidance in the press release of the $0.20 to $0.30 from the impact of the transactions that's early-stage synergies and benefits. It also is reflective of the fact that, as I mentioned in my opening comments, operating lease accounting is not a new acquirers friend, whether it's 1 car or 100 cars or 100,000 cars operating lease accounting can be dilutive in the early days. So we're overcoming that through some of the synergies we're realizing through the management fees that we're receiving and through some of the other benefits of the transaction.

Beyond 2026, I think I'd like to hold off on speculating what that may be. But as the year progresses, we'll be very clear with you as to how the integration and the benefits are coming along and what those will mean longer term.

So just putting a couple of numbers to some of the synergies and the discussion of SG&A that we talked about. So we earn 2 different types of management fees. As Bob noted, we're managing the long-term lease portfolio that Brookfield wholly owns, and for that, we expect management fees of approximately $11 million a year. We also manage the JV that we are a 30% owner of, and for that, we expect management fees on the order of $44 million per year. So combined, it's a little over $50 million.

Now keep in mind, the JV portion of those is 30% owned by GATX. So you need to think of that as the 70% that we don't own. But if you compare that to the $30 million of incremental SG&A that Bob talked about, most but not all of which is related to the increased asset size, give you some idea. As far as long term, as Bob mentioned, we've historically always given 1 year of guidance. We're going to continue to adhere to that. Bob mentioned in his comments, a couple of different things related to maintenance that where we could see some things. The only other qualitative point I would make is as we introduced our cyclically-aware management philosophy to the Wells Fargo portfolio, you should continue -- you should see some benefits there as well.

Yes. I'd just add to that, Andrzej. From the standpoint of the guidance we gave today, outside of the numbers Tom just hit on and the guidance we put in the press release. We're not factoring in any significant incremental synergies beyond that. Now we believe they're there long term, but we haven't really factored that into the 2026 guidance because it will take some time to realize those in 2027, we'll address that as we get into that year.

Understood. Appreciate all the color there. Maybe just shifting gears a little bit to engine leasing. It sounds that's been a strong segment for you guys through the year. It sounds like Airbus just announced lower delivery expectations for the year with bottlenecks being seen around aircraft engine availability. So I was just wondering if you could talk to how this is playing out on your aircraft spare engine leasing business. And maybe if you could share sort of what you expect through 2026 from affiliates. Appreciate it.

Yes. So what I'll tell you is, in general, the global aviation market and aircraft engine leasing, in particular, remains very strong. Certainly contributing to that is the supply constraints, both on the engine production side and on the maintenance backlog. So all of that is quite helpful. As far as the total magnitude that we'll see in engine leasing, it's exactly what Bob hit in his opening comments in terms of the total dollar amount that we'll see.

So total segment profit kind of forecast whether from JV or 100% owned assets is in the $180 million range, segment profit wise, up over $165 million or so in 2025. So a very significant meaningful contributor. And again, you hit on it. There is supply chain issues, whether it's on new engines or whether it's on engines that are in MRO facilities, waiting on repairs. These are complex assets, not everybody can do the work. Nobody -- you can't really scale up quickly to do that kind of work. So the lead times are long. That raises the value of the existing portfolio, and it gives you more lease rate leverage as well.

Your next question comes from the line of Ben Mohr from Citi.

I wanted to start off by asking about whether you're seeing any potential railcar shortages in any particular car types, if you're seeing any of that in any places in interacting with investors, there's thought that it could be starting to happen here and there due to the scrapping and age of fleet would be curious to hear your thoughts on what you're seeing?

Yes. Thanks, Ben. This is Paul. I'll take that. So we continue to stand by the thesis we've been advancing for a few years now, which is that we are in a market that is what we're calling supply led, which is to say that there are fewer new cars being produced, and thanks to supportive scrap rates, we are seeing cars leave the fleet. And as a result, we're seeing net fleet shrinkage in the North American fleet. And again, that's a positive when you're the largest owner of railcars in North America because those conditions should be supportive of stable utilization and stable pricing environment. So certainly, those are favorable dynamics for our business. In terms of outright shortages, I would say no, we're not seeing outright shortages, but we certainly continue to see a stable and supportive market in most of the car types in which we invest.

My next question then is on the sort of -- at least from what we view as greater than expected step down in your LPI to the 21.9%, that's kind of towards the lower end of the low to mid-20s expectation and a step down from your 3Q is 22.8%. I wanted to hear your thoughts. Could that be indicative of lower renewal rate gains catching up from the shell bus in COVID to be expected over the next 2 years? Or could it maybe just be a blip this quarter and step back up? And then kind of mudding that with your Brookfield JV would just love to hear kind of how you account for all of these.

Yes, Ben, it's Bob. I'll start. Paul may jump in. But from an LPI standpoint, I would say actually in 2026, something in the high teens, 20% range is very positive, especially given kind of the renewal -- the trend in the number of cars renewed and the expiring rate over time. I would take 20% LPI every year to Infinity, if I could. That's a really, really positive outcome for us. And it is on the combined fleet, so that's a good thing and a good metric to provide. There are some economically sensitive car types, as we referenced in the press release, where we're seeing a little bit more challenge in terms of the lease rate environment.

And I'll let Paul comment on that.

Yes, sure. So as Bob said, there are certain segments of the fleet. Unfortunately, for us, these are the distinct minority of our overall fleet, but certain segments of the fleet box cars would be a great example where those are more sensitive to some of the macroeconomic uncertainty we're seeing. And so there, there is a little bit of downward pressure, and I think we're watching that in those and certain other car types. But having said that, the core franchise for GATX, which is what I call the heavy haul bulk franchise and specifically tank cars and specialty covered hoppers that we continue to see very supportive, stable pricing utilization. Those dynamics remain, I would say, favorable, and we expect them to continue to be favorable.

Great. And maybe kind of related to that, the step-up in your renewal success rate into the low 90s from the mid- to high 80s, that's been kind of for some time now, that seems to be of note. Could that help offset a gradual decline in LPI. And just wanted to get your thoughts on that.

Yes. I would view the low 90s as a bit of an anomaly based on certain renewals that we concluded in the fourth quarter that's -- I can't recall being north of 90% on a quarterly basis before. So being anywhere in the high 70s, 80% range is commercially what we expect and consistent with history. I'd say the key on that renewal success rate number is, if you're in that high 70%, 80% range, et cetera, those are cars that are staying with existing customers, those are cars that are not then going to customer B and winning through the shop. So there is a benefit there in terms of us not having to handle those cars upon return. So anything up in that high 70s, 80% range is really good.

Great. And I know that you've been continuing to do your railcar qualification tests. And so we've been expecting maybe a higher maintenance expense. And it seems like it stepped down quite nicely this past quarter. Is this step down more temporary kind of a blip and we can see it step back up or how would you guide on kind of cadence that you did give kind of the full year, but the cadence throughout '26?

From quarter-to-quarter, a lot of it is, frankly, noise. So I think you really -- when you think about the compliance calendar, it's really an annual calendar. 2026 will be another fairly busy compliance year for us, and we're anticipating though, after that, that our compliance calendar will moderate somewhat.

Great. And then maybe just if I can squeeze in one last one. Your due diligence on the Wells portfolio is that completely done? Or what actually not that you've already acquired it? That's a new point. So let me just scratch that.

No, that's fine, Ben. And just to add on to that question, I would say that based on the amount of due diligence we were able to do pre-close, there were very few, if any, surprises at closing. By and large, the fleet we expected to acquire we acquired with the underlying car types, customer base, et cetera. So no issues there.

Your next question comes from the line of Harrison Bauer from Susquehanna.

I wonder if just a quick follow-up on your $0.20 to $0.30 accretion from the Wells deal. Is the variability in that largely due to gains? Is there anything else that might take you from the low end to high end?

So I would say that -- I'll start and I'll let Bob add on. But Overall, what I would say is the same factors that drive the overall business is what drives the incremental piece from Wells Fargo. It's the same business, the same core business that we're in. So the #1 thing, of course, is variability around gains on asset sales. And then I would make the same comment I made about the magnitude of the maintenance spend and a small variability being potentially impactful.

Yes, that's -- I have nothing to add on that, Harrison.

Okay. And then aside from maybe your games assumption within the Wells fleet this year, and you mentioned as well the some of the purchase accounting impacts. Can you give us a sense of any additional onetime cost or the purchase accounting that might roll off over time? Just so we can understand what the incremental earnings contribution might look like from that business as you scale your ownership over time?

Yes. Well, there's no significant onetime costs in there. We had some of those in 2025, which we called out and normalized for in our EPS numbers. So there's no significant onetime items in there. And the way operating lease accounting works because you flat -- you straight-line depreciation, it's really the interest expense that burns down over time as cash flow continues to generate on the fleet. So that's really the biggest variable. And then what we're able to do from a commercial and maintenance perspective, adding our skill set expertise and knowledge of those assets, we feel we can get incremental benefit there as well.

Great. And along the lines of the capital that you're willing to deploy on that deal over time? You structured the Wells transaction to preserve some flexibility between new car investment and then the incremental equity over time. Given the muted new build environment and then your re-up share authorization, how are you thinking about your capital allocation priorities as you go through the integration of this fleet this year?

Yes. So the philosophy is unchanged from what Bob talked about. So first and foremost, we want to invest in economically accretive assets. We want to make sure that we're maintaining the proper balance sheet and doing things that preserve our cost of capital, and then we'll return excess capital to shareholders. As you noted, part of the reason for structuring the deal the way we are, the way we did is because we have really attractive investment opportunities throughout all of our businesses.

So in 2025, we did $1.3 billion of investment, the 2 years prior to that, we did something on the order of $1.6 billion. So if you look at the investment level that we expect outside of the Wells Fargo Rail transaction in 2026, it'd be a little over $1 billion. Regarding the Wells Fargo Rail transaction, we recently made our initial equity investment of a little under $400 million to acquire the 30% ownership in the JV. Currently, we anticipate exercising our first option to acquire another 3.5% of the JV on June 30 for approximately $66 million. So if you add those numbers, the investment absent Wells Fargo, the initial equity investment and the anticipated option exercise you come to about $1.5 billion, so very much in line with what we've seen recently.

And the next question comes from the line of Brendan McCarthy from Sidoti.

Just wanted to circle back to that CapEx question. Can you provide a further breakdown there as you look into 2026 just among railcar assets in the engine leasing business?

Yes. So thank you for that follow-up. So the $1 billion, I would say, about 3/4 of that is expected to be at Rail North America and about 1/4 of it expected to be in Rail International. But in addition to that, we anticipate doing significant investment via the JV. So GATX does not typically have to make nor do we anticipate making any capital contribution, but in 2025, the JV invested about $1.4 billion. So our percentage share of that investment would have been another $700 million. And in 2026, we anticipate the JV will do another $1 billion of investment or more. So that would translate our share to being another $500 million. But again, the engine leasing, the JV is self-funded, so GATX does not typically make a capital contribution.

Great. I appreciate that. That's helpful. And just on the engine leasing segment, just really strong results there in 2025. I have it driving pretty much all of the year-over-year gain in segment profit. Can you provide a breakdown there of that year-over-year gain between what you saw from remarketing income and then what you saw from operating income?

Yes. So again, as a reminder for that, the quarter-to-quarter variability can be pretty lumpy just because of the way the gains come in. But for the full year, about 2/3 of that was operating income and about 1/3 of it remarketing gains.

Got it. And as you look into 2026, I think you mentioned $15 million to $20 million uplift in segment profit for engine leasing should that break down maybe stay right around the same for 2026?

You answered your own question. That's a very good assumption to make going in. But again, with the caveat that there's a certain degree of lumpiness on the remarketing side. But assuming that it would be similar to this year is a reasonable assumption.

Got it. Got it. And last question for me, just on the outlook for $200 million in railcar remarketing income for 2026. How do you kind of expect the Wells Fargo fleet to play into that? Maybe you can talk about the average age of the Wells Fargo fleet. Any certain railcar types that you feel you're maybe oversupplied in at the moment? Do you think that the -- I guess, overall, do you think the quarterly cadence might be somewhat to the past? Or do you think there might be some front-end impact there just as you kind of gauge the Wells Fargo fleet?

Yes. It will take a little bit of time to fully assess the Wells portfolio in terms of what we want to go to market with. But let's just start with the $200 million to begin with. The GATX legacy fleet 2025, we generated about $130 million. We would expect about the same roughly in 2026. So the incremental amount, that $70 million incremental amount is really from the Wells side of the ledger. But again, we're managing the whole portfolio as one from a standpoint of what we're going to be in the market with. The very good news is, as I mentioned in my opening comment, we have 2x the portfolio now to work with. And there is a lot of demand in the secondary market. So it's really going to be a decision we make from a fleet management perspective on whether it's credits or car types that we may want to sell into the secondary market, and I'll let Paul add some color on that.

Yes. I'll just say one of the nice things about the Wells Fargo business, we said when we announced the deal that it's been a well-managed business. We're not buying a distressed problematic asset. We're buying an asset that actually has been a portfolio that has been managed effectively. And so what that means is there are actually quite a few quality saleable deals within that portfolio that we think the secondary markets will want. And so as Bob said, we're still determining what parts of that portfolio we want to dispose of. We think about things like concentrations in credit or commodity or car type or tenor of exposure. And we're really trying to do a portfolio balancing exercise as we sell down. But ultimately, the good news is really however we decide we want to rebalance the portfolio, there are quite a few saleable transactions in both the legacy GATX and the Wells Fargo portfolio.

Yes. And I would just to add to that, that the most liquid car type in the secondary market is freight cars versus tank. Tank, it's not that you can't sell cars in the secondary market, but there's a limited buyer universe and it's a more specialized asset. So the most active market by far is for freight cars, and the Wells Fargo fleet was 95% freight cars. So we have a lot to work with.

That makes sense. And just as a follow-up, just curious as to the Wells Fargo fleet, doubled the fleet size and you just mentioned a much more higher proportion of freight cars. But then you kind of mentioned in 2026, the breakdown might be like $130 million in remarketing income from the GATX legacy fleet plus the $70 million from the Wells Fargo fleet. I guess why would the breakdown look like that, just considering the Wells Fargo fleet was a higher proportion of freight?

Well, there's really no reason in particular, we continue to see very good demand on the legacy side of the business, while it's half of what we do on the legacy portfolio, freight cars, that's still over 50,000 cars you're talking about. So it is a very big universe of cars. And we'll continue to balance what makes sense to be in the market with, whether it's car type or credit. And again, we'll be working with our partner on what's the most logical thing to be putting in the marketplace from the JV side. We think that's a good mix going in. It could shift, could very well shift as the year progresses. But in total, that's a very reasonable number, that $200 million to work with.

I'll just add too, over the last several years of supportive railcar markets, we have put on a lot of very good leasing business in the legacy fleet. So in terms of deals that we have on our balance sheet, legacy balance sheet that are attractive to sell. We've done a good job restocking the shelves there.

Next question comes from the line of Justin Bergner from Gabelli Funds.

Congratulations on closing the deal for Wells Fargo. First question would be any contours around the specifics of the repurchase? Or is it just pretty open-ended time-wise and pace-wise?

It's very open ended. As I mentioned, the authorization that we just exhausted in the fourth quarter was granted in 2019. And so we look first, invest; second, manage the balance sheet; and third, as we said, kind of what is the increment or the extra left over for dividends and share repurchase. So we don't have a targeted amount in any given year. It's just what makes sense in the overall capital allocation framework.

Okay. Did you actually repurchase a modest amount of shares in the fourth quarter, you said it was exhausted or just exhausted time-wise?

Yes. So again, as Bob mentioned, the initial authorization was in 2019. In the fourth quarter, we purchased approximately $46.5 million of stock at an average price of $160 a share.

Okay. Any comments on sequential lease rates? It's usually asked earlier in the call, but since it hasn't come up figured out?

Yes. Justin, this is Paul speaking. And broadly speaking, across most car types, we're seeing sequential lease rates roughly flattish. Bob mentioned a handful of what we call economically sensitive car types where there are a few headwinds. But across the broad bulk of the fleet flattish.

Okay. I think when you spoke about the Wells Fargo transaction, you announced it and had the call, you spoke about modest accretion in '26. I forget, were you including gains from sale on the Wells Fargo side at that point in time? Or has the mix become a little bit more gains?

No, that was all in, Justin.

And then just lastly, the Wells Fargo fleet is going to continue to operate and run off mode, right? There's going to be minimal investments that $70 million in gains would just shrink it by however many cars are sold as part of that roughly $70 million of gains?

Yes, the joint venture itself is structured to run down over time. It's not set up to reinvest. All of that activity will be taking place on the GATX side of the ledger. So to the extent there's replacement opportunities and reinvestment opportunities that come out of the fact that, that portfolio will burn down over time, they'll be on GATX's side. But again, we're looking at a few thousand -- 3,000 or 4,000 car sale package roughly spread out over 2026 to generate those gains. So you would have a very long tail of selling cars at that rate before you put serious reduction into that portfolio.

Got it. That's helpful. So 3,000 or 4,000 cars sold that would be the Wells Fargo side of the ledger?

Yes, we'll be in that ballpark, yes.

Final question comes from the line of Ben Mohr from Citi.

Just one clarification question on your very strong guide of the $200 million in remarketing for 2026. If we take your midpoint of your EPS guide range and we left out that $200 million and try to compare apples-to-apples versus 2025, it looks like the net income less the remarketing appears to be kind of down 20% or so for 2026 year-over-year. Are we missing anything? Is that because you only have a 30% impact of that? Or how should we think about the net income less remarketing for 2026?

Yes, Ben, I think you found your way to it near the end of that question. It's all tied up in the fact that the asset sales that we do from the JV are subject to the NCI, the noncontrolling interest piece of it. So GATX will economically enjoy 30% of those gains as opposed to the wholly owned portfolio.

There are no further questions. I would now like to turn the call back over to the CEO of GATX for closing remarks.

I don't have any closing remarks, but Shari probably does.

Well, I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Have a great day. Thank you.

That concludes today's meeting. You may now disconnect.

All right. Good morning again. This is Andrzej Tomczyk for round 2 of railcar manufacturing and leasing portion of the Goldman Industrials Conference. We have GATX and CEO, Bob Lyons, joining me on stage. Bob, thanks for being here.

Thank you. Andrzej, I appreciate it.

Maybe just to kick off before getting too much into the Q&A, if you want to just maybe give a brief overview of GATX and sort of what the business does and your story?

Sure. Well, we're a bit of a unique animal. We've actually been in business now for 127 years. Always based in Chicago, we started out as a railcar leasing company and that's still what we do today, predominantly. With a very big footprint in North America, one of the largest fleets and soon to be the largest after we close on an acquisition of Wells Fargo Rail.

We also have a very big presence in Europe, close to 35,000 cars in our European fleet, another 12,000 roughly in India. And then we also have a very large aircraft engine leasing business that GATX many, many decades ago used to be in the aircraft leasing business. And during that time, we formed an engine leasing joint venture with Rolls-Royce. We sold the aircraft side of the business back in the early 2000s, and we kept the leasing business. So it's a very big part, an important part of GATX today.

So our basis is leasing long-lived assets widely used with a service component and where we have very unique asset knowledge.

Great. That's a great overview. Maybe just to jump into the Q&A portion with some company specific, and you mentioned the Wells acquisition, so I'll start there. Can you just explain to the audience what this deal sort of potentially does for your fleet and business to start and then maybe also get into the structure of the deal, maybe what you're personally excited about most?

Yes. It's a very big transaction. I think probably the largest ever done in the railcar leasing space in North America, certainly the largest GATX has ever done. Our fleet today is about 110,000 cars roughly. The fleet we're buying from Wells Fargo is 105,000. So a combined fleet of over 210,000 cars, plus our partner in the transaction is Brookfield Infrastructure. We can talk a little bit about how that came about and the mechanics of the deal itself.

But Brookfield will be acquiring another 27,000 cars directly from Wells that are on finance lease. That's not an expertise of GATX, but we will manage those cars for Brookfield. So in total, it's roughly 130,000 cars coming into the fleet and doubling the size of our footprint by car count in North America, about a $4.5 billion deal just for the portion of the fleet that we're buying.

Yes. And so it's expected to close in the first quarter. Regulatory approvals sort of already have progressed for the most part. What are the immediate priorities sort of after the deal goes through with integrating that fleet? Can you just talk about that and maybe how quickly you anticipate realizing some of the synergies around SG&A and maintenance, things like that?

Sure. Well, the -- one of the things that's very appealing about our business is that it's very scalable. So we can bring in this portfolio under the GATX umbrella and not have to add a significant number of heads. So we're going to be -- we'll add some people. We're going to bring some people in from Wells Fargo Rail. But by and large, we're going to be operating the fleet commercially, operationally in a very similar manner to what we do with our own.

The priorities really right away are -- it's a very big, at this point, kind of an IT undertaking to get all of the data, the mechanical records, to get everything else transferred over on day 1. We have been very fortunate that Wells Fargo Rail is based in Chicago, as are we, down the street from us. And through industry contacts, we know a lot of the people at Wells Fargo Rail and vice versa.

So they've been extremely helpful in terms of setting up for this transition and have been very heavily involved, very collaborative. So we appreciate that. But day 1, it's really getting all the records, the leases, the mechanical data, the engineering data, everything else moved over on our systems day 1, and we're set up very well to do that. And then it's a commercial undertaking. We have a lot -- I have not seen for antitrust reasons, the exact customer list of Wells Fargo Rail, but I can surmise it looks a lot like ours. So there will be a lot of customer contacts, a lot of customer interaction as we bring all of those cars into our fleet.

Our customers are already very well aware of the transaction, and they're very positive, very encouraging in terms of GATX being the owner and manager of these assets going forward. The people side of it, we need to get some people transferred in. And then longer term, it will be much more focused as well on the operational side.

So from a synergy standpoint, we'll get the SG&A synergies quickly because we don't need to bring in nearly as many people as Wells Fargo Rail has as a stand-alone entity today, which makes sense. So we should realize SG&A synergies fairly quickly. Longer term, on the operational side, GATX does its maintenance on its cars. We own our own network of maintenance shops. Over 85% of the primary repairs we do in a given year, which are 30,000 to 35,000 service events in a given year, we do in our own shop. We view that as a competitive advantage.

Wells Fargo as a bank can't do maintenance. They can't undertake an operational activity like that. So they use all third-party maintenance providers. So longer term, we feel there are maintenance synergies as we manage that side of the business the way we do our own and ultimately begin to feed some of those cars into our own shops versus third parties.

I think importantly, when we looked at the economics of this transaction and the value of this opportunity for GATX, we didn't put $1 of value on maintenance synergies, but we believe they're there.

In terms of you talked about modestly accretive, but becoming more accretive over time. Is that sort of in that formula is the maintenance coming in-house more over time? Are there other aspects that you're thinking about in terms of becoming more accretive over time?

Well, I think maintenance is one piece. Commercially, I feel we have the best commercial organization in the world. Our North American team, we have an extremely deep customer base, long-standing relationships. And I think there's opportunity there as well to continue to do more with our existing customer base. That will be positive. Just in terms of the dynamic portfolio management philosophy we have, we're the biggest owner of railcars in North America, but we're also one of the biggest sellers. So we're always recycling the portfolio.

And with a bigger fleet, there'll be more opportunities to do that. And so I think there's a lot of different things that GATX does on a given day that we can apply to this portfolio that will add value.

That makes sense. Maybe just you talked a little bit about the deal structure in terms of how that affects your capital allocation. Can you just -- so GATX has initial contribution to the Wells joint venture, it's measured, reasonable. How does the option to incrementally acquire the additional cars over time influence sort of your broader capital allocation strategy?

Sure.

And then I guess on that, too, would it be fair to say that you guys -- your intention would be to acquire all those cars over the 10-year period?

I'll take those in order. Those are good questions. And for those that are not as familiar with the transaction, day 1, GATX and Brookfield Infrastructure Partners are buying the Wells Fargo Rail portfolio together. Brookfield is the 70% owner day 1 of the joint venture, GATX is 30%. But GATX controls the portfolio. We have 3 Board members. They have 2. The day-to-day activities, all of the commercial operational aspects are controlled by GATX.

And we will consolidate -- fully consolidate the portfolio onto our income statement balance sheet, cash flows, et cetera. While it's 30% day 1 for GATX, 70% for Brookfield, we have annual options over a 10-year period to buy Brookfield out and those are options. Our expectation is we'll exercise them.

So from a capital standpoint, it spreads out the capital requirement to acquire the portfolio, which is beneficial. We're an investment-grade rated company, BBB and BAA2, and it was very important for us to maintain that investment-grade rating and the structure of the deal allows us to do that. But yes, we're -- we anticipate that we will exercise those options, but we're not obligated to.

So this -- the deal itself sort of introduces a level of diversification into your fleet. And so can you just talk about that, how your fleet was a little bit different than Wells and sort of how that -- how you think about that changing your sort of model going forward?

Well, it really won't change the model that dramatically going forward. I think it's important to note that every car type in the Wells fleet, we own at some level. So we're familiar with every single type of car. And for those that don't live and breathe the railcar leasing business every day, there's a lot of different asset types. We have over 160 different types of cars in the fleet.

Historically, GATX was more 50% tank cars and 50% freight. Tank cars carrying all kinds of chemical products, pressurized gas, et cetera. And then every type of freight car, you can imagine. And that was normally the mix of our fleet somewhere in that 50-50 range. Post acquiring Wells Fargo, it will be more skewed towards freight, probably 65%, 66%, somewhere in that range, freight, the balance tank.

Tank is still a very big part of the portfolio at GATX and always will be. It is kind of the foundation of our leasing business. But adding those additional freight cars doesn't really skew or change our strategy going forward. What it does do is provide us a lot more customer touch points, a lot of opportunities to get greater share with customers. And as I said, we're a very big seller of railcars in the secondary market.

And so when you are occasionally part of your business model is taking some of those leased assets and selling them to other lessors, other financial institutions, it's great to have a bigger inventory to work with.

Yes. And so to that point, 65% freight cars now in network post the deal. My understanding is those are more liquid and active sort of in the secondary market. Is it your, I guess, expectation that you will sort of lean more into the secondary market given the change in mix a little bit?

I think it will be proportional to what we're acquiring.

Got it.

So we'll we're going to manage the entire portfolio as GATX owned. So with a fleet that's 2x the one we have today, we'll be in the market probably on a proportional basis that much more. The nice thing is you have a much bigger inventory to work with. And there may be some customers where -- when the fleets are combined that are okay with us selling down because they may be a little bit more weighted to GATX than they might otherwise want to be. They like to keep a mix too of providers. So we have a great opportunity here to work with customers that we know that we've dealt with for 30, 40, 50 years to optimize the portfolio.

Can you talk a little bit about actually selling the cars and buying them in the secondary market? What's that process like? And just maybe like your sales force, how does that -- how do you manage that given there's a ton of cars that you guys are selling a ton of different cars, a big fleet. You're very active in the market, but how do you go about identifying those opportunities? And you've obviously done it over the long term. So just curious there.

Yes. We actually have a whole separate group within GATX, a small team, that's what they do. Their whole day job is being active in the secondary market, both buying and selling. And all of that is opportunistic. So we may go into a given year with an idea of here's some customers or here's some car types or some portion of the portfolio from a duration perspective where we may want to sell down, and that team goes and executes that.

Now one of the -- in the secondary market for railcar assets in North America is quite large and very liquid. I'm not sure who, but today, somebody will be buying and selling railcars in the secondary market. It happens all the time. When we put a package out to potential buyers, it's probably 25 or 30 different institutions that will look and bid on a portfolio. And we don't sell in huge blocks.

We may put a package out that has 1,500 cars in it, but it's comprised of 10 or 15 different transactions. And a buyer -- prospective buyer can bid on the whole thing or individual. And so then we stack those up and we look at what's the best return for the shareholder.

In the end, we have hold values. We have very defined values around our expectations for future lease rates, maintenance expense, utilization for all the cars. We factor that in to our hold value, and we look at what the market is willing to pay. We also have to look at relationships. We sell tank cars less frequently than we sell freight because tank cars are more service intensive.

And many of our big customers, whether in chemical, fertilizer, agriculture or food industries, they want GATX doing the maintenance on those tank cars. That's why they did the lease initially, and we respect that. So we'll hold those cars oftentimes until the end of the car's life.

The gains on sale have been sort of much higher post-COVID in general. You have a new car market where cost of a new railcar is going higher. Is that pushing more of these buyers into the secondary market? Is that -- is that still a phenomenon that's sort of occurring this next year?

Yes, that's a great question. And yes, it definitely has an impact because you have a big universe of railcar lessors out there that want to add to their portfolio. They want to grow their business. They have their own objectives for adding cars to the fleet. And right now, buying new cars, you can do that. The prices are because of inflation, interest rates, what have you, labor, cost of a new car is higher today, materially higher than it was 5 or 6 years ago.

An alternative to buying new is buying used. And so that's the secondary market. The railcar manufacturers, the two big ones in North American Trinity and Greenbrier, we think, have done an outstanding job of kind of rightsizing their manufacturing footprint for -- to meet a more stable long-term demand. So even if you wanted to buy a new car today, there's a lead time for that, right.

Maybe shifting a little bit. I want to talk about some of your other geographies, specifically starting on GATX Rail India. Your operation in India continues to show utilization rates of about 100%. So it's fully utilized. You were the first private railcar lessor in India as well, and the government there still has a large sort of market share. But in general, we hear significant Indian sort of infrastructure investment boosting rail sort of production prospects over time, I should say. Could you talk a little bit about the market in India? What are the future growth prospects there and the potential size of your fleet?

Sure. So as I mentioned, we have roughly 12,000 cars today in India. As Andre mentioned, 10 or 12 years ago, that was 0. We entered the market in India on our own, and our team there worked with the Indian Railway to obtain the first leasing license in India for railcars. And they've done a great job of going from that point, basically from an idea to a fleet of 12,000-plus cars.

And I think the growth prospects remain incredibly strong for the next 10, 20 years. If you think about infrastructure development in India, and for those who had the opportunity to go there, it's a pretty fascinating trip to take, seeing a country of 1.2 billion people that's building out in every major city and not even to mention eventually a push into the rural areas, schools, homes, hospitals, government buildings, roads, everything you can think of from an infrastructure standpoint under development.

I think the entire crane industry is somewhere deployed in India these days. And the products that are being used for that infrastructure build-out, steel, cement, those in lumber, others, they all move by rail. The most efficient way to move that product is to move it by rail. And so you have a market that's -- you can really see the demand projections holding true over the long term. And it's that infrastructure development, the development of India overall that's driving that.

The Indian railway has been a bit of a unique animal in that it historically controlled all the rail movements in India and the fleet itself. And they still do all the maintenance on all the cars in India, which may change at some point in the future. But the Indian railway has studied the North American market very, very closely and definitely has recognized over time that they don't need to own all the rolling stock. There are others, whether it's shippers or lessors like GATX that can do that more efficiently. And so it's shifting.

And if that does come in-house over time in terms of maintenance over there, is that something that also helps sort of your margins?

It helps margins. But I think the bigger driver is the differentiation of what you can offer. There's a robust leasing market over there, primarily from banks or other financial institutions that who we compete with typically. And we differentiate ourselves in India through different means, new car designs and development and things that we utilize in North America, we've been able to utilize and deploy in India. So we are -- we do differentiate our offering over there. But the big differentiator is providing maintenance, which we do in North America. And at some point, we certainly would like to be in a position to do that in India.

And North America is still your largest business, and -- but I just want to touch on the European market as well. You also made -- recently made an acquisition, DB Cargo as well. So I'm curious, utilization in Europe has declined. I know that the market has been a little bit pressured over there. Could you just share sort of how you're viewing that market right now heading into 2026? And also just on the DB Cargo acquisition, you're sort of a countercyclical investor. I think that's a clear example. Europe is under pressure. You're making the acquisition. Talk about that as well and sort of how that sets you up?

Yes. Well, the -- we have one of the biggest -- third largest fleet in Europe among the big lessors. Again, we provide maintenance there. So operationally, it looks very similar to North America, similar customer base as well. And so we think there certainly are economic headwinds, tariff concerns, high energy costs that are negatively affecting the business and the industry right now, carload movement in Europe. And that's likely going to continue into 2026 for sure.

But our commitment and our view of the business long term has not changed. We think rail continues to be the most efficient way to move product, the safest way to move product. You have the European Union pushing more of the green deal to move more product from truck to rail. The roads are highly, highly congested, and there's a lot of products still moving on road that can move by rail. The fleet is -- the national fleet is older in Europe than it is in North America. So eventually, there will be replacement opportunities, and we're certainly seeing that even within our own fleet.

But to your question about DB Cargo, DB had some financial hurdle or benchmarks put on it by its owner, which is the German government to generate more cash. They own a very, very large portfolio of railcars, close to 60,000, I believe. And one way to generate cash is to monetize some of those assets out of the rail portfolio, out of the rolling car -- rolling stock portfolio. So that was a really successful transaction for us because we're able to buy 6,000 cars and immediately, they're back on lease to DB Cargo for 2 to 7 years. And as they come off, we can renew with DB Cargo or redeploy to other customers.

And we think other potentially railroads in Europe will look at that same avenue for monetizing some of their assets. And some of the stress in the marketplace among the big lessors, VTG, Ermewa, ourselves, we can withstand market cyclicality. We've dealt with it for 100 years. Some of the smaller lessors can't. And so we think there's also some other car owners in Europe that may -- 2,000 cars, 3,000 cars in a portfolio that may look to exit over the course of the next year or 2, and we'll look to capitalize on those opportunities.

Makes sense. Maybe shifting again to your -- I want to touch on your aircraft, the spare engine leasing business. Aircraft and specifically engines have been an area of the market that's been more constrained in terms of supply as well. So curious if you could just give us an overview of your spare engine leasing business today versus even, say, pre-COVID and also how that performed in the midst of COVID. I think that's important as well.

And then just given the short -- the supply shortage there and the high demand in that area of the market, is that an area where you guys sort of continue to see gains push into, I guess, 2026 and even lease rates in that matter as well?

Yes. So for a quick history moment, we started the joint venture with Rolls-Royce in 1998 as a 50-50 JV set up to lease aircraft engines into the market to other airlines also to -- as a means to sale and leaseback to Rolls-Royce, the parent. And we formed the joint venture with a relatively small equity contribution from both parties, and it has self-funded its way into one of the largest engine portfolios in the world.

And you're absolutely right from the standpoint of the pandemic, if nothing else, the pandemic proved the resiliency once again of that asset class. Engines hold value, great stores of value over decades. And there, we had a situation where global air travel, particularly international, nearly went to 0 for an extended period of time. We remained profitable. It was a challenge and our RPF team, they operate out of their offices are in London, did an excellent job of keeping assets on wing.

Cash collections remained relatively high. And airlines, again, you can park some aircraft here and there, but you can't run an airline without spares, and that's our business. So as we sit here today, whether it's Boeing or Airbus, they have not produced aircraft at the pace they anticipated. So those deliveries are getting pushed well out. That's keeping assets that are in place in high demand, and the engines are benefiting from that.

So definitely, we're seeing an opportunity both to re-lease at very attractive rates to occasionally sell or tear down engines at great value. And we're going to continue to grow that. You mentioned before about our risk countercyclical mentality, and that definitely came into play in this business because prior to the pandemic, every engine we invested in, every transaction we did, everything was direct through the joint venture.

Pandemic hit, Rolls-Royce, obviously, engine deliveries and everything else started to become more challenging because airlines were stretched. And we had discussions with them about the opportunity for -- and the joint venture itself was not in an investment mode. The edict to the JV was manage the existing fleet. That's still left an opening or an opportunity there for somebody to buy engines directly. And so when the world was not flying and aircraft and were parked everywhere, we reached an agreement with Rolls-Royce to buy engines directly over a multiyear period to be managed by the joint venture.

So today, we have over $1 billion of direct investment on top of the 50% interest we have in almost $5 billion of assets in the joint venture.

It's a very helpful overview. I do want to ask, did you guys feel any sort of impacts from the government shutdown in that area of the business?

Not really other than we're in the midst of trying to close the Wells transaction, and we need some government approvals. And when the government goes on holiday around hiatus, there wasn't much we could do. So the process got dragged out a little bit. But everybody is back and focused. And so we're still very optimistic we'll get the final couple of approvals that are needed.

I know we have a couple of minutes. I have one sort of broader question I want to get to. But before that, I wanted to get your take on sort of the upcoming -- like in the near term sort of relative to what expectations you guys had set on the last earnings call. Any sort of -- is it more of the same sort of in the fourth quarter? I know you guys don't guide quarterly, but how does -- how are you thinking -- how is the market shaping up relative to sort of what you guys talked about?

I don't want to comment too specifically, but I'd just say since we released at the end of October, nothing -- there's been no significant developments in the marketplace that would kind of alter our view.

Yes. And then just this is a -- I want to get your perspective on this question as well, touching on the topic of modal shift potential from rail to truck and potential for Class 1 rail consolidation, Union Pacific merging with Norfolk Southern potentially 2027. There's 2 sort of sides to that. If the rails can become more efficient, get rid of interchanges, speed up the cycle time for every car across the network, maybe you have a reduced sort of car around the network broadly.

And so I'm curious your thoughts on that, if that sort of reduces the demand for new railcars in the future potentially or if you're more in the camp of rails can sort of improve efficiency and then take share and that sort of helps potentially grow the fleet?

Yes. I think there's definitely a balance there, right? So if the rail -- if UPNS merger goes through and they deliver on everything they expect to and are able to operate the railroad more efficiently, faster turns, that would mean fewer railcars. At the same time, their additional view is we'll bring more product from truck to rail, and that means more railcars.

So a lot of years ahead of us before we see how that all plays out. But I think with the diversity of our fleet, customer relationships we have, everything else, we'll navigate it quite well. We've certainly navigated other changes in the North American rail industry over the last 100-plus years. So we're in a good position to do so here.

Well, I appreciate your perspective. And Bob, thanks for joining me today.

Andrzej, thank you, and we appreciate the invitation to be here.

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's GATX Corporation 2025 and third quarter earnings call. [Operator Instructions]. Thank you. I would now like to turn the call over to Shari Hellerman, Head of Investor Relations. Shari?

Thank you, Greg. Good morning, and thank you for joining GATX's 2025 Third Quarter Earnings Call. I'm joined today by Bob Lyons, President and Chief Executive Officer; Tom Ellman, Executive Vice President and Chief Financial Officer; and Paul Titterton, executive Vice President and President of Rail North America.

As a reminder, some of the information you'll hear during our discussion today will consist of forward-looking statements. Actual results or trends could differ materially from those statements or forecasts. For more information, please refer to the risk factors included in our earnings release, and those discussed in GATX's Form 10-K for 2024 and our other filings with the SEC. GATX assumes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

Earlier today, GATX reported 2025 3rd quarter net income of $82.2 million or $2.25 per diluted share. This compares to 2024 3rd quarter net income of $89 million or $2.43 per diluted share. The 2025 3rd quarter results include a net positive impact of $5.3 million or $0.15 per diluted share from tax adjustments and other items. The 2024 year-to-date results include a net negative impact of $9.9 million or $0.27 per diluted share from tax adjustments and other items. These items are detailed in the supplemental information section of our earnings release. I'll briefly address each of our business segments. After that, we'll open the call up for questions.

In North America, demand for our existing fleet remains stable. GATX Rail North America's fleet utilization remained high at 98.9% at quarter end and our renewal success rate reached 87.1%. Our commercial team continues to successfully increase renewal lease rates while extending lease terms. The renewal rate change of GATX's lease price index was positive 22.8% for the quarter and the average renewal term was 60 months.

While tariffs and macro uncertainties have affected customers who use the most economically sensitive car types, demand for the large majority of car types in our fleet is holding up well. An encouraging sign in the North American market is the continued strength of the secondary market. As we offer select packages for sale, we're seeing very strong demand for GATX assets from a diverse and deep buyer pool.

We generated over $60 million in remarketing income during the quarter, bringing the year-to-date total to approximately $81 million, and we expect that we'll finish the year with a strong fourth quarter. Regarding the pending acquisition of Wells Fargo's rail operating lease assets, we continue to expect closing to occur in the first quarter of 2026 or sooner.

Turning to Rail International, GATX Rail Europe fleet utilization was 93.7% at the end of the quarter, reflecting ongoing market challenges in Europe. Despite these conditions, we continue to renew leases for many car types at rates higher than those of expiring leases, demonstrating the market's resilience. In September, we announced an agreement to acquire approximately 6,000 railcars from DB Cargo, a major European rail freight operator through a sale-leaseback transaction. Closing is expected by the end of 2025, subject to customary regulatory approvals.

In India, rail state volume remains robust, and demand for railcars is very strong despite trade uncertainty. During the quarter, GATX Rail India took delivery of 600 new cars and place them with customers. Fleet utilization was maintained at 100% at quarter end.

Engine leasing performed very well this quarter driven by continued high demand for aircraft spare engines. This demand is manifesting itself in high utilization, attractive lease rates and opportunities to sell engines at a compelling valuation.

At the same time, we identified attractive opportunities to increase our direct investment in aircraft bear engines, acquiring 7 additional engines for $147.1 million during the quarter. The RFP of affiliates also continue to expand their portfolio with total investment already exceeding $1 billion year-to-date.

Finally, as we noted in the earnings release, we continue to expect 2025 full year earnings guidance to be in the range of $8.50 to $8.90 per diluted share. This guidance excludes any impact from tax adjustments or other items and also excludes any impact from the Wells Fargo transaction. And those are our prepared remarks. I'll hand it back to the operator so we can open it up for Q&A.

[Operator Instructions].

All right, it looks like our first question today comes from the line of Ben Mohr with Citigroup.

To get to your midpoint of your guide, you would need 4Q EPS at $2.39 versus consensus at $2.25. Can you discuss how you plan to close that gap on both revenue and margin drivers, please?

Sure. Ben, thanks for your question. This is Bob. I'll take that one. So as indicated, the full year, just to kind of take a step back has largely played out as we anticipated. Certainly, some puts and takes on various line items, which is not unusual. But the overall -- our results in the overall environment are very consistent with what we thought coming into the year and we would expect that to continue into the fourth quarter.

As Shari noted in her opening comments, we have a very strong pipeline of assets that we have for sale in the secondary market. We're seeing really strong demand. So we would expect really solid remarketing income in the fourth quarter, and that will be largely the biggest driver in Q4 relative to Q3.

Great. Appreciate that. Maybe just as a follow-up on the remarketing you mentioned the -- looking into the next couple of years, longer term, would you still expect sort of elevated remarketing levels at the roughly $100 million to $110 million through 2027, maybe kind of driven by inflation from the U.S. administration's policies and also more freight car mix from your [ Brookfield ] JV versus the roughly $50 million level that we saw back in the pre-COVID levels?

Yes. Well, it's a bit difficult to predict many years out into the future. But based on everything we're seeing today, there's no reason to believe or no reason for us to feel that the secondary market is going to adjust materially downward.

Demand is really strong and very encouraged by just the sheer number of buyers and their appetite for the assets that GATX has on lease. So we see a really positive market, an environment for remarketing income in the years ahead.

I think also supporting that is what we've talked about frequently over the last couple of years, the supply side thesis that new car supply capacity, manufacturing capacity in North America is more in line with true underlying demand for new cars. So as investors and current competitors in this market look for ways to grow and to build their fleet the secondary market becomes a very, very good alternative, and we're seeing that.

Our next question comes from the line of Bascome Majors with Susquehanna.

To the GATX and Wells Fargo deal, you've talked about that being modestly accretive in the first full year. When we go through the pro forma historic financials, you filed recently, it's indicating some modest dilution on a look-back adjusted for financing and other items. Can you help us square where we get to accretion under your ownership versus this historic look back and where those just wouldn't add up similarly to what you're seeing on a go-forward basis?

Yes. So Bascome, first of all, it's important to know what we issued. So that 8-K is looking at what happened if the transaction for income statement purposes closed in 1/1/2024, and then for balance sheet purposes, closed June 30, 2025. So obviously, it didn't close either of those dates.

The other thing that it does is that it takes the actual results of both companies and then kind of put them together. So 2 things it does not do is it doesn't make allowances for the fact that the combined SG&A of the 2 companies is going to be a bigger number than what the SG&A would be for GATX on a consolidated basis.

The other thing it ignores is any kind of management fee. And there's a variety of other items just because of the nature of how those statements come together that don't find their way in, but those are 2 big things that would take you from the dilutive numbers that you saw in that -- those reportings versus the modestly accretive numbers that we've talked about several times.

Yes. And Bascome, I would just add to Tom's 2 key points. There's no SG&A synergy in there. That's an easy one you can pick write-off of financial statement that was filed with the 8-K, you can see what the SG&A is for Wells Fargo Rail and then for the combined entity, and there's no benefit given to synergies.

There's no management fee. We haven't broken that out yet when the transaction closes and we provide guidance going forward. We'll give you some more clarity on the management fee, but that's not an immaterial number, and that's not reflected in the financial numbers and then -- nor is any other type of synergy that GATX may generate from the combined entity. So it's really just a financial roll-up, not a snapshot of the go-forward scenario.

And to the DB deal in Europe, any thoughts on whether that will be needle moving in next year from a financial standpoint? Or is that really more of a long-term investment in growing the European fleet?

Yes. It's Bob again. Bascome. It's more of a long term like from an accretion dilution standpoint, it's not material, one way or the other in the year -- the first year of ownership. It is a longer-term investment but one that we're very excited about to be able to do a transaction like this.

It starts out as a net lease, likely will convert over time to full-service leases as those initial leases roll over. Also likely to convert at some level to full service leases versus the net, as mentioned. So I think, is a very good example of what we're seeing begin to form in Europe. They have a fleet of 70,000 wagons themselves, like other railroads in Europe, [ PV ] is looking for ways to enhance their cash flow. They don't necessarily need to own all of their rolling stock and so we think there may be opportunities elsewhere across Europe for similar type transactions. And we're certainly out in the marketplace looking for those opportunities as well.

And lastly, you've already commented on the secondary market in North American rail and really seeing no need or driver for that to change from the favorable situation has been in for the last couple of years. Can you speak a little bit to the sequential performance in lease rates, certainly, the [ LPI ] is still very positive. You had a slight tick down in utilization in North America is a little lower than it were where it was in recent quarters. Just -- I mean is there any sequential just gradual weakening going along? And any thoughts on just the market here and now versus 6, 9, 12 months ago?

Sure, Bascome, this is Paul, and I'll be happy to take that one. So -- what I would say, overall, despite all the macro uncertainty, the North American railcar market is holding up pretty well. And so when we look across the fleet, in general, lease rates remain at healthy levels, and that continues to be the case.

We've seen sequentially quarter-over-quarter rates across most car types flat to perhaps down very, very slightly. But in general, Bob alluded to the sort of supply-led market thesis that we've had for quite some time that has really proven itself out. And I think that's where this period of macro uncertainty from a lease rate standpoint is really quite different from past periods.

If you think about for example, the lead up to The Great Recession or the lead up to the COVID recession, and I'm not comparing necessarily this period to those periods, but those were periods where we started to see macro uncertainty, and there was a very large negative market response from a lease rate standpoint.

We really don't see that here. And again, that's really because the market hasn't been overbuilt. And so fleets remain fairly highly utilized. And so again, a little bit of quarter-to-quarter deterioration. But overall, across the fleet, for the most part, rates holding up well.

And I'll add to that, Bascome, too. I think Paul can elaborate on this, but one of the additional drivers to that, we're seeing scrap rates are holding up really well and with the market largely in balance any temporary imbalance in a specific car type appears to be rectifying itself very quickly from a scrapping standpoint. So supply demand -- and supply and demand are not getting out of balance for any extended period of time in any car type.

And our next question comes from the line of Andrzej Tomczyk with Goldman Sachs.

I just wanted to touch a little bit about on the maintenance expense within North America. I know that jumped up a little bit sequentially, and we've been talking about increasing maintenance expenses in North America. So I'm just curious on a go-forward basis, is that sort of a good dollar level to sort of be at in terms of North American maintenance or should we continue to expect increases from here or there?

So this is Paul speaking. I'll just contextualize it before I get directly to your question. So fundamentally, as you know, over the last, really, 5 to 7 years, we've made tremendous investments in our owned maintenance capability, and that's because we have a very substantial marginal cost advantaged working cars in our own network versus in the contract network and really, that's been borne out over time.

This year, from a mix standpoint, we do a great deal of work to try to forecast the mix of work coming into our facilities. This was a mix that really filled up our shops at a higher clip than we had forecast. And as a result, we had to put more work into the contract network, which is more expensive. We're not going to guide for '26 yet because, obviously, traditionally with GATX, we don't do that until the next earnings call.

So I can't really comment specifically on; 26. But what I can say is over the long run, we are on track with our objective of continuing to put more work into our own shops and control our costs. And we remain of the view that we can achieve that going forward.

Understood. And just maybe a little bit on the combined nature of the Wells Fargo deal as we move forward if that goes through. I know you mentioned the SG&A synergies, the management fees as well. But should we be thinking of longer-term synergies on other line items like maintenance as well?

I'll take that one, Andrzej. Thank you for the question. Yes, is the short answer to that question. There will be synergies in other line items as well. Maintenance is one area that we have talked about a little bit more publicly because Wells Fargo as a bank is not allowed to own maintenance facilities directly. They do all of their work through third-party shops.

As Paul mentioned, we are at full capacity in our shops today. So when this transaction closes, it's not an immediate opportunity to bring work on those cars into the GATX shops. We'll continue using the third-party network that well has effectively established over the years. But longer term, absolutely, we will look for opportunities to bring more of that work in-house at GATX.

Understood. Appreciate the context. Maybe just shifting a little bit to the spare engine leasing side of the business. It seemed like a good strong quarter there again. I'm just curious if you could share the breakout between the gains in the core EBIT this quarter and maybe how you expect to trend into year-end?

Sure. So for the quarter, the operating income was about 85% of the total, and remarketing was about 15%. So year-to-date, we're at about 3 quarters, 1 quarter. Much like Paul's commentary about 2026, we usually don't try to get too specific on individual quarters because that's -- it's challenging, particularly given the lumpy nature of the way remarketing comes in, whether it's aircraft engines or railcars.

But the 3 quarters, 1 quarter is a little higher on the operating income side than we've historically been. So if history is a guideline, you would see a little bit more on the gain side, on the remarketing, but there's no guarantee of that.

Understood. And then lastly for me, I did notice that the renewal success rate in North America jumped up to 87% from 84% last quarter and 82% last year. I'm just curious like sequentially, if that increases anything to read into relative to the certainty around tariffs. Is there any increased certainty from your customers? And is that leading to increased renewal success rates?

I would say I wouldn't so much characterize that as driven by increased certainty by our customers, but much more just -- as we mentioned earlier, the fleet overall remains fairly tight. And obviously, it's in our interest and the customer's interest to renew, it reduces cost for both of us to the extent that demand is still there.

So in a relatively tight fleet as long as lessor or lessee, we are acting rationally and we price to the market, we should have a very high renewal success rate. So -- but I wouldn't necessarily read into that number anything from a macro standpoint.

And our next question comes from the line of Brendan McCarthy with Sidoti.

I wanted to circle back to a point on the supply side dynamics. I think you mentioned the market remains in balance, really supported by some of the higher scrapping rates. I guess do you see any room or capacity for new car builds just stemming from any different economic variables that may shift in the future, such as a lower interest rate environment?

Fundamentally, I would say the answer is no. We don't foresee a big uptick in build absent some spike in demand that we can't predict. What I will say is it's not just a question of financing costs. The builders have really rationalized capacity right now.

And so if we think back to the crude boom, which is the last big boom and railcar production, the builders were producing in an 80,000 car a year clip, they couldn't ramp up to anything close to that number right now without a Herculean effort. So fundamentally, I think the supply side has rightsized quite a bit. And so I think a dip in financing cost is unlikely to have a hugely material impact on new car production.

Got it. That's helpful. And really absent any factors driving overbuilding on the car build side. I guess do you see any reason why lease rates can't continue to remain above the 20% threshold?

Well, eventually, you will work your way through that pool of cars that were priced at much lower rates. So over the longer term, you will get to a point where you're renewing more cars, more and more cars that are put on it today's market rate, but we're still a ways off from that.

That makes sense. And given the idea of, I guess, how far along in the future that may be, whether it be 2, 3 years or perhaps longer?

0

Yes. Tom, go ahead.

Yes. So as Paul mentioned earlier, we'll give more guidance next quarter. But order of magnitude, we're probably about halfway through remarketing those.

Okay. Okay. I wanted to transition to the engine leasing business, a really strong quarter there. Are you seeing any hesitancy from customers on the engine leasing side or anything within Rolls-Royce affiliates? Just resulting from uncertainty around tariffs or anything like that?

So again, the short answer is no. The recovery in post-COVID and aviation has been great, and we continue to see very high demand for the engines and don't expect any changes there. Of course, tariffs or general macroeconomic activity. Certainly, we'll keep an eye on that for possible signs of what it might do to demand. But to date, in the near term here, we expect that business to continue to be very strong.

And we've been encouraged by the investment volume and opportunities that we've seen, particularly within the joint venture itself, our RPS, the team are -- we came into the year expecting around $800 million roughly in total investment volume. And through the third quarter, we've already gone north just north of $1 billion. So they're having an outstanding year in terms of putting capital to work at really attractive returns.

Great. That's helpful. And then on the internal portfolio, GEL looks like, I believe I saw 7 engines were purchased in the quarter. Is there anything to comment on related to the purchasing pattern there? I know there were no engines purchased in the first half of the year. Was there any outsize read through there for this quarter?

No, nothing in particular. What I will comment on, I think it might be helpful to kind of take a look back when we first started doing direct investments in engines, it was during the depth of the COVID downturn.

And at that point in time, Rolls-Royce's financial results were pretty stressed and the capital markets in general were really in a state of flux, and there was not a lot of capital flowing into aerospace, whether it be aircraft, in terms of airframes or engine. So that presented GATX with a really unique opportunity to step in and buy engines directly, support Rolls-Royce in doing so and invest in some very attractive assets for GATX for the long term.

We now have over $1 billion of direct investment in engines and they will pay dividends for years to come. We also knew at the same time that Rolls-Royce's financial performance would strengthen their credit profile would strengthen and more capital would flow back in to aerospace, investments, as it always does. It's the epitome of capital flowing in and out depending on cycles.

But it certainly has flowed back in and roles, we knew would always look at their most effective way to sell engines, whether it be into the JV or GATX directly. The fact of the matter is they have a lot more options available to them today. We knew that. And so I think our investments going forward will be -- directly will be much more opportunistic than they are programmatic.

And our next question comes from the line of Justin Bergner with Gabelli Funds.

A few questions here. I just wanted to make sure I heard correctly on the mix of operating and remarketing income within the Rolls-Royce JV. It seems like the JV income stepped up from $33 million in 1Q, then dip to $22 million in 2Q and $53 million in 3Q. But I think you indicated that the share of remarketing income was less than the year-to-date.

Yes, that's -- yes, Justin, that's correct. And part of the reason for that is one of the items that we called out was the insurance recovery what that insurance recovery is, is back in 2022.

We had an impairment for the JV for some engines that were in Russia as the Russia Ukrainian conflict got going, and we did not anticipate being able to get those engines out, and there were some uncertainty about what would happen from an insurance standpoint. As it turned out, this year, we had a recovery of insurance proceeds, and that shows up in the operating income line. So that's part of the reason for that relatively higher number in Q3.

Okay. That's helpful. And I see an $8.2 million adjustment net of taxes for the affiliate income, does that correspond to the $55 million? Or do I need to gross that up on a pretax, if I'm going to --

So yes, I'm not totally sure where you're getting the $55 million, but that is an after-tax number.

And that relates to the insurance directly to the insurance proceeds that Tom just mentioned. So we normalized for that.

Sorry, it was $53.4 million but the $8.2 million is apples-to-apples on a tax basis with the $53.4 million, I need to gross it up to be pretax.

Where specifically, Justin, are you picking up the $53.4 million number? I just want to make sure we're looking also apples-to-apples.

If I'm reading correctly, share of affiliates' pretax earnings $53.4 million.

Yes, Justin, that's the pretax number for the share of affiliate earnings from -- so that includes the -- sorry, that's the third quarter.

Yes.

So that includes the insurance proceeds that Tom was alluding to. So you would need to use the pretax number to address for that $53.4 million figure.

Okay. I think -- is there a pretax number given, I think I only see the post-tax number of $8.2 million.

It is. It's in the engine leasing section of the earnings release, it is $10.9 million. Pretax and then $8.2 million after tax.

Sorry about that confusion. With respect to your guidance for the year then, should I maybe infer that within the unchanged guidance, your engine leasing view is somewhat stronger, your gains on dispositions may be slightly stronger. And Rail North America x gains in Rail International, a touch lower?

Yes. So Justin, when we took up guidance in 2Q, we mentioned that it was primarily because of the outperformance in the engine business. If you look at where both Rail International and Rail North America are relative to the guidance we gave at the beginning of the year, they're kind of both within the range, but at the lower end of that range. So that was the case when we took guidance up and that's the case where we are right now. So really unchanged quarter-to-quarter.

Great. One or 2 more, if I may. It looks like the gain per car on asset dispositions in Rail North America was a lot lower this quarter. Is that simply related to the mix of cars you sold? Or should I read anything into it about the strength of pricing in the secondary market?

It's really the mix of cars, Justin, which changes quarter-to-quarter. It's not just the cars, but the underlying lease is also a big driver of the value ascribed to any particular car in the secondary market.

So if you're selling cars with Class 1 railroad with a 10-year lease stream attached to it, the secondary market going to really value that highly. So given the volume of cars we sell in a given year, it moves all over the map.

Got you. And then just lastly, to clarify, the increased maintenance expense, was that purely due to kind of volume of maintenance events and the need to outsource? Or was there anything in terms of operational execution in your own facilities that may have also weighed on the margin?

It's really just volume and mix. Fundamentally, we -- as Bob said, we have filled up our network of work, and that is, of course, on the heels of the substantial investment and increased capacity we've had over the last few years. And whatever is left over that we can't fill has to go into the contract network.

Got you. Was there any kind of lumpy nature of tank car requalifications this quarter that?

Not noticeably so, no.

And it looks like we have a follow-up question from Bascome Majors at Susquehanna.

Just one more for me. As we get into next year, it sounds like you don't expect a lot of changes in the North American rail cyclical backdrop. But I mean you are taking on a lot of new cars and customers via the JV and your management oat that. Is there anything to tweak on the sales incentives to really drive the outcomes you want to maximize value in the next year or 2 compared to this year?

Yes, that's a really good question, Bascome, because we do adjust our sales incentive plan in North American rail every year. And there are various toggles we use to kind of drive the performance and the outcomes that we want.

So we, of course, will be taking a very hard look at that here. We always do it in the fourth quarter as we set the plan for the year ahead. And assuming we close on the Wells transaction as expected, that will give us a really good new footprint in which to set those goals for the sales team. But yes, there will be some adjustments made. It's a 2x size fleet essentially, more opportunities, bigger customer opportunities. So will drive the sales force accordingly. It's a really good question.

And it looks like there are no further questions. So I will now turn the call back over to Shari Hellerman for closing remarks. Shari?

I'd like to thank everyone for their participation on the call this morning. Please contact me with any follow-up questions. Have a great day. Thank you.

Thanks, Shari. And again, ladies and gentlemen, that concludes today's call. Thank you for joining, and you may now disconnect.