Trinity Industries, Inc. Stock

Good day, and welcome to the Trinity Industries Second Quarter ended June 30, 2026 Results Conference Call. [Operator Instructions] Please note, today's event is being recorded. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking.

Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which would cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

I would now like to turn the conference over to Leigh Anne Mann, Vice President of Investor Relations.

Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's second quarter 2026 financial results conference call. Our prepared remarks will include comments from Jean Savage, Trinity's Chief Executive Officer and President; and Eric Marchetto, the company's Chief Financial Officer.

We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the quarterly investor slides, which are accessible on our Investor Relations website at www.trin.net. These slides are under the Events and Presentations portion of the website, along with the second quarter earnings conference call EventLink.

A replay of today's call will be available after 10:30 a.m. Eastern Time through midnight on August 6, 2026. Replay information is available under the Events and Presentations page on our Investor Relations website.

It is now my pleasure to turn the call over to Jean.

Thank you, Leigh Anne Mann, and good morning, everyone. Second quarter earnings per share from continuing operations came in at $1.25, reflecting the successful completion of our Napier Park partnership transaction alongside execution headwinds in Rail Products that are specific and transitional. The Napier gain was $132 million pretax and demonstrates the embedded value we have been building in our fleet.

It is also proof of what this platform was designed to do, perform profitably through the cycle and convert hard asset value into shareholder returns. Rail Products came in below expectations at a 1.3% operating margin, driven by 2 specific items we quantify at 270 basis points.

Leasing continued to perform. Fleet utilization held at 97.3%. Lease rates moved higher. Rail Products ended the quarter with a $1.6 billion backlog and a book-to-bill just below 1x. The demand signal is there. And on the last 12 months basis, our adjusted return on equity expanded to 32.4%, reflecting the impacts of the work completed on the business and the Napier Park and secondary market transaction in the last 12 months.

Now let me walk you through what we're seeing in the market. The market is turning, not all at once and not without friction, but the direction is clear. The PMI manufacturing index has been positive for 6 consecutive months. Industrial production improved year-over-year. Carload growth is materializing across agriculture, energy and industrial construction segments where rail has a natural advantage. In particular, agricultural carloads have shown the most strength due to soybean strength and steady increase in ethanol.

Railcars in storage have been below 20% for the last 4 months. Inquiry levels for new railcars are strong, reflecting growing customer conviction that the cycle has turned, and demand side signals continue to be stronger than supply side signals. Rail structural advantages are playing to our favor as well. Fuel efficiency relative to trucking, capacity constraints in the over-the-road network and increasing pressure on supply chains to reduce carbon footprints are all driving freight toward rail. These are durable trends. And when I look at the core indicators, PMI, industrial production, carloads and inquiry levels, the trajectory is constructive and gaining momentum.

We enter the second half of 2026 with growing confidence. I'll take you through both segments, starting with leasing and services. Leasing performed. Utilization held at 97.3%. Renewal success rates improved to 75%, up from 60% in the first quarter. The future lease rate differential moved to a positive 3.5%, up from 1.2% in the first quarter. That is a meaningful acceleration and FLRD has now been positive for 20 consecutive quarters, a forward indicator that lease rates should continue to grow as renewals convert. These are the metrics that tell us the fleet is healthy and the market is supporting our pricing.

Leasing revenues were down year-over-year and the reason is structural. We closed railcar partnership transactions in Q2 2026 and Q4 2025 that reduced our own fleet. For context, in the second quarter of 2025, the revenue contribution from the consolidated Napier Park fleet was about $30 million. We are growing our overall platform while monetizing embedded fleet value and simplifying the balance sheet.

As of June 30, our wholly-owned railcar fleet stands at 96,280 railcars and our investor-owned fleet count, which we manage is 50,650. Higher lease rates and stronger external repair pricing partially offset the revenue impact of the smaller consolidated fleet.

Leasing segment operating margin was 79.8%, including the $132 million non-cash gain from the Napier Park transaction. Excluding that gain, the leasing and services margin was 33%, reflecting higher maintenance and depreciation costs and the mix impact of a smaller consolidated fleet.

Additionally, we incurred disposal charges related to the exit of certain logistics solutions locations in the quarter. On the portfolio management side, we completed $31 million of lease portfolio sales in the quarter, generating $8 million in gains. The secondary market remains active, and we continue to use it as a capital allocation tool. In the Rail Products segment, we received orders for 1,560 new railcars and delivered 1,570 railcars in the quarter, ending the quarter with a backlog of $1.6 billion.

We currently hold just under half of the industry backlog. Revenues were down slightly year-over-year, driven by lower deliveries. Rail Products operating profit margin came in at 1.3%. Two items drove roughly 270 basis points of that shortfall, an unplanned production interruption at our Longview manufacturing facility and temporary realignment expenses tied to our Mexico manufacturing footprint. Excluding those items, underlying margin was in the 4% range, still below the annual trajectory we are targeting.

Additionally, the mix of deliveries in the second quarter was less favorable than the first quarter. Last year, we initiated a significant consolidation and automation initiative at our Longview operations, transitioning from 2 facilities to 1. While we are excited about the long-term operational improvements this project will deliver, it can affect our productivity while it is ongoing. We expect this project to reach completion early in 2027. The full year Rail Products margin is expected to land at the low end of our 5% to 6% range as production normalizes in the second half and mix improves in Q3 and Q4.

The structural work we have done on automation, rightsizing and breakeven reduction is intact and performing. The second quarter results do not reflect that progress, but the full year will. Before I turn the call to Eric, I want to highlight a strategic development for Trinity.

In June, we acquired a 32% interest in Touax Texmaco Railcar Leasing Private Limited, or TTRL, which is a railcar leasing company in India. This is a joint venture with Touax Group, a global asset management company and Texmaco Rail & Engineering Limited, a rail solution provider in India. We are contributing our leasing expertise while gaining meaningful exposure to India, a growing rail market. While we do not expect material P&L contribution in 2026 as the joint venture completes its additional fleet build-out, we are excited about this JV's ability to generate solid returns and meaningful growth.

In summary, we delivered strong EPS growth, closed a significant transaction that demonstrates the value embedded in our fleet and maintain the leasing metrics that matter most: utilization, renewal success and FLRD. Rail Products had a difficult quarter on margin, but inquiries are growing and our full year expectations are unchanged. The market environment is improving, and Trinity is built to capture that improvement. I'm proud of how this team is executing, closing significant transactions, navigating a complex operating environment and accelerating into a strengthening market. The platform is sound, the leasing business is strong. The strategic moves we are making are the right ones, and the team is focused on delivering in the second half.

I'll now turn the call over to Eric, who will take you through the financials and our updated guidance.

Thank you, Jean, and good morning, everyone. Before we go through the financial statements, I wanted to quickly talk through the second quarter railcar partnership transaction with Napier Park. As you will recall, we completed the first piece of this transaction in the fourth quarter, moving the TRP 2021 fleet to wholly owned and the Triumph fleet into our managed fleet and recording a non-cash gain on that exchange. In the second quarter, we contributed our remaining membership interest in the Tribute partially owned fleet for an 11.2% limited partnership interest in Napier Park SPE Holdings. The Tribute fleet is now part of our managed fleet, and we no longer have direct ownership interest in TRIP Holdings. Because the book value of this fleet was well below the market value, we recorded a non-cash pretax gain of $132 million in the second quarter.

It is worth noting that while these transactions have simplified our financial statements and have allowed us to unlock significant value in our railcars, there are other notable impacts to our financial statements, especially in comparisons to prior periods. Starting with the income statement. Revenues for the quarter were $485 million, down slightly both sequentially and year-over-year, reflecting the deconsolidation of the partially owned leasing subsidiaries as these railcars move into the managed fleet, the partially-owned railcar count and minority interest goes to 0, both expected outcomes of the partnership structure.

Earnings per share in the quarter were $1.25, up both sequentially and year-over-year as a result of the $132 million railcar partnership gain. We also recorded a gain of $8 million in the quarter from lease portfolio sales. Moving to the cash flow statement. Year-to-date cash flow from continuing operations was $172 million. We've returned $71 million this year to shareholders through dividends paid and shares repurchased. Year-to-date net fleet investment was $126 million. Cash flow from operations with net gains on lease portfolio sales was $81 million in the quarter and $203 million year-to-date, reflecting significant cash generation even in a slower delivery environment.

Turning to our balance sheet. We continue to work to strengthen and improve our financial position. We have liquidity of $1 billion. Our second quarter balance sheet now reflects the deconsolidation of all balances related to TRIP Holdings, both on the asset side with a lower property, plant and equipment balance and the removal of the associated partially owned debt from our balance sheet.

Furthermore, the other assets line item includes our new equity method investment in the Napier Park railcar fleet. Additionally, in the quarter, we amended and extended our $600 million corporate revolver to provide more flexibility and issued TRL 2025, Series 2026-1 secured railcar equipment notes to redeem in full the Series 2019-1 notes. The financing increased the loan-to-value on our wholly owned lease fleet to 70.8%, which is slightly above our targeted range. The higher advance rate on the fleet reflects the increased market value supported by higher lease rates on our fleet. Our Unencumbered fleet is approximately $900 million, giving us financial and operational flexibility. And now I'd like to give some thoughts on guidance for the rest of the year. We continue to expect 25,000 industry deliveries this year, well below replacement levels as customers manage through cost uncertainty and economic headwinds. Despite the softer delivery environment, we are maintaining capital discipline. We are slightly lowering our net lease fleet investment to a range of $300 million to $400 million with gains of $160 million to $180 million. Year-to-date, we have booked $162 million in gains, which means our guidance contemplates limited secondary market sales in the back half of the year. We are also holding our full year EPS guidance of $2.20 to $2.40 and expect Rail Products Group full year segment margin to be in the 5% to 6% range.

This means we expect the Rail Products operating margin to normalize in the second half of the year as the headwinds we experienced in the quarter clear.

Additionally, we expect Rail Products deliveries in the second half to be higher than the first half, which brings meaningful operating leverage on our cost base and supports the full year margin trajectory.

To summarize, the balance sheet is stronger, liquidity stands at $1 billion and our capital allocation priorities are unchanged. Disciplined fleet investment, active portfolio management and returning capital to shareholders. The financial foundation is sound. The recovery drivers are in place, and we are holding guidance. We look forward to demonstrating that in the second half of 2026.

Operator, we are now ready for our first question.

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

Just curious if we could start off on the tariffs just to get a little more clarity there. Our understanding is that the recent amendments to Section 232 investigations are imposing a tariff of up to 25% on the full value of tank cars imported into the U.S. Maybe if you guys could just speak a little more to your current understanding of the tariff situation, what's Trinity's current tank car backlog mix? And just sort of broad thoughts on how this might filter through the system. Appreciate it.

Thank you, Andrzej. I'll start with that. So as you know, our tank cars are manufactured in North America under USMCA. And we continue to engage with the U.S. Customs and Border Protection. We actually filed a formal ruling request with the CBP, asserting our Section 232 exemption. Now our legal basis is different from other builders who rely on an exemption known as the International Instrument of Trade. When you look at this, we believe that our exemption is well grounded and does not have an effect, but we are waiting on the news to come back from them if they still agree with that.

When you look at it, we also have flexibility. Our Longview facility produces tank cars, rail tank cars, and we believe we produce more than any other builder in the U.S. So we have flexibility to move that production around. When you look at the impact so far with those 232s, it has slowed the order rate for new tank cars. And we are seeing that. We're working with our customers to make sure that even under USMCA, if we do end up with any tariffs, it would be at the lower 10% rate.

But we are building in flexibility for our customers. I want to go ahead and talk a little bit about the couplers because I think people are confusing those. There is an evasion case with a different builder on entry of railcars with non-U.S. produced couplers. We are not in that boat. We're not subject to that investigation. And we have a long-standing relationship with the U.S. manufacturer for those couplers. Actually, we've been paying up for those couplers for years. And so I just want to make sure you understand those are 2 distinct areas and the couplers doesn't apply to us.

Understood. I appreciate the distinction there as well. Maybe just a quick follow-up. If the tariffs are sort of deemed to be put in place after the fact on a going-forward basis, would you escalate that in your contracts? And are you sort of expressing that with customers currently in conversations?

Absolutely. Those discussions are happening as contracts are built. The majority of all of ours have escalation as part of the contract. So those would pass on.

Great. And maybe just touching on the quarter a little bit. You guys talked about the impact on rail margins, rail products, the 270 bps, those 2 pieces, the unplanned production interruption and then the temporary line realignment in Mexico. Maybe -- could you maybe just split out the 2?

What was the impact on the production interruption in Mexico and maybe what drove those 2 unplanned interruption or events?

And then just going forward, any thoughts on how we can expect that tank car order mix to impact margins relative to your guidance?

Sure. So first, we are deeply saddened by the tragic loss of one of our colleagues, and our thoughts remain with that employee's family, friends and the coworkers. The safety of our people is our highest priority. And any workplace fatality is upsetting to everyone at Trinity. Consistent with our prior practices, we have taken steps to reinforce our safety programs and identify opportunities to strengthen our processes. While I won't discuss the specifics of the incidents, we remain committed to continuously improving our safety culture and ensuring our employees have the training, resources and support they need to work safely every day.

That is the largest portion of the 270, but we also had some realignment of work in Mexico. Some of that was related to the tank cars. As we look at going forward, the biggest impact and the reason we're saying we'll be at the lower end of the 5% to 6% is we see a significant increase in deliveries for the second half of the year versus the first half of the year. That operating leverage will allow us to go ahead and regain some of the efficiencies that have been lost earlier in the year.

We don't expect a repeat of the incidents from the first half to occur. I think that explains the majority of the 270 for you.

Yes. And Andrzej, I'll just add that as you think about the rest of the year, we have very good visibility into the back 2 quarters of the scheduled production. So I don't -- the guidance range anticipates the tank freight mix, and we don't expect that to really be changing. As Jean is referring to the tariffs affecting tank car decision-making that really gets into 2027 more so than the back half of 2026.

Great. That's great color. And then just on that sort of margin trajectory into the back half with the improvement in deliveries, is there any contemplation of the 3Q versus the 4Q in terms of you thinking that production will ramp sort of more into the year-end? And I know last year, margins in manufacturing was actually higher in the third quarter. I don't know if we should be expecting similar in the back half. Just any thoughts there in terms of cadence would be helpful as well.

We're already set to make the production ramp that we need to do, and I wouldn't expect any large swings quarter-to-quarter.

Great. And then maybe just on the FLRD, I wanted to switch there because it looked like a nice change in the prior downward trend. It rose to 3.5% this quarter. Maybe just talk about what's driving that and then expectations for that FLRD going forward?

Well, all of the metrics that we follow that support that FLRD, the utilization remains high. When you look at the renewal rate, it went up to the 75%. Inflation remains high. Material costs continue to rise. All of those give us the headroom to continue to look at raising those lease rates and are supportive of that. A lot of what you saw in Q1 was the mix of car types. I think you see a little bit of that in the second quarter, too. So that will impact that rate, but we see headroom on the lease rates going forward.

Our next question comes from Harrison Bauer with Susquehanna.

I want to extend my condolences to your colleagues. Sorry to hear about that. I'm glad you're taking steps on safety going forward. Maybe moving to just a couple of quick follow-ups on the quarter more specifically. You offered the disruption and the effect on margins. Is there any -- do you have a delivery or shipment account that, that affected in the quarter? Or is that strictly a cost action? That's one.

And then two, just thoughts on how the India JV is going to flow through the P&L. Is that going to reflect in your total lease fleet? I know you've made some actions most recently on kind of cleaning up the NCI line. So just curious how we should expect just the financial statement of that new JV into next year?

Okay. I'll go ahead and start. So we did have the delay of some deliveries due to the disruptions in the second quarter, but we didn't lose those. So you'll see those flow into later quarters for us. And then I'll let Eric talk to you about the India JV.

Yes, Harrison, the Indian JV, we're very excited about it, but it will be an equity -- we're going to account for that under the equity method of accounting. So it will be an investment that will be broken out in our other assets. You'll see that when we file the Q later today. And thus, because we're doing that, it will be -- come through in other income kind of below the segment line.

So it will not be how we used to do the TRIP transactions. So it will be -- this year, we don't expect much of an impact. The capital we provided, we're excited about it. It's more growth capital for the business. Long term, we think that's a very good market, and we thought it was the right way to approach the market by partnering and really prove out our -- from a distance, it looks like a great market, and we're going to prove that out with our partners.

Okay. Great. Maybe just touching on the unchanged guidance. You left that at the same $2.20 to $2.40 range. It sounds like the Napier Park deal, that was largely in line with expected. But after the second quarter Rail Products profits came in a little bit lower than expected. Can you maybe offer or walk us through what's keeping that guidance unchanged, particularly with the margin outlook in that segment lowered for the balance of the year and why maybe the guidance was not at least trimmed on the higher end or lowered?

Sure. And I'll go ahead and start on that. So the basis for maintaining really comes down to what we're expecting out of the Rail Products Group and the fact that we're talking about a significant increase in the deliveries and the operating leverage that we'll get from that. We are maintaining the 5% to 6% range. We just guided to the lower range -- lower part of that range. So we did not lower the 5% to 6%.

And that will account for the majority of the hold in the $2.20 to the $2.40. Leasing continues to operate well, and we expect that to continue to happen. We do have some gains into the back of the year, but they're not significant. So -- and that's from the secondary market sales. So it's really coming down to Rail Products.

Okay. Great. I want to dive a little bit into maybe the book-to-bill on the rail products side. It's nice to see that approaching 1, albeit on a significantly lower historical delivery account. Can you help offer any color or further color on what's driving this delay of inquiry conversion into firmer orders? How much are the uncertainty around tariffs regarding tank cars influencing that? And whether or not the orders -- any way to split the orders between freight cars or tank cars just to get a sense of how that mix is building up into next year?

So I'm going to start with in the third quarter, the first month, we've seen a pickup in new car orders. Not going to give you the amount, but it's noticeable compared to the second quarter. When you look at that, the majority are in the freight car side, but we are getting tank car orders come through also. So uncertainty will and has been delaying people's choices to go ahead and place orders on tank cars. Some of them are looking at the timing, the need to replace cars, the need to scrap some of the older cars and having to make that choice.

When we look at the fact that material costs are continuing to go up, I think it's just a choice that they have to make on when they pull the trigger and make those orders come through. But like I said, it's good to see in the first month, the pickup in the third quarter of new cars coming through in orders.

All right. Great. Any thoughts on backlog visibility into 2027? What do you need to see in order levels for the balance of the year to start filling out any production white space? We know you have a long-term supply agreement. Any color on when we might expect any re-up on that? I believe that goes through the balance of 2028. So any thoughts on how that might be split up between next year and the following year? Just any thoughts on what you're seeing in terms of visibility on 2027 capacity being filled?

Yes. So Harrison, as far as 2027, our backlog is roughly about half the industry. As you mentioned, part of that is made up with the multiyear agreement we have with GATX that runs through 2028, and that's fairly even over those years. And so there is still work to be done and orders to be filled to get to 2027. We still -- we feel like this year is going to be around 25,000 units. We do anticipate sitting here today that there will be a step-up in that for next year, and we think it's around 35,000 units.

That does imply that order activity will need to pick up between now and then. And as Jean mentioned, the first month of the quarter is off to a good start. We see the fundamentals there. Rail traffic is still improving. Jean mentioned all the PMI indexes, and we see the fleet in very good balance. Cars and storage are down to less than 20%.

And so we do see -- feel like the momentum is coming. the tariff headwind and the uncertainty is certainly that. It's a headwind that's causing some customers to pause. But we're confident that's going to be cleared up sooner rather than later, and that will give us -- we just need clarity. Once we have clarity, we think the volume will come.

Absolutely. Maybe just to close on me on the leasing side, particularly around net fleet investment with that coming down a little bit this year. Can you walk through what your proceeds or gains assumption is embedded in your guidance?

And how are you thinking about your net fleet investment with regards to investing in new railcars that you're building versus what seems to be the rising opportunity of buying used books out as a larger percentage of growing your lease fleet versus building yourself?

Sure. Yes, you're right. We are actively participating in what we consider the direct origination market, which is the new car market and then the secondary market. And we've been fairly active in both. That direct -- the primary market is still -- we're still focusing there, but with lower volumes that are happening on the industry side, we certainly are seeing opportunities to invest on the existing market.

As far as just the guidance, we're still at that $160 million to $180 million on the gains. And so that does have both buying and selling of investment. And that gets us in line with our 3-year targets that we have and of $750 million to $1 billion. We feel good about that target, and we feel good long term about the ability -- our platform has the ability to originate a lot of lease content. Whether that's on the direct side or on the secondary market side, and we'll continue to participate there and create value for shareholders.

This concludes our question-and-answer session. I would like to turn the conference back over to Jean Savage for any closing remarks.

Well, thank you for joining us today. Our second quarter results reflect the strengthening leasing business and specific transitional headwinds in Rail Products that we've quantified and are working through. We closed the Napier Park transaction as signaled. We're holding our full year guidance and the platform is positioned to deliver the second half. Thank you for your continued interest in Trinity.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Trinity Industries First Quarter ended March 31, 2026 Results Conference Call. [Operator Instructions] Please note, today's event is being recorded. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. I would now like to turn the conference over to Leanne Mann, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's first quarter 2026 Financial Results conference call. Our prepared remarks will include comments from Gene Savage, Trinity's Chief Executive Officer and President; and Eric Marketo, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the quarterly investor slides, which are accessible on our Investor Relations website at www.trin.net. .

These slides are under the Events & Presentations portion of the website, along with the first quarter earnings conference call of EnLink. A replay of today's call will be available after 10:30 a.m. Eastern Time till midnight on May 7, 2026. The replay information is available under the Events and Presentations page on our Investor Relations website. It is now my pleasure to turn the call over to Jean.

Thank you, Lianne, and good morning, everyone. We grew earnings per share year-over-year 10% in a quarter where revenue was down 16%. That's the operating leverage we've been building toward, and it shows up in a 24.6% adjusted return on equity over the last 12 months. Cash flow from continuing operations was $100 million. The business is performing the way we designed it to perform. Before I get into results, I want to recognize the team for closing a transaction after the quarter closed related to our railcar investment partnership with Nature Park. As a result of the transaction, approximately 6,100 railcars moved from our partially owned fleet to investor-owned fleet and we took an 11.2% limited partnership interest in the Napier Park entity that owns the majority of Napier Park railcar holdings. .

We expect to record a noncash pretax gain of approximately $130 million in the second quarter related to this transaction. This transaction highlights the embedded value of our fleet and is another step in simplifying our balance sheet. Based on strong first quarter performance and our outlook for the balance of the year, we are raising and tightening our full year EPS guidance from a previous range of $1.85 to $2.10 to a new range of $2.20 to $2.40. At the midpoint, this represents a 16% increase in our EPS expectations. Portfolio sales are an integral part of how our leasing platform creates value. and we now expect a higher level of gain on sale activity this year than we originally planned.

We expect full year gains to be in the range of $160 million to $180 million. which includes $22 million in the first quarter and approximately $130 million from the railcar investment partnership that we will book in the second quarter. Now let me walk you through what we're seeing in the market. The rail economy is improving. Industrial production grew at an annual rate of 2.4% in the first quarter. The manufacturing PMI, a key monthly economic indicator was above 50 for 3 straight months.

That's the first back-to-back positive reading in over 40 months. and has been expanding for 17 straight months. Inquiries have been trending up since the start of the year. Furthermore, railcars and storage move below 20% as the industry fleet continues to contract and carloads ride. The picture is an all plan, however, inflation is still elevated and employment has flattened. That continues to weigh on consumer-driven markets, particularly autos and Intermodal and tariff uncertainty remains.

But the direction is the right one, and we're positioned for it. I'll take you through both segments, starting with leasing and services. Leasing performance, these rates were higher, utilization was higher, and the segment delivered a 37.9% operating margin in the quarter. Revenue was down year-over-year, and the reason is structural, we closed a railcar partnership exchange in the fourth quarter, which reduced our consolidated fleet.

Our own fleet ended the quarter at 101,960 railcars, down about 7% year-over-year. But the number of the matters strategically is our combined owned and investor-owned fleet at 146,670 railcars, which is up 1.6% year-over-year. We are growing the platform and lease rates continue to rise. Renewal rates were 6.6% above expiring rates in the quarter. We continue to invest. Net fleet investment was $68 million in the quarter. Over the last 6 years, we've added more than 18,000 new builds and over 14,000 cars from the secondary market. We were active in the secondary market again this quarter, completing $83 million of lease portfolio sales.

Fleet utilization improved to 97.3%. Renewal success was 60% and higher assignment activity allowed us to place cars with new customers at higher rates. The future lease rate differential for FLRD was a positive 1.2%. The LRD has been positive for 19 consecutive quarters, allowing for continuing growth in lease rates and leasing revenues. The average lease rate continued to increase quarter-over-quarter and year-over-year.

Rail products is where the costs were shown up. We delivered 1,970 railcars at a 7.4% operating margin. On these volumes, that margin is a proof point. It reflects favorable Q1 mix but more importantly, it reflects several years of rightsizing automation and breakeven reduction in this business. The cost structure has changed with the remaining mix of car types to be built, we expect full year Rail Products Group margins to average 5% to 6%. We received orders for 1,660 new railcars.

Both orders and deliveries remain within our usual market share range. Inquiries are accelerating, and we're ready to ramp up when increase convert to orders. Backlog stands at $1.6 billion, just under half of the industry backlog. We're not going to chase volume at the wrong price. When the market turns, we'll be there. Here's where we stand. We did what we said we do this quarter. Margins held up. The fleet is in good shape at 97.3% utilization. Lease rates moved in our direction, and Rail Products delivered a 7.4% operating margin on lower volumes, which is evidence that the cost work we've done over the past several years is paying off. The order book is the watch item. Inquiries are picking up and we're ready when customers are ready. I'm proud of how this team is executing, and I'm confident in where we're headed. Eric will take you through the financials and our guidance for the rest of the year.

Thank you, Gene, and good morning, everyone. I will begin by discussing our first quarter financial highlights. Our operating margins expanded in both segments. Cash generation was strong at $100 million from continuing operations. Our business is generating good returns and is proving its ability to outperform the market particle. We have $1.1 billion of liquidity, and we continue to return capital to shareholders. Let me walk you through the income statement, cash flow and balance sheet, and I'll cover guidance for the rest of the year. .

First quarter revenues of $492 million reflected lower external deliveries in the Rail Products Group. However, as Jane mentioned, GAAP, EPS from continuing operations improved as compared to last year to $0.32, which reflects higher gains on lease portfolio sales and higher lease rates, generating higher operating margins. We generated proceeds of $83 million in the quarter from lease portfolio sales and recorded a gain of $22 million.

Moving to the cash flow statement. Cash flow from continuing operations was $100 million, benefited from a reduction in working capital. Our total net fleet investment was $68 million in the quarter, which included new railcar additions secondary market adds and fleet modifications and betterments. This includes $83 million of railcar sales in the secondary market.

Shareholder returns were $32 million in the quarter, largely driven by our quarterly dividend payment as well as share repurchases. For the 3-year period, 2024 to 2026, we set a target for our cash flow matter which adds cash flow from continued operations and net gains on portfolio sales of $1.2 billion to $1.4 billion, with 3 quarters remaining in the planning period, we expect to exceed this range. There is a significant amount of cash generation, and we are constantly working to make optimal choices on how we grow our fleet and improve the returns of our business.

Moving to our balance sheet. We have solid liquidity of $1.1 billion. The loan to value for our wholly owned fleet is 69.1%. It is worth noting that the market value of our fleet is much higher than the book value of our fleet, and our LTV is based on the net book value. The debt structure on our balance sheet gives us significant flexibility and liquidity as we execute on our capital allocation framework demonstrated by our latest financing.

After the quarter closed, we issued $481 million of ABS notes and used the proceeds to redeem $377 million in outstanding debt, generated approximately $100 million of excess cash providing further evidence of our cash generation abilities. And now I'd like to give some updated guidance for the rest of the year. We expect industry deliveries of 25,000 railcars in 2026 and expect trend to maintain its historical share of deliveries.

While there is still some available space to be sold for the end of 2026, current inquiry levels support maintaining this guidance. We are slightly lowering our expected full year net lease fleet investment to a range of $350 million to $450 million, reflecting expected higher proceeds from railcar sales. As a reminder, this is a cash metric. So this would not include the sale of railcars in the Maker Park RIV program. We are investing $55 million to $65 million in operating and administrative capital expenditures. And as Gene mentioned, we are raising our full year EPS guidance to a range of $2.20 to $2.40, a 16% increase at the midpoint.

This comes from higher-than-expected gains in the railcar partnership transaction as well as higher forecasted gains from the secondary market. We expect full year gains to be in the range of $160 million to $180 million. Our first quarter demonstrates the operating leverage we've been building. The business is built to perform throughout the cycle. Our disciplined cash flow management and optimized balance sheet give us flexibility in capital allocation and working capital management. Our lease fleet utilization is high, generating consistent, predictable revenue and cash flow.

In short, our platform is performing in today's results and 2026 guidance reflect our conviction in Trinity's ability to continue to generate above-market returns for our shareholders. Operator, we are now ready for our first question.

[Operator Instructions] The first question comes from Harris on Bauer, Susquehanna.

Maybe just to start off with the gains. I mean backing into what you did in the first quarter and what's expected from the transaction in the second quarter there's only a range of $10 million to $30 million in terms of gains for the rest of the year in the second half and maybe excluding the deal, in the second quarter. So could you just maybe walk through where you think there might be some declines in secondary market activity? Like what's maybe 1 of the reasons why that you would expect lower gains in the second half of the year potentially?

Harris, this is Eric. I'll take that. Yes. As you know, the games can be a little lumpy. And certainly in the second quarter, with the Tribute transaction that they will be a little lumpier. In terms of -- you're right, in terms of the guidance, it does imply a lower level of gains in the back half of the year. And I'd just say it is still a very elevated number. We are really focused on our net fleet adds and our growth of our fleet. And we're in the range or the upper range of our 3-year target.

We did bring that down this quarter by $100 million, which reflects a little more selling activity out of the portfolio. And most of the raise with the -- the raise is certainly attributable to the gain -- our outlook on gains going forward. And overall, the semi market is still strong.

Understood. Can you give us maybe a sense of where that transaction with Napier Park ended up relative to your initial expectations in terms of either the structure or the amount of the noncash gain that you expect?

First, on the structure. The structure is a little different than the last one. We took an 11% interest in all of the Napier assets. It was -- they're both structures is noncash but certainly, we like having that alignment of that interest in the broader portfolio. It will be a little different accounting of the equity method accounting going forward. and so you won't have a minority interest. So from that standpoint, it will simplify things. In terms of our expectations on our fourth quarter earnings call, we had not -- we signaled this. It was included in our guidance, but we certainly didn't have anything completed at that point. And part of the raise is attributable to a higher gain with the Napier Park transaction. So it came in a little better than we expected, and that was just through our negotiations.

Okay. Great. Maybe just shifting to the FLRD. Obviously, that number trended down a little bit. There's some mix -- it is forward-looking, but -- and there are some mix dynamics. Could you maybe paint a picture how you would expect or could expect earnings in the leasing segment to potentially grow even if your renewal rates tend to flatten out. You've called out some cost pressures in that business? And maybe if you can offer how you would expect the FRD to maybe trend with gains or level of secondary market over time, if the stagnation in that number might also correlate with some just general lower secondary market activity.

Sure, I'll take that one. So when you look at the FLRD, we stated it had been positive for the 19 consecutive quarters and so that's a good trend. Utilization went up to 97.3%. And cars and storage went down, inflation is still high. So overall, the parameters are around, our lease rates are still positive. We had a 6.6% uptick in the renewal rate versus expiring rate in the quarter. Our average lease rate went up quarter-over-quarter and year-over-year. So all of those are still trending in the right direction. In the first quarter, we did have a little bit of the mix that affected us.

If I was a betting person, I bet we're going to beat that percentage going forward. So it really comes down to the mix of cars and then what's expiring in the next 4 quarters. Sometimes, the mix helps us. Sometimes it brings us down a little bit. But we still see headroom for increasing the overall lease rate, especially since new car costs are continuing to be elevated, and that gives us some of that headroom.

Okay. Great. And then maybe just to close for me, just shifting over, and you mentioned elevated new car costs and shifting over to the manufacturing segment. And it's nice to see the results strong there in an elevated or in a lower rather delivery environment. But could you maybe give us some updated thoughts around the recent Section 232 tariffs on full value of imported tank cars. What are the implications for your business, if there's any cost associated that are factored into your guidance at all? And maybe just with that, if you can update us on your tank car production mix, how much of it might be produced in your Longview plant versus Mexico? And just any general thoughts around your tank car production and what this potential tariff might mean for your business?

Sure. So we've been dealing with the uncertainty of tariffs for a while now, and the team has gotten really good at looking at that. We'll continue to look and see what may affect us, how it may affect us and then adjust what we're doing based off of that information that we find. So uncertainty remains, I don't see that going away. So just no team is on it, and they've done a great job so far working on that. .

We typically don't disclose what percentage of cars are being produced where. So we're not going to do that. But we're still continuing with the 25,000 industry deliveries for the year and our portion of that in our normal range, which is somewhere between 30% and 40%. So not a lot of major changes on that.

The next question comes from the line of Andrew Zions, Goldman Sachs.

Just kind of curious on leasing to start out. First, maybe just more broadly in the context of a potentially sticky inflation environment particularly given higher energy prices globally more recently, how do you communicate with customers who lease railcars from you currently, the asset prices are higher and are you thinking ahead to the next wave of resigning leases and expecting another positive cycle of growing lease rates and positive to potentially reaccelerating that FLRD?

Okay. Andrew, I'll take that one. Well, the last question I did say if I was a betting person, I would bet it'd be above the 1.2%. It really comes down to the mix in that quarter and what is going to show. When we're looking at overall the environment, again, the metrics are in favor of being able to continue to raise the lease rates. Now we are lapping some rates that had already been raised during this time period. During that 19 consecutive quarters of positive FLRD, so we're going to keep that in mind. But overall, all the things we're looking at, agriculture and energy markets are really strong, if I look at some of the weaker markets in chemical, it's weaker not from carloads, but it's weaker from their margins. And so there's a little bit of weakness there and then consumer products, which we don't have a lot of cars in our fleet that are the consumer-facing type products. So overall, when we look at our mix, we still see an opportunity to raise those rates.

Andrea, I'd just add, the energy prices you're alluding to, I'm assuming, is related to oil and what's going on in Iran and while that is starting to come through in some of our supply chain costs, it probably hasn't worked all the way through. So that continues. I think you're leading to that could be a next wave of inflationary pressures. And it certainly could, the interest rates are starting to signal that as well with what treasuries are doing. So the fleet remains very tight. It's in balance. And so that will start to potentially price through in the future.

Understood. And I think last call, you talked about the market value of your fleet and that that's, I think, 40% to 50% above book value. any updates to those numbers? And other question there is, have you looked at that historically to determine sort of on average, how much the market values exceed book values, just trying to get a sense for market value versus book value this cycle, how that dynamic might be different?

Yes, Andre, this is Eric. So we talked last quarter, we talked about our estimate was 35% to 45% higher than our carrying values. We have not updated that view. That is still our view. In terms of -- if you go back over the last 4 or 5 years, you've had more inflation in this industry than if you go back the prior 5 years, and so it probably has accelerated. I haven't gone back and back tested it. But certainly, it has trended higher the inflation rates.

But just to mention, long term, we see 3% to 4% inflation in railcar asset prices. And long term, we've seen lower inflation in lease rates at 1% to 2%. So that does imply that there is still a lot of room for lease rates to catch-up, if you will, to what we've seen on the asset side. And certainly, financing cost and treasury rates certainly support our view that, that will happen over time.

Understood. Just on that last point on leasing, how are you thinking about the spread sort of between lease rates and your cost of capital today? And maybe looking forward, how that's influencing your appetite to grow the lease fleet.

I don't think our -- we are always evaluating our hurdle rates against our weighted average cost of capital. It certainly -- it changes often with the volatility you've seen especially in the treasury rates. But in terms of the spread over our weighted average cost of capital, we're being fairly consistent around that. It may vary by different car types. But we are certainly seeing that. And we're seeing a fairly disciplined lease pricing in the market. So that's been good.

Okay. Got it. And maybe shifting gears to a little bit to the manufacturing side. It did seem like a really nice margin performance there despite volumes down 36%. And you improved EBIT margin 120 bps year-over-year. Could you just talk a little bit more about the cost takeout initiatives there as to what's driving that? And then also, maybe why you would still expect the 5% to 6% full year average margins given the sort of 1Q outperformance there?

Sure, I'll take that one. So First on the cost initiatives. Team's done a great job for several years, working on continuous improvement, reducing setup time, automation that we're putting into the facility, all of that comes together to help us with both efficiency and overall productivity for those facilities. And that work continues. We're always looking to see what else we could do, help both from the safety and productivity standpoint. .

When you look at Q1, we had some favorable mix. We had more specialty cars that we produced in that quarter. And second through the fourth quarter, we're expecting more standards, so less specialty cars that are going to be produced. And looking at where we're at 5% to 6% performance at these volume shows a structural change in our facilities and our ability to produce. So that is something I'm very happy with and something that we've been talking about for several years to you all about things we were going to do. It's lowered that breakeven cost for us. So I think the operations Railtronix Group is performing very well. And when we get some volume back, I think you're going to see that leverage come through.

Understood. Thanks for clarifying that there. And just on the headcount, I was curious in manufacturing. I know that doesn't get talked about often on the call, but could you maybe talk about where head count is at today versus may say, the peak and then following on to that, I was curious to know what the lag might be to hiring and bringing new labor online relative to when you sort of see orders and backlog start to improve?

Sure. So a couple of things. Typically, when orders or backlog come up and the production rate has to improve. We'll go to over time to start with, and that's about a 20% to 30% uptick that you can get from that. The other good thing we've got in our favor is during the downturn, A lot of the employees, many of them said that they want to come back. So when we start rehiring, we'll go to those employees first. Now it doesn't mean they come in and they're 100% productive right away. We'll have to go through some retraining, there will be the time to get their efficiency back up as they get used to where they're working on the line. But we think we'll have an easier time getting those employees and getting them back into the factory. .

So we see the ability to move a little quicker than we did coming out of COVID and getting production rates up. When you look at where we were several years ago, I'm just going to do total employment for the company. We were about 10,000 employees, and right now, it's closer to 6,000 employees. So a lot of that would have been in the production space in that change in that swing. Some of that aging coming out of COVID was new employees coming in who had never worked in the industry. So you had to hire more to get over that efficiency and productivity increase that we needed. And I think it will be less than that as we ramp back up for the next increase in volume.

Understood. And I appreciate the color there. Maybe just for me to close off 2 final questions. One was just what's the earliest sort of indicator that you guys are watching internally would tell you demand is going to inflect either positively or negatively soon, hopefully, positively. I know ISM has done better recently, maybe historically, that's a good indicator. Anything just specific that you guys are tracking want to call out? So that's the first. And then secondly, just looking ahead, the $160 million to $180 million of gains this year, is that sustainable sort of on an annual basis if we look beyond 2026?

Sure. So you mentioned a couple of the key metrics we're watching, but utilization is 1, the tightness in the market overall also for the industry, cars and storage. Then when you go to the inquiry levels, and we were positive since the 1st of the year, inquiry levels have picked up. Now they do have to convert to orders. But the first quarter, we had -- saw something that conversion. We're having positive conversations again this quarter. So looking at that, we see positive signs that the volume could move. When you look at PMI, when you're looking at the manufacturing indexes, we closely follow that. So all of those are good indicators for you to watch to say, we think things look positive. We still have to see the quarter rate get up to get us back to what we thought next year might be closer to 30,000 or 35,000 industry builds.

When you go to -- the second question, gain. Okay. On the gains, we're not going to talk a lot about '27 but when you look at the fact that selling in the secondary market and buying in the secondary market are integral to the way we run our business. I would expect that you're going to see us in some form doing both of those every year. When we get closer to '27, we'll give you more guidance on what we think will happen in 2027.

That was the last question. .

Well, thank you for joining us today. Our first quarter results highlight the operating leverage we've been building and the progress we're making across the business. We remain focused on what that is here. disciplined execution, delivering for our customers and creating value for our shareholders. Thank you for your continued interest in Trinity.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Good day, and welcome to the Trinity Industries Fourth Quarter and Full Year Ended December 31, 2025 Results Conference Call. [Operator Instructions]

Please note this event is being recorded. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and include statements as to estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking.

Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

I would now like to turn the conference over to Leigh Anne Mann, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's Fourth Quarter and Full Year 2025 Financial Results Conference Call. Our prepared remarks will include comments from Jean Savage, Trinity's Chief Executive Officer and President; and Eric Marchetto, the company's Chief Financial Officer.

We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the quarterly investor slides, which are accessible on our Investor Relations website at www.trin.net. These slides are under the Events & Presentations portion of the website, along with the fourth quarter earnings conference call event link. A replay of today's call will be available after 10:30 a.m. Eastern Time through midnight on February 19, 2026. Replay information is available under the Events & Presentations page on our Investor Relations website. It is now my pleasure to turn the call over to Jean.

Thank you, Leigh Anne, and good morning, everyone. Our 2025 results demonstrate the durability of Trinity's business model and the effectiveness of our strategy across the cycle. We are intentionally structured to generate resilient earnings, strong cash flow and attractive returns in a wide range of market conditions, and this year's performance reinforces that positioning.

For the full year, we delivered earnings per share of $3.14, representing a 73% year-over-year increase and achieved an adjusted return on equity of 24.4%, up 67% from the prior year. These results reflect the strength of our Leasing platform, disciplined execution in the secondary market and resilient manufacturing performance in a low volume environment and a significant year-end transaction that not only enhanced earnings, but also highlighted the substantial embedded value of the railcar assets on our balance sheet.

Looking ahead to 2026, we are introducing an EPS guidance range of $1.85 to $2.10. Our guidance reflects confidence in the durability of our earnings and the visibility of our leasing cash flows. Lease rates continue to trend higher, supported by healthy demand even as the pace of growth moderates in certain railcar categories.

The buying and selling of railcars is a key value driver of Trinity's business model. We expect industry deliveries of approximately 25,000 railcars in 2026, well below replacement levels, but reflective of current industry backlogs.

Importantly, despite lower delivery volumes, we expect solid operating margins driven by disciplined execution and the realization of the cost actions we have implemented. Eric will walk through our expectations for 2026 in more detail shortly.

I'll begin with a brief market overview, followed by a closer look at our fourth quarter and full year performance. The North American railcar fleet continued to rationalize in 2025 with retirements exceeding new deliveries, resulting in a net fleet contraction.

In 2025, approximately 31,000 railcars were delivered while more than 38,000 older cars were retired. At the same time, rail network fluidity has shown meaningful and sustained improvements. As efficiency has improved, railcars in storage rose above 21% for the first time since 2021, reflecting faster cycle times and the normalization of carload demand.

While our 2026 delivery expectations are muted, we are optimistic about the pickup we have seen in inquiry levels and orders in the fourth quarter. We remain disciplined in our order intake while maintaining readiness to respond as demand strengthens.

In 2026, agriculture, energy and nonresidential construction end markets are showing strength. Headwinds remain in key consumer and chemical markets like automobiles and chlor-alkali. I will now highlight segment performance for the quarter, beginning with the Railcar Leasing and Services segment, which includes leasing, maintenance and digital and logistics services. The Leasing and Services business remains the foundation of Trinity's earnings stability.

Full year revenues increased 5.5% year-over-year, driven by higher lease rates and net fleet growth. Net lease fleet investment totaled $350 million at the high end of our guidance range, and we use the secondary market effectively as both a buyer and a seller to strategically grow and strengthen the composition of our lease fleet.

Segment operating profit increased 53% year-over-year, supported by the railcar partnership restructuring we completed with Napier Park in December, recording a $194 million noncash gain in the segment.

Additionally, we recorded $56 million in gains on railcar sales in the fourth quarter, resulting in a full year gain of $91 million. Fleet utilization remained strong at 97.1% with renewal success of 73% in the fourth quarter. While the Future Lease Rate Differential, or FLRD, moderated to a 6% as renewal growth normalized, renewing rates were 27% higher than expiring rates.

We believe there is still significant room for lease rate expansion and remain very positive about this business. Eric will walk through the financial impacts of our recently completed railcar partnership restructuring, but I did want to highlight the change in fleet composition. The transaction simplified our ownership structure, resulting in approximately 17,100 railcars removed from the partially owned railcar category.

We assume full ownership of 6,235 railcars. The remaining railcars move from partially owned to investor-owned, which will reduce reported revenue and operating profit, but this impact is largely offset by a corresponding reduction in minority interest.

The restructuring simplified our ownership structure, increased transparency and improved earnings while maintaining economic value. Rail Products delivered a full year operating margin of 5.2% within guidance despite deliveries declining 46%.

Cost discipline, automation and workforce actions enabled profitability in a low volume environment. Additionally, the head count rationalization decisions we made in 2025 have rightsized the organization for the current reality and allow us to maintain profitability.

With an aging fleet and continued net retirements, we expect demand to return over time, allowing meaningful margin expansion as volumes recover. In the fourth quarter, we recorded a onetime credit loss related to a customer receivable within Rail Products. This charge was included in SG&A and reduced the Rail Products Group operating margin by 190 basis points for the quarter.

This was an isolated incident and not reflective of ongoing performance. Before I hand it over to Eric to provide more details on our 2025 financial performance and 2026 guidance, I want to reiterate that Trinity is designed to perform in a wide range of demand environments.

Our results and guidance clearly demonstrate the actions we have taken over the last several years have led to a more durable platform. This includes integrating new technologies to optimize our business and lower the breakeven point.

For example, we have been investing in AI as a core operating capability, not as a stand-alone technology initiative. Working with partners like Palantir and Databricks, we've embedded AI directly into our manufacturing, logistics and financial workflows.

Practically, that means we are using AI to identify and redeploy material that historically would have been scrapped, improving yield and protecting margin. We've also implemented an AI-enabled inquiry to delivery process, giving us end-to-end visibility and faster decision-making. In logistics, AI-driven agents enhance our advanced shipping notices, improving accuracy and timeliness. We've extended those same models into accounts receivable, reducing disputes and accelerating collections.

The cumulative impact has been improved working capital, higher productivity and more predictable execution across the enterprise. Importantly, these are not pilot programs. They are embedded in how we run the business today, and they continue to scale.

We are excited at the impact these initiatives are having on our business now and in the future. I'll now turn the call over to Eric, who will talk through financial results and our guidance for 2026.

Thank you, Jean, and good morning, everyone. Before I talk through our financial statements, I want to take a moment to walk through our recent strategic railcar partnership restructuring and what it means for Trinity.

Prior to this transaction, approximately 23,000 railcars held in our trip and RIV partnership vehicles were partially owned but fully consolidated on our balance sheet and carried at cost. As part of a new fundraise by Napier Park, we began simplifying the fleet structure.

We took full ownership of the TRP 2021 fleet of approximately 6,235 railcars and Napier Park assumed full ownership of the Triumph fleet, approximately 10,850 railcars. The transacted value of the Triumph fleet was significantly higher than our book value, which resulted in a $194 million noncash gain on the disposition.

Our railcar leasing fleet now consists of 101,000 railcars on our balance sheet and 45,000 railcars under management as part of our Railcar Investment Vehicles or RIVs. Our RIV program provides servicing revenue of approximately $20 million per year, which is part of our leasing operations.

The RIV program also provides scale to our platform, which enhances the unique view we have of the North American railcar market. Furthermore, this railcar partnership transaction underscores the embedded value in our assets. We have over 101,000 railcars on our balance sheet carried at a cost of $6.3 billion.

We estimate that the market value of these railcars will be approximately 35% to 45% higher than the carrying value, which demonstrates the estimated 3% to 4% annual appreciation we have seen in railcar values over the last 20 years.

While lease rates have increased, they have not increased at the same pace as railcar asset appreciation. We can choose to generate value from our railcars over the long term by holding them in our fleet as lease rates continue to rise or by selling them. This gives us conviction in the long-term returns of the business.

Moving to the income statement. We ended the year with fourth quarter revenue of $611 million and full year revenue of $2.2 billion. This is down year-over-year due to lower external railcar deliveries. Our fourth quarter earnings per share of $2.31 reflects a strong end of the year and an impact of approximately $1.50 from the fourth quarter railcar partnership restructuring.

Full year EPS of $3.14 was up 73% year-over-year, in line with our guidance of $3.05 to $3.20. Before the impact of the railcar partnership restructuring, our 2025 performance was above the midpoint of our previous guidance.

Moving to the cash flow statement. Our full year cash flow from continuing operations was $367 million. Our full year net lease fleet investment was $350 million at the top of our guidance range, reflecting our conviction in deploying capital in our own fleet.

Additionally, we returned $170 million in 2025 to our shareholders through dividends paid and share repurchases. In December, we raised our quarterly dividend to $0.31 per share, marking 7 consecutive years of dividend growth with an annualized growth rate of 9%.

This reflects Trinity's commitment to returning capital to shareholders. We are ending the year with a strong balance sheet. We have liquidity of $1.1 billion through cash, revolver availability and our warehouse. Our loan-to-value for the wholly owned lease fleet is 70.2%. The increase in our LTV was a result of the debt restructuring we completed in October as well as the addition of the TRP 2021 fleet to our wholly owned fleet.

We are very comfortable with the leverage on our fleet and are regularly refinancing our railcars as our debt amortizes to keep our debt in an appropriate range. Our balance sheet gives us the flexibility we need to effectively deploy capital and run our business.

And now I'd like to talk about our expectations for 2026. As Jean noted, we are expecting industry deliveries of about 25,000 railcars, and we expect to maintain our historical market share of those deliveries. Despite the lower level of new railcars, we expect to maintain a Rail Products segment operating margin of 5% to 6% for the full year.

We expect the secondary market to remain active and anticipate gains of $120 million to $140 million in 2026. We see an opportunity to further simplify our fleet structure and contribute the remaining partially owned railcars to our managed Napier Park fleet in the second quarter.

While this transaction is not complete, we have included the anticipated gains in our full year guidance. We expect Leasing and Services full year segment margins of 40% to 45%, including the impact of gains and any further railcar partnership restructuring activities.

In addition to the gains, we expect higher lease rates to contribute to a higher operating margin, offset by higher fleet maintenance activity in 2026. We expect a full year net lease fleet investment of $450 million to $550 million, reflecting new lease originations, secondary market sales and purchases and fleet modifications and sustainable conversions.

We expect operating and administrative CapEx of $55 million to $65 million, which includes further investment in automation, technology and modernization of facilities and processes. We expect slightly lower SG&A costs in 2026. We expect a full year tax rate of approximately 25% to 27% for the full year.

And finally, we expect a full year EPS of $1.85 to $2.10. We have made structural changes to our business over the last few years that have improved our profitability and returns throughout the economic cycle. With our 2026 guidance, I would also like to close with an update on our 3-year targets we set at our 2024 Investor Day.

As you recall, we introduced 3 enterprise KPIs with targets over the 2024 to 2026 time frame. Net lease fleet investment, cash flow from operations with net gains on lease portfolio sales and adjusted return on equity. First, our 3-year net lease fleet investment target was $750 million to $1 billion over the 3 years. To date, we have invested $531 million and with our 2026 guidance, we'll be at the top end of this range.

Second, our cash flow from operations with net gains on lease portfolio sales target was $1.2 billion to $1.4 billion over the period. To date, we have achieved $1.1 billion and with our current guidance, we expect to exceed this range. It is important to note this excludes noncash gains.

Finally, we set an adjusted ROE target of 12% to 15%. We ended 2024 with an adjusted ROE of 14.6% and ended 2025 with an adjusted ROE of 24.4%, averaging 19.5% over the first 2 years of the planning period. These targets were introduced with the overall guidance of approximately 120,000 industry railcar deliveries over the period.

Our current outlook reflects deliveries of approximately 100,000 units. Importantly, this demonstrates the strength and flexibility of our operating model. We have proactively aligned our business to match the evolving market conditions while continuing to deliver on our financial commitments.

As Jean noted, our 2025 results underscore the strength and resilience of our platform and our ability to deliver attractive returns in a more challenging operating environment. As we look ahead to 2026, we remain highly confident in our trajectory.

With the disciplined execution, continued cost rationalization and a flexible platform, we believe we are well positioned in the market. These strengths give us the foundation to navigate uncertainty and more importantly, the capacity to generate meaningful, sustainable value for our shareholders over the long term.

Operator, we are now ready to take our first question.

[Operator Instructions]

The first question comes from Harrison Bauer with Susquehanna.

Maybe just to start off high level on what you're seeing in demand. Can you sort of talk about if you're seeing improving inquiry levels and if conversion times to actual firm orders are improving at all, beginning to compress? And just what the latest you're hearing from customers broadly about tariffs, broader trade clarity and some expectations for demand as the year progresses?

Good question, Harrison. So customers are engaged, but the decision cycles are still longer than they have been in the past. It appears to be delaying orders. It's not destruction of the demand. When you look at the replacement demand fundamentals, they're still there. We have over 200,000 railcars that are over 40 years old.

And when you look at current inquiry levels, they are increased, which is encouraging. But as you heard, our expectations for 2025 -- or excuse me, 2026 are only 25,000. So we are seeing inquiry pick up. We think that may lead to return to replacement level demand in '27, but still expect '26 to be a little bit lower.

And could you maybe touch on what your expectations are for improving inquiry levels? And how many incremental orders you might need to see to maybe backfill some space embedded in what your guidance is for the year?

Sure. So when you look at what's going on in the marketplace right now with a lower demand, you're seeing some builders not being quite as disciplined. And so we are seeing some pressure on those margins and having to fight pretty hard on our typically, the specialty cars, we do really well and some of the other ones. So all the work we've been doing to lower our breakeven is really playing through in what you're seeing in our Rail Products Group margin.

And then for '26, we're still calling for the 5% to 6%. But it's aggressive out there. We're still being disciplined on what we're taking in and making sure that there are good orders that make sense for us to do. When you look at what we have to fill, we still have room in the back half of the year. So we'll continue to see that progress as we go through the different quarters, the first half of this year.

And could you maybe level set what you would expect margin cadence and maybe deliveries throughout the year, even if directional, just to get a sense if there's anything -- if any quarters are well above or below that 5% to 6% range that you called out?

Yes. So we don't give quarterly guidance, but I would expect it to be fairly even throughout the year.

Great. Can you maybe speak a little bit more to the sort of easing FLRD, but also seeing the really positive renewals versus expiring? And just what maybe sequential lease rates are and how you would expect for those to perform throughout the year?

Sure. So the FLRD remains positive for the 18th consecutive quarter. And when you're looking at the renewal rates like you talked about, they're materially above expiring rates at 28.6% for the fourth quarter and utilization improved quarter-over-quarter.

What you're seeing from the moderation on the FLRD is really lapping prior strong repricing that we've had. But when you look at the value of these assets, we think it supports continued lease rate upside. I think you asked about quarterly and annually. Our average lease rate continues to go up quarter-over-quarter and year-over-year. So we're still seeing positive results there and expect to still have some headroom.

And maybe taking a step back on leasing, can you maybe speak to your expectations on the potential for additional leasing consolidation, whether in the form of some of the partnership or reorganization that you've talked about or if you would expect some further consolidation in the space? And maybe what the level of private capital in the space, just maybe general overview on the competitive dynamics with regards to the leasing space.

Sure. Harrison, it's Eric. I'll take that one. We have seen some consolidation in the leasing space over the last few years. And so -- and that just speaks to the attractiveness of the asset class. We have seen capital looking to come into the space. As you get out and speculate on what could happen in the future, I know there's capital there that would like to do things, but it takes [indiscernible].

And so I'm not anticipating anything in the near term. But there is still very active trading more at the portfolio level and the asset level, and we would expect that to continue. When you talk about the partnerships, some of the private capital, there's always possibility with that, but it seems like there's still an appetite to grow from that from a private capital standpoint.

The next question comes from Andrzej Tomczyk with Goldman Sachs.

Just wanted to start a bigger picture as well. If we could just talk a little bit more about the guidance range that you laid out. Could you help translate sort of the low end versus the high end of the range relative to your expectations for customer demand through 2026?

It might have been asked a little bit earlier, but I guess specific to the manufacturing deliveries, maybe what it means in terms of absolute levels of deliveries throughout the year? And then what you're expecting for ordering activity in the first half of this year in order to get to your full year targets?

Yes. So Andrzej, thanks for the call. Let me see if I can help you through that. When you look at -- we talked about 25,000 deliveries for the industry. We haven't given any more detail on our deliveries other than it would be in our normal range of 30% to 40%. So that would imply -- you can imply what you get from the math.

When you look at just the guidance range, so that's what you're going to get from Rail Products. And also, we gave you the margin of 5% to 6% there. And so that's kind of the big piece of it. When you look at the range that we did -- that we provided, there's a pretty big range on the gains of $120 million to $140 million. So that's also going to provide some of the spacing between the low end and the high end.

Got it. That's helpful. And I think you called out a 190 basis point margin headwind in manufacturing in the fourth quarter, if I had that right. So I just wanted to clarify that point first. And then just what we should expect sort of off of that run rate, if that's sort of an adjusted number. I think it would be closer to like 6.5%, if I have that right, for the fourth quarter for manufacturing. How do we think about -- is it still just the 5% to 6% through the year, but maybe the first quarter starting off closer to the low end of that range? Or how do we think relative to that adjusted number?

So we didn't adjust. So we just -- we called out the difference in the reserve that we took. But when you think about it, as Jean mentioned, it should be relatively smooth. We did have -- as we talked about in the third quarter on some of the specialty mix that we had on the tank car side in the third quarter, some of that carried through in the fourth quarter.

So you got a little bit of benefit there as we get to more of a traditional mix going forward. That's where we're in the 5% to 6%. The 5% to 6% also with the volume that we're talking about, we're happy with that, especially with, as you mentioned, the amount of unsold space that we have.

And you talked about order cadence, I guess I didn't answer that previously. But last quarter, the industry orders were about 5,800 units. And so that's kind of what we'd expect going forward in the near term to get to that 25,000 units for the year.

Understood. And it seems like we have a firm grasp on sort of the volume picture for manufacturing this next year. Curious if you could help out on the sort of revenue per unit in manufacturing. Are there any sort of notes to consider around mix in 2026 from a revenue per delivery perspective?

You'll get -- I mean, at the lower levels, there's a little more tank car mix than freight car mix. Generally, those are a little higher unit pricing. As Jean mentioned, it's a competitive environment out there.

So you've got a little bit of pricing pressure on the top end. And then we're trying to take -- we've got our initiatives to take the cost out to preserve as much of the margin as we can at these lower volume levels. These are low volume levels that we're operating in. So every bit helps.

That makes sense. Maybe just shifting to leasing. Just curious if you could dig in a little more on the initial feedback of the partnership restructuring deal that you completed in the fourth quarter. And then just the moving parts of that into 2026 regarding the level of your owned lease fleet through the year and then revenue per unit in leasing would be helpful as well. And then just on that, the moving parts, sort of the minority interest that you mentioned in 2026, maybe what level we should be thinking there or what you're baking in? I appreciate it.

Yes. Okay. I'll start there. Let me just reset Napier Park, they've been a partner of ours since 2013. They're our longest RIV partner or Railcar Investment Vehicle partner. And as part of a new fundraise that they did, we divided these assets up in December.

What we really like about it is we think it really demonstrates the value of the fleet. And recall, when you look at our fleet, our fleet for the most part -- most of our assets is at manufacturing cost. And so when you apply a market value against a manufacturing cost basis, you get the types of gains that we saw in the fourth quarter.

This increases our RIV program to about 45,000 railcars, so a significant piece of our fleet. As I mentioned in my script, that provides about $20 million a year in fee income, which we really like that. It also provides a lot of scale for our business. 45,000 railcars that we are the [ lessor ] on that we run through our shops. It just provides a lot of scale for our business.

Also, you mentioned the minority interest. This will help simplify our balance sheet when you -- less partially owned and less minority interest that comes out. So it will be simpler from an outside perspective.

As we look ahead in 2026, we see an opportunity to do something similar with the remaining partially owned assets. We're including that in our gains guidance of $120 million to $140 million. We would expect that to close in the second quarter. We don't have any of this. This is -- we don't have a price yet agreed to. We don't have a transact structure agreed, but we do see -- have line of sight to that happening.

And Napier Park, while they haven't been a buyer of assets for the last several years with this new fund, we would see them as a potential buyer in the future of assets and kind of revive them as a buyer of assets. More to come on that.

But I said a lot there. So just to kind of sum it up, it demonstrates the value of our fleet, especially when you compare it to market value to cost, and it's going to create opportunities for us going forward, both in terms of fee income and then potential transactions down the road.

That's very helpful color. Just maybe to clarify on the one point then. Is it fair to say in the second quarter, we should expect more of the gains to occur relative to the full year target? Or is that...

That's what I'm saying, yes. That is what I'm saying.

And then just one more broad question for my end to close out, not sure how far you guys want to venture out, but however you can talk about this would be helpful. Just curious sort of your level of confidence on 2026 marking a bottom for customer ordering activity or maybe industry delivery activity, maybe if your customers are giving any indication that, that could be true.

And I guess the question is what could cause the prolonged downturn to linger into 2027 from a risk perspective? Or is it just tough to envision that at this point, just given how long and [indiscernible] it feels we are in this industrial slowdown or freight recession?

Thank you, Andrzej. So when you look at what we're seeing in 2026, the rail traffic had improved besides the weather that we saw. So with carloads were improving, that's a good thing. We just heard the manufacturing hiring. The jobs report was up. So even though we're not calling victory, we're saying we're starting to see signs that it's stabilized or bottomed out and starting to improve from there. The timing of that, your guess is as good as mine, but we really think that '26 may be that bottom and start to come out from there for '27.

This concludes our question-and-answer session. I would like to turn the conference back over to Jean Savage for any closing remarks.

Thank you. So Trinity is structurally stronger, more resilient and better positioned today than in prior cycles. We'll remain disciplined and focused on continuing to drive improvements in our business.

We are intentionally structured to generate resilient earnings and strong cash flow through disciplined lease pricing, active portfolio management and balanced capital deployment. Thank you for joining us today on today's earnings call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

All right. Awesome. Thanks, everyone. This is the last one of the day, railcar manufacturing and leasing portion of the Industrials Conference. My name is Andrzej Tomczyk, sitting alongside Trinity's CFO; Eric Marchetto. Eric, thanks for being here today.

Thank you. Appreciate it.

Maybe just to kick off before jumping too much into the question-and-answer session. You want to just provide an overview of Trinity?

Sure, love to. Thank you. So Trinity is a railcar lessor enabled by rail manufacturing. We operate in North America, principally over the North America industrial economy. Most of our customer base is industrial shippers. We have a large lease fleet, one of the largest on our balance sheet, about 110,000, 112,000 railcars. We also have what we call RIV partners, which is Railcar Investment partners of another 32,000 railcars, which gets us to that kind of 145,000 railcar fleet.

So we have scale in the market. We also have a captive manufacturing business. We're one of the larger railcar manufacturers serving the North American market. We also have a growing services business. Our maintenance services business, which is there to help maintain our lease fleet and also the fleets of other strategic customers. We also have a growing services business logistics and transloading that is a growing aspect of our business. And we have a parts business, a large OEM. It makes sense that we have a parts business. We've been focused on growing that as well.

Yes. That's a great overview. Maybe just -- I wanted to start off a little bit higher level. In your last earnings call, you talked about sort of the potential for fog clearing and that's sort of been a hang up on sort of railcar demand in terms of tariffs, specifically driving in fog due to tariffs was one of the comments and its uncertainty, which is really been the main theme, I think, over the last 6 months to a year for not just you but broadly across transports as well. I'm curious if you're -- if you could share sort of specific macro indicators that you guys are watching to keep an eye out for when we could sort of get through that fog and maybe when we could see better railcar ordering environment. What catalysts would sort of drive that environment?

Yes, sure. So the fog we're referring to is going into 2025, we were pretty bullish on things picking up right after the election a year ago. We thought we're going to have tax policy clarity. We thought we're going to have regulatory clarity and then the tariff talk started. The tariff talk had an impact on our industry and our business fairly dramatically. And why is that? About 1/3 of rail traffic is related to international trade. And so any time you're talking about trade policy, if 1/3 of your business related to international trade, that's going to have an impact.

And that's kind of across all of our segments. When you look at our -- the way we look at the market, we look at the market as chemicals and refined products, energy, agricultural products, metals and mining and then consumer. So all those have an impact, especially on the agricultural side and the chemical side on -- from tariffs. From a language standpoint, tariffs have kind of -- uncertainties have kind of replace tariffs. People now, I think they are tired of talking about tariffs and so they just call it uncertainty, and we're seeing that.

Where that translates for us is we see inquiries. We see our inquiries for new and existing railcars at fairly steady levels, but they're not converting to orders or it's taking them much longer to convert to orders. That's kind of an uncertainty index that we have in terms of people talking about demand, but not converting it to actual orders. And that's -- I think it's just when you're having to underwrite -- these are long-term assets. And generally, these are big projects that people are talking about. You can underwrite a better tax policy, but you can't underwrite a tariff policy yet or what's going to be the impact and that can change the economics of these investments.

Maybe just, I wanted to sort of shift back to your broader model. You've pushed more into leasing. And so I want to get to that sort of philosophy of yours. What is it about leasing that's sort of attractive and you got obviously pushed into that market. So you're still a large manufacturer, 50% roughly of the backlog in North America. And so how do you balance those priorities? And what is your ultimate sort of goal as a company?

Sure. And so when you talk about railcar assets, they're effectively -- they have a 50-year statutory life. They're long-lived assets. They're real assets, they're made of steel and steel components. And when we look at where the market has gone and why we want to lease more. Most of our -- we principally serve industrial customer base and industrial shipper. And how they procure their railcar is typically through leasing over 55% of the North American fleet is leased or is owned by lessors. And those are principally leasing into industrial shippers. And so that's really how we see that demand.

We think that with leasing, you really have the ability to control our -- control more of the narrative, control more of the capital invested. We like having the manufacturing with it. It gives us access to, we think, that are the best designs and the best products. We're able to have -- there's some efficiency in having those 2 things together. Some customers may -- sometimes they may be looking to buy a railcar or lease a railcar. We're going to -- they're going to call us either way. Having that large lease fleet, we -- our demand for railcars goes through that existing lease fleet.

So we think we're a more efficient market provider in that regard. We're not building a new railcar if we have an existing one that will serve a need. So the result is it's more efficient from a capital deployment perspective. and ultimately should be higher returns on the business. We think having the 2 businesses together should translate into a higher return on equity over a cycle.

Makes sense. I wanted to shift a little bit to company-specific questions and maybe starting more on leasing dynamics. Your future lease rate differential in this past quarter saw a noticeable drop. It was -- it's still up 9%. So that's -- your new leases are being signed 9% higher than your expiring leases, but the prior quarter, that was 18%.

Maybe just -- and you did attribute some of the moderation to the higher expiring lease rates relative to some moderation in the market rates. But could -- and I think there's some mix issues in there as well that you noted. So can you maybe just talk through that and where you expect that FLRD to sort of trend given sort of the mix as well?

Sure. So let me first just kind of explain that metric. And so it's a future lease rate differential. What we're doing is taking the current rates that we contracted for different car types in the current quarter and comparing that to those same car types, their expiring rate over the next 4 quarters. So it's designed to give you a predictor on kind of the opportunities if all things remain what should happen to changes in lease rates, which ultimately would lead to changes in revenue. We think it's a good metric, it's not a perfect metric, but we think it's a good metric. In terms of why it changed quarter-over-quarter, I think you hit the highlights.

We have seen some railcar lease rates moderate. We have seen some of the mix of expiring rates going forward are a little bit higher. And so those 2 things are contributing to a lower metric. Mix within car types matters as well, we're doing this over 22, 24 different car types. There's a lot more different car types within our portfolio. So you get a little bit of that as well. And then we have modestly, we're starting to see some lapping. So we've had a good lease rate environment for about the last 14 or 15 quarters. We've started to reprice some of those.

And so where you had that 20% to 30%, even 40% future lease rate differential in quarters past, as those get -- lap each other, that will naturally start to come down. What that metric means and why I think it's important. Think about it if we were repricing our fleet, our entire fleet every year, that would basically be the inflation rate that we're seeing in lease rates. We don't do that. Generally, this last quarter and this year, we generally average about 48 months on renewal terms. And so you're going to have a little bit of -- it will be a little lumpy, you'll price that railcar 4 years from now. So you're going to have 3 or 4 years of inflation or change the next time you price it.

So that contributed a little bit. I would expect the future lease rate differential remain positive to healthy. And I'm fairly bullish on lease rates going forward. And let me expand on that. So if you look at -- if we look at it over the last 20 years of railcar asset prices, you've seen about 3% to 4% of inflation in those asset prices on an annual basis over the last 20 years. Take that same period and look at the same car types, you've seen rental inflation of 1% to 2%. So asset prices have moved up faster than lease rates.

And that's an environment that if you look at treasuries or benchmarks, whether it's the 10-year treasury, for example, is about 4.1% today. Over the last 20 years, that's probably pretty good to being on par with what it's been over that time frame. So as I look forward, I'm pretty bullish on what lease rates should do with the asset prices coming up and lease rates not going up as much. I think that tells me there's a lot more room for inflation and rental rates going forward.

And that's -- I think that's a really good point. And just if you sort of -- because you did -- you're sorting starting to lap, right? Like you said, the COVID, higher rates, but you do have this environment where new car prices are going higher. And you could run into a point where you're going to reach a recovery level in maybe freight market at a time when you're starting to really resign these new contracts, it's also when these prices are going up.

So it's like are you going to be able to continue to resign the FLRD at a higher rate, 2 years down the line? Or it seems like you could because like we just talked about, the lease rates seem to be supportive based on the asset prices themselves. I mean how do we think just relative to the post-COVID trend in a couple of years after the full both sort of resigned.

Yes, it's a great question. And I think it starts with -- like you said, the new railcars and new lease rates and if I think about inflation and I think about the inputs on a cost of a new railcar, steel prices, labor costs, energy prices, really labor and energy, having impacted, and steel as well. I don't see any of those really coming down. I think there's still going to be some inflation there.

And so I think that's going to mean new railcars in the future are going to be at least, if not more expensive than today just given the inflation. And so that's going to lead to lease rates on those new railcars needing to be higher as well, which allows the existing fleet to continue to price up. And we see some of that proof points in the secondary market. When we sell assets out of the secondary market, we're seeing a healthy price environment on those assets. And I think it's because buyers are assuming that lease rates are going to go up in the future.

So they're underwriting higher lease rates and their investment decision, and that's allowing -- that's supporting the value that we're seeing. And I think it's all these fundamentals that matter. And what makes it all happen is the fleet is in balance. So you can think about that North American fleet, North American fleet has shrunk this year through 3 quarters. We scrapped over 30,000 railcars. We've built about 23,000 railcars as an industry.

So it's been disciplined in a flattish environment. If you look at all the public leasing companies, the one you can get stats on, everybody is running relatively high fleet utilization. So there's not a lot of slack in the market. In a flattish industrial environment. When things do recover, historically, if we're talking about a softer environment, the fleet utilization will be lower to be surplus assets. We're not seeing that today.

Right.

In the past cycles, when that demand comes back, it would -- the existing assets, the surplus would soak up that demand. You don't have those existing assets to soak up demand, which is why I'm really bullish about what will happen when things do start to improve.

And so it's definitely I think the supply environment is helping considerably as well. And I mean you guys, in your last call, you raised guidance partly based on the gains on sale and maybe just talk a little bit about how that's going now near term? Is that still what you guys are seeing out there? And given those dynamics, is that something you would expect to continue for the foreseeable future, like into 2026, should we continue to expect those gains?

Yes. So we did raise our guidance on secondary market gains to $70 million to $80 million. We went into the year with $40 million to $50 million of gains in our guidance. So certainly, we've seen an increase. And as I mentioned, we've seen -- when you look at why the market's good, the other lessors are not speculatively buying railcars. They're not -- There's not -- new car demand is down, companies still have growth goals or growth mandates. And so the place they can get their growth is in the secondary market.

And so we're seeing steady demand. It's got breadth, it's got depth and like I said earlier, we're seeing people price in higher rental rates going forward, which is supporting the valuations that we're getting. So that -- from that standpoint, I think that environment is going to continue. We're not giving guidance for '26 yet. But on our call, we did talk about that the market is good, and we're looking to opportunistically access that market and that environment has remained.

I mean when you look at it, all these benefits in these long-lived assets, they don't always come through in the income statement. But when you look at just the embedded value in our fleet. And we talked about the asset inflation of railcars over the last 20 years. Our fleet is 14 years on average. And so I believe there's a lot of value embedded in that fleet. It doesn't necessarily flow through on the income statement. It flows through when you sell railcars and you get these gains. But it doesn't flow through on what's remaining on the balance sheet, and that's where I look at the fleet and the return profile of the fleet going forward. And I'm optimistic that it will continue to improve.

Makes sense. I mean relative to the book value, asset prices are much higher today.

They are.

Maybe just shifting a little bit to manufacturing. I wanted to touch on the backlog and sort of the pipeline you have in your order pipeline. You currently have about 50% of the industry backlog. Maybe just talk a little bit about the makeup of the backlog and how it's trended. I know it's sort of depressed today, but are there -- is it just based on the customer ordering decisions being delayed and so that's the sort of a delayed demand environment? Or is there -- could the backlog sort of remain under pressure for a certain period of time? In other words, could there only be a certain amount of years that these shippers could hold off on ordering these cars.

Well, when you look at railcar demand and what the driver on new railcar demand, replacement demand is the biggest driver today, especially in a flattish industrial economy with not a lot of growth. and replacement demand is relatively predictable. These railcars have a 50-year statutory life. Their economic life is typically something less than the 50 years. It's predictable, but you can't predict it down in the quarter down to the calendar year. And so while we know that there's assets that are going to get replaced, each individual owner makes a decision on when they're going to retire that asset and replace it.

In the current backdrop that we've already talked about, this uncertainty. You can wait a year or 2 or a quarter or 2. You can't wait 5 years, but you can wait some period of time. I don't think that demand is -- that those orders that are not happening, I don't believe that gets destroyed. I think it continues to just move out to the right and it's future opportunities. But I feel -- that's the biggest driver that will -- when that starts to come back, that will be the biggest driver for new car demand.

And so just on manufacturing, you guys have a margin target there this year, 5% to 6%. Can you talk about sort of where that's been in the past in historical downturns, how we -- what the levels are at today versus past downturns? And then maybe where you expect that to trend in a depressed delivery environment next year if that sort of is the base case for you?

I don't like your term depressed. But okay. Let's -- if you look at these production levels where we're at from a historical perspective. I'm very proud of the margins that we're achieving at this part of the cycle we've done a lot of work in taking cost out. We've done a lot of cost takeouts this year and in the past. We've also continued to invest in technology and automation that will improve our margins. The biggest cause of degradation that we've had in our margins this year has been volume.

And so -- and that's hard to overcome. We've overcome some of it. But that is the opportunity as well when the volume does return and it does pick back up, we'll get that come back. And we'll get that come back, and we'll also benefit from the things that we've done to take out costs and improve our profile. So longer term, we have a guide out there, a 3-year target of 9% to 11% margins. We're probably not in the volume environment that's going to enable that in the near term, but I certainly -- as volumes recover and get back to more of that replacement level demand, those targets were based on replacement level demand, not a super cycle. I see that as being very achievable.

So in other words, even if demand sort of shoots over replacement, you could shoot above that sort of...

Volume is a big driver in that, yes.

Maybe just on the parts business, when -- if an environment does inflect positively, do we feel the parts business impact more in that environment? Or are we ready? Is that sort of an enabler already today in the business?

The parts has been a good story for us. We've grown that business a lot. It's an enhancer to our margins. It's still relatively small, but it's growing. And the whole dynamic between our parts business and our maintenance business and our fleet, we continue to get better at that each and every day. And so we have our embedded fleet of 145,000 railcars. We shop most of those railcars in our maintenance network, our maintenance network utilizes our parts business to help with throughput, to help with having the right parts, we make margin all along the way. And so that is a real returns enhancer for us. We just want to keep growing it.

Maybe just broadly shifting to the capital allocation strategy and your fleet investment, you're sort of on track for your net fleet investment target, $750 million to $1 billion between 2024 and 2026. Could you just discuss the balance between investing in the fleet for growth versus sort of opportunistic secondary market activities, returning capital to shareholders? And then does that change depending on the macro?

Yes. So you describe it, we have a lot of levers to pull. We -- generally, we add 30% to 40% of what we manufacture to our lease fleet. We don't -- we want to continue to -- if customers want and have demand for railcars on lease. We want to be able to serve that demand. We have several outlets for that demand if it out kicks our appetite for capital investment. The first one we have is our RIV portfolio and those sidecar investors that we have, that 32,000 railcars on our balance sheet or off our balance sheet.

Those are investors that want return -- want lease railcar lease returns. And we're able to manage investments for them, put portfolios together, generate fee income and that as a way we stabilize our balance sheet and kind of manage that capital allocation. So that's a lever that we have.

We can also sell in the secondary market. We can also buy in the secondary market. And we've been very active on both as a buyer and a seller where we see opportunities to create value, whether it's either selling railcars or buying railcars.

Buying a railcar and being able to -- we may be able to buy a railcar that has a servicing event in a year or 2. Others may run from that asset. We don't because we have a maintenance footprint that can handle that. And so we see that more as an opportunity than a risk for us and the opportunities for us to continue to add value. So those are all things that we do. When you get in the broader capital allocation and just -- so we have our -- we manage our net fleet investment through originations and also syndications and sales, whether it's in the secondary market or RIV partners. And then we look at what we're going to do with shareholders. And so we want to grow our fleet.

We also want to do the right thing for our shareholders. We raised our dividend yesterday. Seventh consecutive year, we raised our dividend. We raised it $0.01 a share per quarter. So we went from $0.30 a quarter, $0.31 a quarter. And through the third quarter, we had bought back approximately $60 million in share repurchases this year. And so -- and if you look since 2020 and this current management team has been in place, we've been very active in buying back shares. I think we have a very good track record of buying back shares.

And we do it when we think the time is right and what's going to -- all that is we use capital allocation to manage our weighted average cost of capital because we have a -- we're a big capital user with our lease fleet. We want to make sure that we have the right cost of capital to compete and to create value. And those are all the levers that we pull to do that.

Maybe just -- you mentioned the secondary market a little bit, and I wanted to talk about specific car types, if you're seeing any sort of green shoots on specific car types? And then maybe what are the cars that sort of remain challenged? And what are the drivers behind those 2?

In a low order environment that we've been in, there's -- it's easy to it's all relative, right? This last quarter, if you look at our deliveries that we had in the quarter, it was certainly trended -- had a higher mix specialty tank cars. While that is a relatively small number of railcars in the grand scheme of things, in this environment, that mix matters more with the low volumes. And so that's -- we continue to see that. That's generally replacement demand is a driver on a lot of that, some of it's on the chemical side.

But generally, that's replacement demand. We're still seeing opportunities in some of the energy space, whether it's with renewables or some of the different basins of domestic crude production, but generally speaking -- and then also on the covered hopper side, we still see opportunities there. But overall, the market has been relatively muted from a catalyst. Replacement demand is the biggest piece of it, and that's kind of across all different car types.

I think you guys -- you've done a good job at sort of taking costs out of the business where you can and sort of not depressed volume environment or pressured volume environment. And specifically in SG&A, too, you guys have done a lot of work there. As we think going forward to 2026, what are the extra sort of initiatives that you guys are taking or looking at to sort of sort of keep costs in check.

Yes. So we have taken a significant amount of cost out of the footprint, both on the cost of goods sold side and on the SG&A side that you referenced. This year, it's about $40 million year-over-year. Some of that is a change in variable compensation, but a lot of that is people in taking costs out. We think we're going to be able to keep that cost out because we keep investing in technology, AI, things like that, that are going to keep -- give us more operating leverage in the business, whether it's on the shop floor in the back office, we see opportunities there. And so we really want to take advantage as we add scale as we -- as things improve, that more of that drops to the bottom line.

I wanted to shift -- we have 5 minutes left here, but I wanted to touch on this bigger topic here of potential Class 1 rail consolidation. Your thoughts on sort of what's the balance between rails becoming more efficient versus taking share and sort of how that might impact the broader leasing business and then separately manufacturing business.

So first, let me just say, it will take several years for that to, whatever the outcome is, it's going to take a few years for that to come to fruition. But when you look at the opportunity and you look at the pain points that shippers have, you look at the loss of modal share that the rails have had over the last 20 or so years, shipping my rail is complicated. And interchange points add friction to that complication. And what we've seen is that when 1 railroad interchanges with another, even in a PSR environment, it gets worse.

And so -- and that worse service gives shippers less confidence, their loads are less predictable. And so it's harder for them to plan their business. And what we've seen on the margin as they have shifted away. So if you start reversing that and you start reducing the number of interchange points, making it easier to move goods by rail improving the predictability, improving the service levels that should give customers an opportunity to add more. We've seen through different surveys that rail shippers want to do more. So that's encouraging.

The proof is going to be in the pudding in terms of what happens. If the railroads, if they come together and they focus on improving those service levels, improving the turn times, improving the predictability. It can be very positive for modal share growth. And growth for both lease assets and new railcars. It will come down to what the incentive structure is for the railroads and how they're going to be incented. If they want to grow volumes, it will be good. If they just priced their way to prosperity, it will be less good.

Sounds like we'll have to wait some time to see anyway, but definitely an interesting topic, I think. Maybe just -- I wanted to talk about the -- because the manufacturers have consolidated, like yourself, over the years quite considerably. And leasing, we are starting to see some more consolidation there as well. Curious after the big competitor announced the deal in the space, how that -- how you see that sort of impacting the broader leasing market? Is that -- is it better that maybe a financial lessors is taken out of the market, maybe put in the hands of an operating lessor, is that better for lease rates? Maybe just talk about the broad impact on the industry or if it may not be that big of a change.

I think it gives GATX more scale, more volume and scale is important. And so from that standpoint, it will help them. The fleets are very complementary. And so I don't know that it really does a lot from a competitive standpoint, to your point, on financial versus bank lessor versus more of an operating lessor certainly different cost of capital profiles. So that will be interesting to see what happens there. Overall, I think they're a very good operator. And so from that standpoint, I'm not that worried about it. They're a big customer of ours as well. And so we have a very good relationship. So net-net, it should be good for us.

Yes. Just to finish up before I give you an extra minute to say some final words. On a recovery scenario, I wanted to get to this earlier. You will have to sort of bring back heads and labor in some ways. Maybe talk about the time it takes to bring back labor relative to the -- what you expect for demand? And then can you share sort of what incremental margins look like for you on a recovery in the manufacturing portion?

So we've proven that we can get labor back when we need to. We're going to -- we'll be prudent about how we do it. The longer it takes, the longer the recovery happens, the more risk that puts to bringing that labor back, but that's life. But generally speaking, we've been able to get that labor Hopefully, we'll need less of it coming back because of some of the things that we're doing now.

And so all of that is fine. In terms of the incremental margin, I'll just leave it at, I don't know that I can answer that directly, but I'd just say that volume will be -- volume improvements are a big driver in margin improvement. And so that will be a big catalyst. It kind of depends on how much -- when it comes back, it's not going to be linear.

Right. That makes sense. Well, it looks like we're pretty much out of time, but do you want to say any final words?

I'll just say -- I talked earlier. Thank you for everybody's time and attention. I just want to -- in this environment, people tend to focus on the new manufacturing side a lot and -- which is fair. But when you really look at our business and where our capital is, I think it's important to look at that lease fleet. And I talked about kind of that embedded value in the lease fleet that we're seeing. I think that really speaks well to the opportunities that we have for future value creation in terms of a lease fleet that's 14 years old that you've seen a lot of asset inflation over the last 20 years and you've seen some rental inflation, but I think we would expect to see more. And so that bodes well for the returns on that business going forward.

Well, Thanks again for coming. Appreciate your time.

Thank you. Appreciate it.

Thank you.

Good day, everyone, and welcome to the Trinity Industries Third Quarter Ended September 30, 2025 Results Conference Call. [Operator Instructions] Please also note today's event is being recorded. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking.

Participants are directed to Trinity's Form 10-K and other SEC filings for the description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. At this time, I would like to turn the conference call over to Leigh Mann, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's third quarter 2025 financial results conference call. Our prepared remarks will include comments from Jean Savage, Trinity's Chief Executive Officer and President; and Eric Marchetto, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the quarterly investor slides, which are accessible on our Investor Relations website at www.trin.net.

These slides are under the Events and Presentations portion of the website, along with the third quarter earnings conference call event link. A replay of today's call will be available after 10:30 a.m. Eastern Time through midnight on November 6, 2025. Replay information is available under the Events and Presentations page on our Investor Relations website. It is now my pleasure to turn the call over to Jean.

Thank you, Leigh Anne, and good morning, everyone. As we approach year-end, I want to recognize our team's dedication. Our third quarter results demonstrate Trinity's agility and strong business model. Trinity is raising and tightening full year EPS guidance to $1.55 to $1.70, reflecting our confidence in the business model and execution capabilities. Our leasing business continues to benefit from strong market dynamics, higher lease rates and favorable pricing on external repairs. We're also seeing continued opportunities in the secondary market, further reinforcing our position as an industry leader. On the manufacturing side, our team delivered impressive results, achieving a solid operating profit margin of 7.1% with a favorable mix of specialty railcars and improving operational efficiencies despite a lower delivery environment.

I am proud of what we have accomplished together and confident that our continued focus and teamwork will drive future success. Before discussing our quarterly results in more detail, I would like to provide a brief market overview. Strong renewal success and steady lease fleet utilization across the industry indicate customers continue to size their fleets anticipating future demand. While persistent market uncertainty has delayed customers' decisions to invest in new railcars, customers are still holding on to existing railcars. Overall, the North American railcar fleet remains in balance and is contracting as scrapping is outpacing new railcar deliveries.

I will now highlight segment performance for the quarter, beginning with the Railcar Leasing and Services segment, which includes leasing, maintenance and digital and logistics services. Leasing and Services segment revenue grew year-over-year, driven by higher fleet pricing and strong utilization of 96.8%, which continues to represent a balanced and well-utilized fleet. Renewal rates were 25.1% above expiring rates in the quarter with an 82% renewal success rate. The future lease rate differential was 8.7% in the quarter, driven by higher expiring rates and some lease rate moderation on certain railcar types. Despite this moderation, we remain optimistic about the leasing market.

Furthermore, the secondary market remains very active, and we have capitalized on good opportunities to optimize and monetize our fleet. We added over $100 million of railcars into our fleet from the secondary market and sold $80 million of railcars in the quarter. We find value in utilizing the secondary market as both a buyer and the seller and remain pleased with the performance and yield on our fleet. We expect secondary market activity to accelerate in the fourth quarter, and we plan to end the year within our guidance range for our overall net lease fleet investment. Trinity's maintenance business continues to benefit from industry-leading turn times, which allows us to lower the cost per maintenance event for our lease fleet.

Turning to the Rail Products segment, which includes our manufacturing and parts businesses, market conditions remain challenged. Industry railcar orders remained depressed in the third quarter. By proactively adjusting production, together with a favorable mix of railcars, we improved efficiency and achieved 7.1% operating margin in the rail products despite lower deliveries of 1,680 railcars. 46% of our deliveries in the quarter went into our lease fleet, and we expect the full year number to be between 30% and 35%. In the quarter, we received orders for 350 railcars. This order number reflects the broader market conditions. Industry orders in the quarter were 3,071, well below expectations in the replacement cycle.

While industry orders remain below expectations, our conversations with customers indicate potential for future growth. With these conversations and the replacement demand, we have not changed our longer-term outlook for the industry. Our backlog stands at $1.8 billion with approximately 21% expected to deliver by year-end. We currently hold about 50% of the industry backlog. In conclusion, I am pleased with our performance in the quarter. We are delivering results consistent with our expectations and reflective of market conditions.

The Trinity integrated platform of railcar leasing enabled by manufacturing and services makes it easier for our customers to use rail. We have a multitude of levers to deliver steady profitability and cash flow through a cycle. Whether it's repriced leased cars, selling leased railcars in the secondary market, investing in the fleet, building new railcars or supporting elevated railcar repair and compliance needs. Trinity is designed to deliver value to shareholders and customers alike. As we head into the last few months of 2025 and into 2026, our fleet is well positioned to generate significant and consistent cash flows, and our manufacturing footprint is rightsized and ready to efficiently meet railcar demand when it fully returns. I'll now turn the call over to Eric to talk through financial results as well as our updated guidance for 2025.

Thank you, Jean, and good morning, everyone. I will begin by discussing our third quarter financial statements, starting with the income statement. Total revenues in the third quarter were $454 million, down both sequentially and year-over-year due to lower external deliveries in the Rail Products Group. However, despite lower deliveries, earnings per share in the quarter of $0.38 are up sequentially due to the favorable margin performance in the Rail Products Group. As previously noted, we are seeing the benefits of the decisions we made earlier this year to rightsize our organization. We are expecting full year SG&A savings of approximately 20% as compared to 2024 and we will end the year at a lower run rate as we move into 2026.

Moving to the cash flow statement. Year-to-date cash flow from continuing operations was $187 million. Our net fleet investment year-to-date is $387 million, above our full year guidance of $250 million to $350 million, implying a negative fleet investment in the fourth quarter as timing of railcar sales are heavily weighted in the fourth quarter. Year-to-date gains on lease portfolio sales are $35 million, and we anticipate full year gains of $70 million to $80 Year-to-date, we have returned $134 million of capital to our shareholders through a combination of dividends and share buybacks. We continue to be opportunistic in our return of capital and continuously evaluate our capital allocation options to generate favorable shareholder returns.

Moving to the balance sheet. Our cash balance is $66 million and total liquidity is $571 million. Our asset balance includes $162 million of finished goods inventory, the majority of which we expect to deliver in the fourth quarter and convert to cash. Our loan-to-value ratio of 68.5% remains within our target range of 60% to 70%. Earlier this week, we completed the financing of our TRL 2025 notes and used the proceeds to repay borrowings under our warehouse, redeem the outstanding debt of TRL 2010 notes and for general corporate purposes. We are pleased to have strong investor demand for these notes and benefited from lower benchmarks and tightening spreads.

And now moving on to our expectations for the fourth quarter and the full year 2025. We maintain our outlook of full year industry deliveries of 28,000 to 33,000 railcars, reflecting the muted current railcar environment. We expect the industry to scrap about 40,000 railcars this year, which means we expect contraction in the North American fleet this year. As previously mentioned, we are maintaining our net fleet investment guidance of $250 million to $350 million for the full year, implying a negative net fleet investment in the fourth quarter.

We expect substantial railcar sales in the fourth quarter, more than offsetting additions to the fleet from origination and secondary market purchases. However, we still expect overall fleet growth for the year, meeting our 1-year target and keeping us on track for our 3-year target of $750 million to $1 billion of net fleet investment between 2024 and 2026. We continue to prioritize investment in our fleet as this provides sustainable long-term returns. And finally, we are raising and tightening our full year EPS guidance from a range of $1.40 to $1.60 to a range of $1.55 to $1.70. We are on track to our forecast for deliveries and expect Rail Products segment margin performance of 5% to 6% for the full year.

Additionally, our leasing margin before gains is on track with prior expectations. Therefore, with conviction in our margin performance as well as expected higher gains on railcar sales in the fourth quarter, we are raising our full year EPS guidance. In closing, I want to emphasize that we are growing our lease fleet while capitalizing on strong secondary market conditions. Additionally, we have reduced costs, which allows us to operate more efficiently and profitably and improve our returns.

In short, our platform provides flexibility and resilience, which are demonstrated in today's results and commentary. We look forward to sharing our full year results with you in February, and we'll provide our expectations for 2026 at that time. Operator, we are now ready to take our first question.

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

Just a little curious, maybe starting at a higher level, if you could just discuss the current railcar delivery and order environment in a little more detail. And in particular, how many quarters -- I know book-to-bill still is below 1 this quarter, but how many quarters of book-to-bill above 1 should you guys expect to see before sort of having confidence in a more sustainable upward trajectory in demand for railcars? And would you expect to see that in 2026?

Andre, thanks for the question. When you look at our backlog, remember, we've got a multiyear order out there that's got about 50% of the industry backlog sitting there. So for us, when you're looking at order entry, it may mean something a little bit different because you have to take that into consideration. When you look at our projection for this year for industry deliveries, it's 28,000 to 33,000, which is below replacement level demand right now. And we're looking to see something similar in 2026 right now.

And so I think on the book-to-bill, I can't tell you when it's going to be above 1 again. We're still having strong inquiries. We're having really good discussions with customers. It's just taking them longer in this uncertain environment to make the decision to take it from an inquiry to an order.

Understood. And maybe just on that guidance for the 28,000 to 33,000 industry deliveries, how much of that delivery gap versus replacement level demand of around 35,000 to 40,000 would you say is driven by customers already having what they need relative to their expectations for freight demand versus customers just delaying orders that they know they need to make, but are maybe more just holding off now due to policy uncertainty around tariffs and trade.

So what we are seeing is really a delay in placing those orders. If you look at the pace of scrapping, we're expecting about 40,000 cars to be scrapped this year, which means we'll have a contraction in the fleet -- North American fleet again this year. And so at some point, they're going to have to order. So we believe it's more delaying, and we'll see a pickup later on once certainty becomes more prevalent on the car orders.

Got it. And then once that delayed demand sort of comes back, would that lead to a scenario in your mind where deliveries sort of get back to above replacement level demand? And I guess, just in that context, would that -- is that a scenario that takes sort of several years to get back to the next peak from current levels, which maybe you consider closer to trough?

Well, earlier, I said we expect -- and we're not giving '26 guidance yet, but we expect 2026 to be similar to this year for the industry. And when you look at that, I think you have to, again, take into consideration that orders can be lumpy. We get a multiyear order sitting out there with 50% of the industry backlog. So it really depends on the scenario of how that plays into what some of the orders are going to be. But again, '26 similar to 2025. And then after that, we'll give guidance as we understand and see more with the certainty.

Understood. And I guess just as far as potential for Class 1 rail consolidation, if networks move to be predominantly single line in nature in the future with less interchanging, does that effectively speed up the network and enhance rail industry asset utilization? And if so, how do you expect rails to balance the potential need for fewer cars due to better utilization versus the potential for a longer-term need for more cars if the networks sort of speed up to the degree that rails can sort of extract share gains from trucks?

Yes, Andrzej, this is Eric. I'll take that, and good question. That is fundamentally a question the industry is asking. And that is, will a transconinental railroad -- you're right, it should -- with less interchange points, it should increase fluidity, increase speed. And the question is, will that give the opportunity for modal share growth. And the modal share growth opportunity, we think, can offset any of the impacts from moving the same freight faster and that ultimately, it can lead to industry growth in both carload growth and fleet growth. But that's been difficult to prove out in prior mergers. But -- so the [indiscernible] have their work cut out to prove that out, but that's certainly what they're laying out as their rationale for the combination, and we're certainly hopeful that that's the case.

I appreciate that. And maybe just switching to leasing. I noticed that the FLRD dropped to, I think, about 9% from 18% last quarter. It seemed fairly sharp. I'm just curious on what caused that and if you sort of expect FLRD to trend similarly to here?

So let me start out with saying that we're really happy with the leasing results in the quarter. Renewal rates were 25.1% above the expiring rates. We had an 82% renewal success rate and fleet utilization remained very strong at 96.8%. And we continue to see runway for lease revenue growth, both from repricing the fleet and ongoing fleet investment. When you look at the FLRD for Q3, it was the 17th consecutive quarter of positive FLRD. When you look at the step down, it was driven by higher expiring rates and some moderation in market rates for certain railcar types.

And as you've seen in the past, this metric can be lumpy quarter-to-quarter. With 50% of the industry backlog, we have good visibility in what's going on there, and we believe the leasing environment remains favorable, and our portfolio is well positioned to continue the performance that we've had.

Got it. And then maybe just lastly for me on the leasing. If you could just bring us up to speed on how much of the book has been resigned at the higher COVID rates and maybe how much is left to reprice from here?

Yes. So Andrzej, this is Eric. We have -- one of the other things we have started to lap some of our renewals that we've done in this environment that's also impacted the FLRD. But when you look at how much we've repriced going back to the double digits, it's about 65% of the fleet that's repriced. And we continue to see about 15% of that reprice in the year. So it's still got a tail. And then when you look at where rates are today versus when it started to be double digits, you still got some opportunity there. So as Jean mentioned, we're very encouraged by the outlook for renewals and what we expect from revenue growth on leasing.

Our next question comes from Bascome Majors from Susquehanna.

I'd love to start where Andrzej left off there. Jean, I think you said that renewal rates were 25% this quarter. I just want to do maybe a more detailed job of kind of reconciling that with the FLRD going down to 8%, 9% here. I imagine it has a lot to do with the denominator and the forward-looking nature of that. But just I think walking through that and with a bit more granularity would help us set better expectations for what leasing could do next year.

Yes. Bascome, I'll take that one. So you're right. And so when you look at what Jean was referencing is just comparing in the current quarter, the expiring -- the new contracted rates with the expiring rates. And those were -- we renewed had an 82% success rate, and it was up 25%. So strong. People are paying up to keep their railcars, and that really gets into our sentiment. When you get into the FLRD, this is where the nuances, and you've got different metrics out there that are indexes for lease rates. What our FLRD takes is the current rates in the quarter for 25 different car types, and we compare it to those same -- the current rates that we contracted in the third quarter, we compare that to the expiring rates for those same car types for the next 4 quarters.

So you're right, when you're comparing the -- it's the same numerator in both cases in the 8% calculation and the 25% calculation. The denominator is different. The denominator in the 25% is the contracts we did in the quarter. The 8% is the contracts that are expiring in the next 4 quarters -- same mix and everything else. So you do get a little bit -- you get -- the FLRD will get some volatility because we don't control for mix. It's not an index on our fleet. It's our actual expirations. So it's more of an indication of what's going to happen on the lease pricing on those actual expirations. But from a market standpoint, you have your 25% up on the expiring rate. So does that help with kind of explain the difference?

It helps a lot. So if we square ultimately, that's telling us that your expiring rates are going to be about 15% higher next year.

Yes, there's exactly. And that's a little bit of lapping and it's a little bit of -- they're just higher.

All right. So the -- this is both a combination of maybe doing some short-term leases at the low part of the market and just the vintage of getting past the weaker part of the cycle.

Yes. The lapping would indicate if you did a -- 3 years ago, if you did a 3-year lease, then you're starting to lap it. And so that's an element of it. I don't want to over-index on that. That's a part of it.

No, understood. And the other piece you mentioned was a little quarter-over-quarter moderation in car types. Can you give us a little more fidelity in where things are stable to increasing and where things are a little bit softer sequentially?

So generally speaking, tank car rates for the most part are still very strong. We've seen a little bit of softness in some of the ag sector, which is kind of to be expected with what's going on with trade on the agricultural piece. So that -- there's a little bit of that. But it's slight. It's not -- we're not seeing big changes. We're still -- when we look at all our different car types, we see many car types trending upward, and we see some trending downward. And so the mix of -- when you get to the mix and with the FLRD, there was a little bit of a trend downward on some of the car types.

And moving down -- you talked about the earnings increase being largely a function for the full year guidance of both the higher gains expectation. I think you took that to -- was up from what -- they were roughly 80 to 60 or something -- yes. And also, you mentioned margins. Can you talk a little bit about the fundamental drivers in the market that helped you kind of surprise your own expectation on both gains and the OEM side of the margins just as we think through the sustainability and run rate of that next year?

Sure. I'll go ahead and start with that. When you look at the performance of the Rail Products segment, they had a really good quarter. Some of that was driven by a favorable mix of some specialty cars but other parts were the disciplined operational execution that they had. And remember, earlier in the year, we had deliberately aligned our production with the expected volumes. So we took some of those reductions in workforce or realign that early on. That really helped us maintain those margins despite lower deliveries. In the prepared remarks, we also talked about the fact that we expect to end the year at the 5% to 6% range. And in the fourth quarter, we're expecting it to be in that 5% to 6% range.

Reason for that is really the mix of cars that we're going to be producing in the quarter. But we think that -- one, they're performing well. We think that with the programs we have in place for efficiencies, for automation, we should see that continue to improve. We're not giving '26 guidance yet, so I'm going to stop there and let Eric talk to you a little bit about the gains.

Yes. So Bascome, on the secondary market on the gains, you're right. Just to say it, we changed our guidance from $50 million to $60 million to $70 million to $80 million. And that is -- it is, as you mentioned, higher than we expected. We're seeing a really strong secondary market. We are looking in the fourth quarter, a continuation of our RV program. So we have on some planned sales from one of our RV partners that gives us a lot of confidence. But we're seeing -- we put assets out in the secondary market, and we were pleased with what we saw in terms of the pricing, the expectations. The secondary market has been -- has turned into the primary way that other operating lessors are growing their fleet because of the softness in the new car market.

And so from that standpoint, we're seeing it. And then secondary, but probably not to be forgotten is this summer, you had a transaction between Brookfield, GATX and Wells Fargo. I think that's driven more interest in the space. And so we're seeing good activity, and we're looking to take advantage of it. So we increased guidance on it. We feel really good about that number. And there's potential to do even more, whether that's this year or into next year. So we're excited about the opportunities.

If you'll humor me, I just have 2 more. Eric, you were recently in the market with an ABS deal, I think this was your first of the year, and you'll correct me if I'm wrong there. But can you walk through the -- I mean, you talked about the equity investor appetite just then on the gains on sale piece. Can you talk through the credit investor appetite for railcar assets? What you were seeing in the feedback you've got on not just the key terms of rate and term, but any of the other sort of maybe drivers of flexibility and value for you as an owner that likes to keep your fleet flexible while financing it with steady term debt?

Thank you. Great question. There's a lot in there. But yes, this was the first time we accessed the ABS market this year. We did access the bank market on the rail secured side earlier in the second quarter. But this is the first time in over a year, we had accessed the ABS market and demand was really strong. There hadn't been a lot of rail paper in the market recently. We haven't had a Trinity name, which the Trinity name, our issued -- our TRL issuance always gets very positive reception. So from that standpoint, it did very encouraged. It's flattering how the investors really want to invest in our paper.

When you look at the key terms, we do have a lot of flexibility with the asset trading that we like to do in the ABS market, and those are continuing to be there. We actually had some green issuance come in, some green investors. So we do issue these under a green framework. And we had some of that, which was encouraging to see even in the current environment that people are increasing allocations because of the sustainable nature of railcar leasing. And so that was all really good. We were pleased. We got fortunate with where the benchmarks were, and we were able to tighten our spreads. So that was a really nice combination and really encouraged that, that market has been there with us for 25 years, and it's going to be there in the future.

And just maybe tying up some of the other questions together. I know you're not going to give guidance for next year nor should you at this point. But high level, from what we've heard today, it seems like from a manufacturing perspective, things feel kind of steady at a soft level. I just want to make sure that I'm not missing any sort of inflection in one direction or the other heading into next year. From a leasing perspective, things still pretty good, although just taking the FLRD at face value, it feels like we might get less sort of renewal income growth from leasing next year than this year.

And from a secondary market perspective, things feel pretty gangbusters and that's not changing. I mean are there any other things you'd kind of point us to on the puts and takes, high level directionally as we think about what Trinity can do next year versus this year?

Well, I'm going to go to the fourth quarter and talk a little bit there. So in the Rail Products segment, we're going to deliver about 21% of the backlog, plus we had some near-term deliveries on top of that, that will occur. So you should expect a little bit of a step-up there because we're expecting to end in our normal market share for deliveries. And I've already said similar industry deliveries for next year, not expecting much change on the market share. So that's probably all I'm going to give you on that part of it.

When you look at leasing, again, we still see opportunities. We'll have cars we'll buy in the secondary market. We'll have new build cars that we'll put in there to grow, plus there's still room in a lot of car types to get higher rates. There's just some that are moderating more on that. And so I think all of that is good. Secondary market is, we indicated really strong. We're going to be opportunistic throughout this year. And I would expect it not to change a lot, but we're not giving guidance for next year yet.

And I would add, Bascome, I think your framing was fair and accurate. And Jean's color is, I think, helpful. And then I would just add to that, that's in a backdrop where we had a very flat industrial economy. Industrial production is still flat. So we're pretty positive in a flat industrial production environment. And I think as you look ahead, I think that's going to improve at some point. I can't say when yet because of that uncertainty overhang. But I think the next move is positive. And so that's where we see the operating leverage in this business potential that could really be helpful.

And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to the management team for any closing remarks.

Well, thank you. As you can tell, we remain confident in our strategy and our ability to deliver value as the market conditions evolve. Also want to thank you for your continued support.

With that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.