FreightCar America Inc.: Driving That Train -- To Profitability

Railcar company reports strong sales and profit in first-quarter 2007.

From being romanticized in literature and movies to their integral role in industrializing the nation, rail cars are part of American lore. That being said, FreightCar America Inc. can lay claim to playing a significant part in the rail industry's popularity. That's because the Chicago-based company has been building railroad freight cars since 1901 when it was known as The Cambria Steel Co.

Today, FreightCar America is one of the largest North American manufacturers of aluminum railroad freight cars used to haul coal, and the company continues to grow. First-quarter 2007 profit increased 7% to $23 million over the year-earlier period, and revenue quarter rose 10% to $322 million.

Part of the company's success can be attributed to its effort to diversify its product mix, which now includes more non-coal-carrying rail cars, said company President and CEO Chris Ragot when the quarterly results were announced on May 1. The company also builds steel hopper cars, flat cars, mill gondola cars, intermodal cars, coil steel cars and motor vehicle carriers.

In May, the company said it had built and delivered 162 all-steel ballast cars to BNSF Railway. The cars feature an electric, solar-powered activation system that can dump ballast remotely by radio control. The doors are air-operated and function like traditional ballast cars, which are capable of distributing ballast either on the outside or inside of the rails.

The company's efforts to diversify are ongoing, according to Ragot. "Our strategic initiative to enhance revenue growth through development of other rail car types is on schedule, and we continue to explore other opportunities to enhance shareholder value," said Ragot in a May 1 earnings release.

Diversification could become a critical selling point for FreightCar America because even though coal demand remains high, demand for coal cars is dropping, writes David Peltier in his investment advice column for The Street.com. First-quarter unit orders fell to 768 from 1,031 during the year-earlier period. Rising aluminum costs also could hinder earnings, Peltier reports.

The company also is focusing on continuous-improvement efforts to drive profitability. The company benefited in the first quarter by "optimizing the production mix at low-cost facilities," according to Ragot. In addition, FreightCar America is reorganizing its customer service department to provide improved value, productivity and utility of its products.

FreightCar America Inc.
At A Glance

FreightCar America Inc.
Chicago
Primary Industry: Rail cars, ships, and other transportation equipment
Number of Employees: 1,289
2006 In Review
Revenue: $1.4 billion
Profit Margin: 8.91%
Sales Turnover: 3.44
Inventory Turnover: 13.33
Revenue Growth: 55.83%
Return On Assets: 57.14%
Return On Equity: 139.63%

The reorganization includes additional field engineers who will allow the company to more closely monitor rail cars while in operation, according to Jim Hart, vice president of engineering.

"Better field analysis will speed development of design improvements for each car type so we can bring advancements into production more rapidly for the benefit of our customers," said Hart when the reorganization was announced on June 6.

Meanwhile, the company expanded production in 2007 with the opening of a second rail car production line in Roanoke, Va. The production line is housed in facilities leased from Norfolk Southern Railway Co. at the railroad's East End shops. The company will build hybrid coal cars for Norfolk Southern at the facility.


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