FreightCar America Inc (RAIL)

A. FreightCar America Inc.: Overview

FreightCar America, Inc. is a diversified manufacturer of railcars and railcar components. The company, headquartered in Delaware, has been in operation since 1901. FreightCar America designs and manufactures various types of railcars for the transportation of bulk commodities and containerized freight products primarily in North America. The company offers open top hoppers, covered hoppers, gondolas, intermodal and non-intermodal flat cars.

B. Joint Venture and Manufacturing Facility Changes

In 2019, FreightCar America entered into a joint venture with Fabricaciones y Servicios de México, S.A. de C.V. (Fasemex) to manufacture railcars in Castaños, Coahuila, Mexico. The company acquired Fasemex's 50% ownership in the joint venture in October 2020 and moved all production to the Castaños facility in March 2021.

FreightCar America ceased operations at its Roanoke, Virginia manufacturing facility in March 2020 and permanently closed its manufacturing facility in Cherokee, Alabama in February 2021. These closures were in response to the cyclical industry downturn, exacerbated by the COVID-19 pandemic, and were aimed at aligning manufacturing capacity with the current railcar market.

C. Products and Services

FreightCar America offers a wide range of railcar types designed to transport various dry bulk and containerized freight products. The company's product portfolio includes covered hoppers, open top hoppers, gondolas, intermodal and non-intermodal flat cars. In the past seven years, FreightCar America has introduced 22 new or redesigned products to its portfolio. These include different capacity covered hopper cars, mill gondolas, coil gondolas, woodchip gondolas, triple hoppers, hybrid aluminum/stainless steel railcars, and more.

The company also provides railcar conversions, rebuilding and converting railcars, as well as selling forged, cast, and fabricated parts for railcars manufactured by FreightCar America and others.

D. Customers

FreightCar America serves shippers, railroads, and financial institutions as its primary customers. In 2022, these customer groups represented 38%, 36%, and 22% of the company's total sales, respectively. The company has strong long-term relationships with many large purchasers of railcars. However, due to the infrequent replenishment and augmentation of railcar fleets, railcar orders are often placed by a small number of customers, with a significant portion of sales attributed to them. In 2022, sales to the top five customers accounted for approximately 76% of total revenue.

E. Sales and Marketing

FreightCar America's direct sales group is organized by customer and geography. The group includes vice presidents of sales, contract administrators, a manager of customer service, a director of field support, and support staff. The group is responsible for developing and closing new business, managing customer relationships, and providing after-sale support.

F. Research and Development

FreightCar America utilizes the latest engineering methods, tools, and processes to develop and introduce new railcar designs. The company works closely with customers to understand their expectations and design railcars that meet their needs. New product designs undergo testing and validation for compliance with industry standards before being introduced. Costs associated with research and development are expensed as incurred.

G. Backlog

FreightCar America defines backlog as the value of written customer commitments to purchase or lease railcars that have not yet been recognized as sales. Backlog may be subject to customer requests for delays, inspection rights, and other industry terms and conditions. Although cancellations may occur, customers are generally required to compensate FreightCar America for costs incurred in reliance on an order. As of December 31, 2022, the company's backlog of firm orders for railcars included various types with an estimated sales value of $288 million.

H. Suppliers and Materials

The cost of raw materials and components represents a substantial majority of FreightCar America's manufacturing costs. The company has strong relationships with its suppliers, ensuring access to supplies during periods of high railcar demand. Primary suppliers of aluminum include Ryerson Metals and Hydro Extrusions, while Feralloy Corporation and Reibus International are primary steel suppliers. Other suppliers provide various components such as truck components, brake components, couplers, wheels & axles, bearings, and running boards.

I. Competition

FreightCar America operates in a highly competitive marketplace, particularly during periods of low market demand and excess manufacturing capacity. The company faces competition from established competitors in the North American railcar industry, including Trinity Industries, Inc., The Greenbrier Companies, Inc., and National Steel Car Limited. Competition from non-North American railcar manufacturers is limited due to high shipping costs and unfamiliarity with the North American market.

J. Intellectual Property

FreightCar America holds several U.S. and international patents, trademarks, copyrights, and trade names. The company's key patent is for its hopper railcar with an automatic individual door system. Protecting intellectual property is critical to FreightCar America's business.

K. Human Capital

FreightCar America had 1,435 employees as of December 31, 2022. The company focuses on attracting, developing, and retaining a diverse population of talented and skilled employees at all levels of the organization. Compensation programs are designed to attract and retain talent, and employee benefits strive to create a culture of well-being and inclusiveness. Talent metrics such as employee engagement and turnover are continuously monitored.