Trinity Industries Inc
NYSE:TRN
Earnings Call Analysis
Q4-2023 Analysis
Trinity Industries Inc
In 2023, Trinity Industries concluded the year on a high, with revenues surging to $3 billion, marking a 51% increase from the previous year. Adjusted earnings per share followed suit, rising an impressive 47% to reach $1.43 per diluted share. Such robust growth, stemming from strategic initiatives and operational resilience, indicates strong company performance despite unpredictable obstacles encountered throughout the year.
Trinity enjoys a robust lease fleet, allowing them to augment lease rates efficiently. Boasting a hefty $3.2 billion backlog, the company has clear production visibility, which catalyzes effective planning and profitable business pursuit. Sustainability has also emerged as a keystone, with multiple awards attesting to Trinity's commitment to eco-friendly practices, diversity, and safety.
The Leasing Group has triumphantly raked in $222 million in revenue, with an operating profit of $136 million. The year witnessed a 13% revenue uptick attributed to increased lease rates and an expansion of the lease fleet, including the assimilation of RSI Logistics. Trinity's manufacturing strength is spotlighted by the delivery of 17,355 railcars in 2023, albeit hindered slightly by border closures affecting logistics. The border challenges induced a 150 basis point margin dip in the fourth quarter, however, the year showed overall margin expansion and is set to continue improving in 2024.
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Good day, and welcome to the Trinity Industries Fourth Quarter and Full Year 2023 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 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 2023 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 supplemental 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 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 29, 2024. 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 Ann, and good morning, everyone. We ended 2023 on a strong note and proved our ability to deliver results despite unexpected challenges throughout the year. Our 2023 revenue of $3 billion was up 51% year-over-year. Full year GAAP EPS was $1.43 per diluted share and adjusted EPS was $1.38, up 47% year-over-year. Segment margins, excluding railcar sales, were up year-over-year in both the Rail Products Group and the Railcar Leasing and Management Services Group.
While our 2023 results show significant progress, I'm also encouraged by the forward metrics that are positioning our operations for an even stronger 2024. The future lease rate differential, or FLRD, is currently 23.7%, and our fleet utilization remains high at 97.5%. These indicators show continued strength in the lease fleet and our ability to increase lease rates.
On the Rail Products side of the business, the backlog of $3.2 billion gives us production visibility. It allows us to efficiently plan our operations and compete for business that maximizes our platform's returns in the current market. Eric will discuss our financial expectations for 2024, but we are well positioned to execute a solid year.
We also believe we are well positioned in sustainability, safety and diversity and I would like to share a few notable updates from these initiatives. In the fourth quarter, Trinity was pleased to receive Union Pacific's first-ever Sustainability Partner Award. We were recognized based on multiple sustainability initiatives.
One of the initiatives was our collaboration with UP to deliver the 5239 covered hopper, which utilizes thinner and lighter materials to maximize the car's capacity. Additionally, as part of its EcoConnexions Partnership Program, CN recognized Trinity for our efforts and commitment to sustainability.
In Mexico, we earned the ESR badge again, highlighting our work to promote employee well-being, sustainability, environmental stewardship, philanthropy and community involvement. Finally, Newsweek recently named us one of the Greatest Workplaces for Diversity, highlighting our steadfast commitment to cultivating an inclusive environment where diverse perspectives coexist and thrive.
We strongly believe these awards are recognition of hard work and dedication. I want to congratulate our team for keeping our core values at the forefront of our minds. Before discussing specifics from the quarter and the year, I'd like to discuss what we're seeing in the market.
Carloads improved sequentially and year-over-year in the fourth quarter with improvements in chemicals, certain energy markets and key agricultural markets like grain mill products, fertilizer and biofuels. Automotive demand has remained strong as supply chain issues continue to improve. This is despite consumers perceived headwinds due to the recent high inflation levels and higher borrowing costs. These are favorable trends for tank cars and autoracks. Railroad service is improving. In December, train speeds were the fastest since January 2021, with dwell times also showing faster service among the Class 1 railroads. This improvement has contributed to lower active railcar needs despite carload gains with just over 20,000 more railcars in stores at the beginning of February than a year ago.
Nevertheless, we continue to view fluid rail service as a positive and believe better rail service will drive modal share growth and ultimately a stronger rail industry. Coupling better rail service with our emerging logistics platform incentivizes customers to increase rail usage in their supply chain planning.
Now I want to provide some segment level highlights, starting with the Railcar Leasing and Management Services segment. In the fourth quarter, our Leasing Group earned $222 million in revenue and $136 million in operating profit. As foreshadowed earlier this year, fourth quarter results included railcar sales proceeds of $136 million and a gain of $36 million.
In the full year, Leasing segment revenues were up 13% year-over-year, driven by favorable FLRD all year, higher lease rates and net additions to the fleet. Furthermore, our 2023 revenue includes RSI Logistics, which we acquired in the first quarter of 2023. As mentioned at the beginning of the call, the FLRD was 23.7% in the fourth quarter, and fleet utilization remained favorable at 97.5%.
For the full year, our renewal rates were approximately 30% higher than expiring rates and our average renewal lease term was 54 months, allowing us to lock in the higher rates longer. While the operating margin of 49.2%, which includes secondary market railcar sales, is down year-over-year, this is driven by significantly more gains in railcar sales in 2022. When removing the impact of the gains, the segment margin is up year-over-year and reflects the impact of higher lease rates, improving performance in the sector. Trinity delivered 17,355 railcars in 2023 and 4,000 in the fourth quarter. Fourth quarter deliveries were approximately 1,300 units below our projections, primarily as a result of the border closing.
In addition to the previous border closures that affected us in Q3, the U.S. Customs and Border Protection Agency closed the international railway crossing bridges at Eagle Pass and El Paso, Texas on December 18, and they remained fully closed until December 22. Eagle Pass is Trinity's primary border crossing for railcar deliveries from our Sabinas and Monclova, Mexico, manufacturing facilities. The financial impact of the border closure and related congestion primarily includes lost revenue on delayed units, increased freight and storage expenses, reduced efficiency and increased overtime pay.
In the fourth quarter, Trinity booked 840 new railcar orders or about 20% of the quarterly industry orders, which demonstrates the lumpiness of order activity from quarter-to-quarter. For the full year, our share of industry orders was in our normal range of 30% to 40%, and we still hold about half of the industry backlog with long lead times on most new orders.
This allows us to be disciplined in the orders we accept into our backlog. We have seen inquiry activity pick up substantially in the first quarter and continue to view our backlog and our order volume favorably.
In the fourth quarter, segment revenue of $674 million was slightly down sequentially, primarily due to the border closing preventing us from getting finished railcars across the border by year-end. This also affected the segment's operating margin, which was 6.1%.
Fourth quarter results included gains from insurance recoveries. The margin would be 5.9%, excluding the gains, up 70 basis points sequentially. The border closure affects our efficiency, which results on lower margins. The margin impact from the border closure was approximately 150 basis points in the fourth quarter.
On the full year basis, the Rail Products Group showed significant improvement year-over-year. Deliveries were 30% higher year-over-year driving revenue improvement of 30% and operating profit improvement of 119% in the segment. This is especially impressive when you remember the headwinds we faced in 2023, and including challenges with labor in Mexico as well as external challenges, including a strengthening peso at the beginning of the year, border closures and related supply chain challenges in the back half of the year.
Our full year operating margin of 4.8% is up 200 basis points from 2022, and we expect to see continued improvement in 2024. Over the last several years, external headwinds have negatively impacted the manufacturing businesses performance. We will remain disciplined in our pricing and production decisions to account for our current external limitations, allowing us to drive consistent and efficient operations.
We have conducted our annual make versus buy review and have found opportunities to bring some capabilities in-house. We're also working in tandem with our logistics partners to ease constraints at the border, and we'll continue to evolve our manufacturing footprint and product portfolio in order to maximize returns for our entire platform. I feel confident this is a necessary step for Trinity and expect to see the positive effects in 2024.
Before I turn the call over to Eric, I would like to take a minute to review some highlights from 2023. I already mentioned some of the challenging headwinds we faced, and I'm so proud of our employees and their willingness to work hard to find creative solutions that drove results with considerable year-over-year growth despite an unexpected operating environment.
As mentioned, we completed our acquisition of RSI Logistics in the first quarter. We are very pleased with the performance of this business and our prior acquisitions as we have worked to integrate them into Trinity. Ultimately, our goal is to make rail shipping an easy choice for shippers across North America.
We have focused on expanding our offerings to include digitally enabled logistics services as our customers work to modernize their supply chains. We are working to enhance our large diversified lease fleet and better serve our customers. We believe Trinity has a growing strategic value to our customers because of these services. Continued focus on service expansion will make Trinity and the rail industry as a whole, more appealing to customers.
On a related note, as you may have seen previewed in our press release this morning, we have moved our maintenance business into our railcar leasing segment effective January 1. Trinity is a leasing company enabled by manufacturing and services, and this change reflects that organizational structure.
It allows us to better leverage our maintenance services capabilities to support lease fleet optimization and to grow our services business. As a result, we will rename the segment, the Railcar Leasing and Services group. We will recast all prior segment results, starting with our first quarter filings, which will change the margin makeup of both segments. Eric will give some guidance on how to think about these segments in 2024 and going forward.
Finally, as we look forward strategically as a company, I'm excited to announce that we will host an Investor Day in Dallas on Tuesday, June 25. Reach out to Leigh Ann for information on the event and accommodations. We look forward to hosting you in Texas and sharing our vision for Trinity.
And now I'll turn the call over to Eric to review the financial statements, discuss the fourth quarter results and share our expectations for 2024.
Thank you, Jean, and good morning, everyone. I'll start by discussing our fourth quarter and full year financial statements and conclude with high-level guidance for 2024, including a reconciliation to our new segment reporting structure.
Starting with the income statement. On a consolidated basis, fourth quarter revenue was $798 million, representing a 35% improvement year-over-year. Company revenues were $3 billion for the full year, 51% higher than 2022. With improved margins in both segments, excluding secondary market railcar sales, we ended the year with GAAP EPS of $1.43 and adjusted EPS of $1.38, which is above our previously issued guidance range of $1.20 to $1.35.
We benefited in the fourth quarter and full year from a lower-than-expected tax rate, driven primarily by the release of residual taxes, changes in state apportionment and state rate changes in 2023 and changes in valuation allowances. With a normalized tax rate, we would have completed the year in the lower portion of our guidance range.
For the full year, we completed $382 million in secondary market railcar sales for a gain of $83 million, which also benefited our 2023 results. Net interest expense in the year was $266 million, up significantly over 2022, driven by higher interest rates and overall -- and higher overall average debt. We expect a similar run rate in 2024 to the fourth quarter.
Moving to the cash flow statement. Full year net cash from operations was $309 million, up significantly year-over-year, due primarily to stabilized inventory levels and production. Adjusted free cash flow for the year was $29 million. This was driven by higher cash flow from operations, offset by lower lease portfolio sales and the timing of railcar financing.
Our full year net lease fleet investment was $287 million, in line with our guidance. In the fourth quarter, proceeds from the secondary market railcar sales were $136 million for a gain of $36 million, in line with our expectations. In December, we increased our quarterly dividend by approximately 8% to $0.28 per share. This dividend, our 239th consecutive paid dividend, was paid in January. We remain committed to returning capital to shareholders through our dividend. I'll close my comments with high-level guidance for 2024. As Jean noted, we entered 2024 with a strong backlog, which gives us good visibility for the Rail Products segment 2024 production. I would like to note that in the fourth quarter, we had 2 adjustments to our backlog and removed 365 railcars worth $33.4 million. One was based on a mutual decision with the customer as we cannot come to an agreement on a delivery date. The second was a reduction in order size from a customer from which we received compensation for the accommodation. We continue to view our backlog favorably. As Jean mentioned, we are moving our maintenance services business out of the Rail Products segment and into the Leasing and Services segment. We believe our railcar maintenance business primarily exists to service our own lease fleet and internally view maintenance as an enabler of the leasing business. Therefore, we think it's logical to include that business as part of the Leasing and Services segment. All 2024 reporting will reflect this change. This will not change our financial reporting below the operating profit line of our 2 reporting segments. The change will have no effect on consolidated operating results. A reconciliation of 2023 segments as recorded to recast segments is included in the appendix of today's supplemental slides and in Slide 18 for reference.
In the Leasing and Services segment, we expect improvement in 2024 as we continue to reprice our fleet and push lease rates higher. Since the FLRD turned double-digit positive in the second quarter of 2022, we've repriced approximately 37% of our fleet, giving us plenty of opportunity to renew leases at significantly higher market rates than expiring rates. We expect the FLRD to remain strong through 2024 as we have seen absolute lease rates rising. We have a favorable mix of railcars renewing. Excluding the impact of secondary market railcar sales, we expect margin improvement above the 2023 recast margin of 34.1%, which includes the railcar maintenance business. We anticipate fleet maintenance expenses to remain elevated in 2024 due to the current tank car compliance cycle. For 2024, we expect gains on railcar sales to be approximately half of what they were in 2023 and expect minimal railcar sales in the first quarter.
In the Rail Products segment, given the anticipated stable production levels, we expect 2024 margins to be significantly improved from the recast 2023 operating margin of 4.5%, which excludes the maintenance business. We forecast a 2024 margin in the range of 6% to 8%, improving through the year, which reflects better efficiency, complexity reduction and a more stable quarter.
First quarter margins will be impacted by increased freight and storage costs and the seasonality of our business. We expect industry deliveries of approximately 40,000 railcars in 2024, which is consistent with our long-term view of replacement level demand in support of our rationalized capacity in Mexico. We anticipate net lease fleet investment of $300 million to $400 million for the year. But we see plenty of opportunity in the secondary market as both buyers and sellers. We expect lower railcar sales as compared to 2023. We expect to deliver 53% of our total backlog in 2024. For those deliveries in the year, we expect 20% to 25% will be internal.
We expect our manufacturing and general capital expenditures to be approximately $50 million to $60 million for 2024. These expenditures are generally supporting automation, technology and modernization of our facilities and processes. And finally, we are announcing our 2024 EPS guidance at a range of $1.30 to $1.50. As mentioned, this guidance reflects higher deliveries and better efficiency in our manufacturing business in 2024, driving higher margins and continuing improvement in average lease rates. The major year-over-year EPS headwinds are higher eliminations, significantly lower gains on railcar sales and a more normalized tax provision, which generally we define as 25% to 27% in 2024. In closing, 2024 is off to a strong start, and we believe the plan we have in motion is achievable and reflects the work we've done across our business to improve our financial performance. We have learned from the challenges of 2023 and believe we are better positioned as a company to remain disciplined and deliver improved returns for our business. And we look forward to sharing some longer-term targets at our Investor Day next quarter.
[Operator Instructions] Our first question comes from Allison Poliniak with Wells Fargo.
Just want to talk to the leasing business. Obviously, rates are going to move higher for you guys. Utilization has been picky. You dropped a little bit. Could you maybe talk about kind of your view for this year? Is that utilization just sort of a onetime thing where we could see it pick back up? Like how are those conversations going on the renewal fleet from '24 at this point?
Great question. Thanks, Allison. And I'll start on that. When we look at 2024, we're really excited. You saw for the full year and in the fourth quarter, we had renewal versus expiring rates up over 30%. The vast majority of the markets that these cars serve are improving.
And the utilization, sometimes that will go up and down depending on the timing. We did have some cars come back. Sometimes you have to put them through the shop to get them ready to be back into service. So we still see utilization being strong, excited about that FLRD, the mix of cars that are going be expiring this year and then our ability to increase the rates that are going on with those cars.
And the last thing is our term. We've been increasing the term for these cars in '22 is an average of 47 months on renewal, and '23, that went up to 54 months. So all of our forward-looking metrics are going in the right direction.
Great. And then just on the maintenance side, I guess a little bit more color on the decision to move it over. Was it being underutilized at this point? And then I know, Eric, you mentioned maintenance still elevated. Is it going to be up relative to what it was in '23?
Sure. So when you look at the maintenance, to move it over into the leasing company, the reason we did that is it gives us a very strong linkage. When we look at our total cost of ownership for our customers in the lease fleet, we have great quality in our new cars that we're producing. And through that, we have less shopping.
But when we do shop, we can control the cost better. We can also look at the industry-leading turn times we have for those cars. So all those are benefits. And we want to drive that throughout our lease fleet to get as many cars -- of our own cars through those shops as possible.
The other thing that we've added over the last year or 2 has been our mobile repair units. And again, that's the benefit of our customers because if you have a mobile repair unit, you don't have the freight costs associated with moving it to a shop. You also don't have the time associated with getting that. So the cars are in service more for those customers and gives us a benefit.
When you look at the maintenance headwinds that we're seeing for the next couple of years, I think you've heard that throughout the industry. That's really to do with HM-216, so mandated compliance work that has to be done over the next several years. And so we're facing that.
The way we're looking at trying to mitigate some of those costs are putting more cars through our own shops using those mobile repair units. So it all goes in concert. And I would say the final thing is it should allow you to compare us very easily with other leasing companies. Now we have everything in that segment that compares us directly with others.
Our next question comes from Justin Long with Stephens.
So maybe to start with a question on Rail Products Group margins, it was helpful to get the guidance for the full year, but could you give us a sense for where you're expecting to start the year as we move into the first quarter? I know there have recently been the issues at Eagle Pass, but curious if that's something that will linger into 1Q? And then maybe give us a sense of where you're expecting to exit the year as well, just thinking about that progression.
So Justin, I'm going to start with Leasing, just to say again, very strong FLRD utilization and great renewal rates versus expiring. So very stable, very strong improvement area with only 37% of that fleet being repriced so far.
When we go to look at operations or manufacturing. Some of the headwinds that we saw in Q4 at the border will carry over into the first quarter along with the fact that we expect to deliver the majority of those 1,300 units that did not cross the border in the fourth quarter in the first quarter of 2024. And those units did have some compression on the margin because of the extra freight that was entered, the extra storage cost, the inefficiencies due to some of that congestion and the supply chain issues that we had. So that carries in.
Now I don't give quarterly guidance. But I think I've given you enough looking at the fact that we expect some compression at the beginning, and we expect to improve typically in our business as we go throughout the year.
Okay. Well, maybe to ask it this way. You gave that range of 6% to 8%. Are you expecting to remain in that range throughout the year?
We would expect based off headwinds at the first quarter for the fourth quarter to be higher. But we're not giving quarterly guidance, so that's just right now, looking at the numbers and doing the math.
Okay. Understood. And maybe secondly, I think there was a comment around inquiries picking up substantially as we've moved here into the first quarter. I was wondering if you could provide a little bit more color on what's driving that? And as we think about that pickup to just kind of give us a frame of reference, do you think it's enough to support growth in the backlog in the next quarter or 2 after seeing backlog taper here the past year or so?
So I'm going to go ahead and start out with the backlog. We've got about half the industry backlog sitting in our books. And in our script, we said we expect to deliver about 53% of that this year. So looking at the order entry rate for the industry, we think that solidly supports 40,000 industry deliveries that we talked about for the year. In the last year, it was closer to 45,000, but we're still within that range.
When you look at the inquiry levels, what's so exciting about those are we're starting to see more on tank cars, especially specialty tank cars. And so that's a movement that we haven't been hearing about. It's been a freight car-led increase in the order entry and seeing tank cars come back is great.
The other part of that is covered hoppers. We've seen some improvement there in the orders and also autoracks remain strong. And that's really driven by the mandatory requirement or aging out of some of those autoracks.
But if you start at the beginning of 2020 and go through the end of 2023, the industry is at a deficit of about 25,000 cars. So more cars have been retired than have been built. So we still see a strong need there overall for the cars and then the inquiry level supporting that 40,000 industry level of delivery for this year.
Our next question comes from Matt Elkott with TD Cowen.
First, a quick clarification on the guide. The magnitude of the 3 headwinds reflected in it, is it in the order you guys listed, meaning railcar sales is the biggest headwind followed by eliminations and tax. And secondly, did you give the percentage of cars you expect to build for your own lease fleet and how it compares to last year?
Yes, Matt, this is Eric. Let me take the second part of that. We talked about 20% to 25% of our deliveries this year going to the lease fleet. And so that's similar range it was in '23. It's certainly down from what it was in previous years. We're usually closer to 30% to 35%. When you look at -- I'm sorry, I drew a blank back down the...
The order of the headwinds.
Yes, yes. So the gains, we did quantify the gains, saying about approximately half the gains. In terms of the other 2, we didn't quantify them, but I think that the order kind of does speak for itself in terms of what we're looking at in terms of significance, yes.
Okay. And Eric, the lower expected sales, is it a function of secondary market valuations easing and overall demand moderating? Or is it more specific factors...
Yes, not at all. Secondary market -- yes, when you look at the secondary market, the secondary market for us, as demonstrated in the fourth quarter, still remains very strong. We're seeing a lot of activity, both breadth and depth. When it comes down specifically to our numbers, as we look at our leasing backlog and the planned additions we have in our fleet, a little bit back-end weighted on the year. And so it just is a matter of timing.
I talked about $300 million to $400 million of net fleet investment. We averaged about $300 million. So it's up a little bit, and a lot of that is due to timing. We really look at that more over a multi-year view. And so it's a little bit higher than normal.
But the other side of it is the returns are good. And so the lease originations that we are booking, we're very happy with those lease rates, especially in light of a higher interest rate environment, they're well above our hurdle. And so we feel good about what we're originating. But then it gets in the timing of when -- if we were going to monetize anything.
And Matt, I will say that we do reserve the right to be opportunistic if something comes up. So this is our plan right now.
Got it. That makes sense. An just one last question. Eric, you mentioned -- I think you mentioned briefly spot -- absolute spot lease rates. Can you maybe give some more insight on how they've trended in the fourth quarter and where you see them trending in the first quarter, maybe some more granularity by car type as well as overall by total fleet?
Yes. So I don't know that I mentioned anything about spot rates, but we can go there anyway.
I thought you said they're still solid, but maybe I...
Yes, the rate -- yes. Okay, the lease rates are still very strong. When we look at the trends in lease rates, we're still seeing average lease rates across the portfolio still increasing when you drill down on the car types, we're seeing that in most of the car types. So we're seeing really strong. Effectively, the yield on assets is still increasing, which is a good indicator.
And as we look at the supply demand dynamics going forward, as we look at our expiring rates for this year, that's why we're pretty bullish on our FLRD that we see it's going to maintain a very positive number. And so we feel good about -- that's why we feel good about the leasing fleet, and that's why we feel good about our outlook.
So quarter-over-quarter spot lease rates are still trending positively?
Yes.
Yes.
Yes. That's -- yes.
Are you guys surprised by that given the fact that the...
I'm not, and let me tell why. So when you look at new car lease rates, new car prices are still -- are much higher, marginal cost of capital are higher. There's still -- to invest in a new railcar, still requires a very high lease rate. When you compare that to fleet averages, there's a big gap there. And so we still see a lot of room for upward pricing on the yield of assets.
And the fleet is tight. When you look at railcar loadings, you look at cars and storage and we look more detailed at that, we see most of the market is in a very solid demand supply environment. And so -- and we're not the only one seeing it because other lessors are pushing rates as well.
Our next question comes from Steve Barger with KeyBanc Capital Markets.
This is Christian Zyla on for Steve Barger. First question, what percentage of the total fleet is now owned by lessors. And what do you think the upper limit on that might be? Do you see a day where lessors own most of the active cars or just any thoughts there?
So about 55% of the overall cars are owned by lessors now. And it really depends. The railroads continue to keep some in their own fleet, mainly box cars, autoracks, things like rail cars and grain cars. And we do have end customers who like to have their own fleets also. But 55% is definitely a big shift from when the railroads owned the majority of the cars.
Great. And then last quarter, you made the comment that 40% of your backlog will be delivered in '24. I think the most recent one was 53%. Are those additional deliveries primarily driven by the cars impacted by the border issue? Or can you just walk through what changed quarter-to-quarter?
What changed quarter-by-quarter is just the natural roll-off and changes from one quarter to other. We delivered railcars, we took orders, you add another quarter of deliveries. And so I don't know that there's any trend to that. It's just -- that's just kind of how the math works.
Got it. And then if I could just sneak one more in. For the rail car margins, I guess, can you just walk through the actions that you guys are planning or can take just to, I think, the commentary is to improve margins, but there will be lower deliveries. So just can you just walk through what actions you guys plan on taking?
Sure. And when you look at it, we're actually expecting higher deliveries this year. We have the 1,300 carrying over from the prior year. We also talked about the headwinds in the first quarter due to the border issues flowing over into first quarter from fourth quarter and the margins that were impacted by some of the freight storage efficiencies that occurred in 2023 in the fourth quarter due to that border constraint.
The other thing that we look at is we're continuing to work on automation. Every quarter, our employees are getting stronger in their training, and we're seeing the efficiency pick up. And so the initiatives, the actions, the training, all lead to improvement throughout the year.
And I guess the last thing I will add to it is changeovers. So I would expect our changeovers to be closer to the second half of '23 in 2024. So we do have less of those causing a headwind towards those margins.
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 this morning. For every unexpected challenge in 2023, Trinity found a unique solution. As we look to 2024, we anticipate continued margin growth, consistent operations and a focus on improving the returns of our business. Thank you for your support of Trinity. We look forward to speaking again in May and seeing you in Dallas in June for the Investor Day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.