Brian Kenney – Chairman, President and Chief Executive Officer
Okay, thanks Jennifer. Before we open up the call to questions, I want to address three topics very quickly. First I’ll provide some color around our 2015 earnings outlook; second, I’ll give you a quick update on the tank car regulatory situation; and third, I would like to address upfront some of the questions we have been receiving concerning the impact of historically lower crude prices on our lease fleet. So, let’s start with that 2015 outlook. As the press stated, we’ve never been in a stronger position from a fleet perspective than we are entering 2015. I mean you see 99% utilization our renewal success rate in the mid-80s. We saw an average renewal rate increase as Jennifer said in our lease pricing index of close to 40%. We have had continued success at lengthening lease term. And in general the team has done outstanding job of using the strong market of the past few years to position us for continued earnings and cash flow growth in the years ahead.
So in 2015, we project North American rail segment profit to increase close to 10% from last year to run down the income statement. Lease revenue should increase primarily due to renewing expiring leases at higher rates again in 2015. We also see a full year revenue contribution from the acquired boxcar fleet. We actually expect a smaller increase in 2015 maintenance expense than in recent years. We’ll have a full year of impact once again of the boxcar fleet from a maintenance perspective but that’s going to be offset by a drop in our tank qualification compliance events compared to last year. As approximately, 2014’s level. And if you look at investment activity, still be robust in 2015. We expect to purchase close to 4,000 cars. But it will probably fall short of the investment activity we saw last year when we had that $340 million boxcar acquisition and unless of course we see another attractive opportunity.
In international rail, we expect a slight increase in segment profit. Lease rates and lease revenue is expected to increase again they’re going to have higher lease rates as they continue their fleet renewal program of the last few years where they have been adding new cars to scrapping older cars. But, really we will be wrestling with another uneven year for tank car demand in 2015. So, we expect utilization to bounce around from quarter to quarter. That year of exchange rate is not helping comparisons to last year either. Net fleet maintenance is expected to increase slightly to the schedule activity, and investment will be likely lower than in recent years, although they still plan on adding over 1,000 cars to the fleet in Europe in 2015.
Turning AFC, we expect a small increase in segment profit this year. As you know they had a very difficult start to the selling season in 14 due to extreme icing conditions on the Great Lakes but they were able to bring on another vessel and they had a tremendous fourth quarter operationally that both met their tonnage commitments for the year as well as they took on some spot cargos which were very profitable. But if you assume a more normal start for the selling season, we expect lower tonnage in 2015 because those spot cargos aren’t likely to be available. But segment profit should still increase slightly due to some price increases as well as to lever those tonnage requirements with the lower number of vessels than in 2014.
