Allison Poliniak: Hi, good morning. Could we talk about maintenance expense? It seemed a bit — a little bit more of a sequential uplift than we were expecting. Is there anything unusual there? I know you guys were thinking it would be up year-on-year, but it just seemed like a higher lift in the first quarter. Thanks.
Bob Lyons: Yes, so the maintenance expense is up as you mentioned, about $7 million, but it’s very much in line with our expectation, just like everything else. The variance from the prior year is primarily due to the mix of repairs and higher volume of repairs. Calling that exactly the way those — that volume is going to come in and that mix is going to come in quarter-to-quarter is challenging. So we really focus on the full year and we continue to believe that for the full year, net maintenance expense will be up $5 million to $10 million versus that 2022 range.
Allison Poliniak: Got it. And then, this is probably being overly picky, but the renewal success rate dropped a tad. Anything in terms of the customer needs that you see are changing? I know it’s still a very strong market, but are you starting to see maybe some incremental pockets at this point?
Bob Lyons: Yes, we really don’t read anything into that single quarter. Again, we kind of look at the whole year and on a historical context, even this quarter is a pretty strong number and if you look at where the utilization is, what’s going on with lease rate, the trends are again, not to repeat myself, but very much in line with expectations.
Operator: Thank you. We go next now to Bascome Majors at Susquehanna.
Bascome Majors: Can you talk a little bit about the cyclical versus the structural drivers of your lease pricing power by that — and by that, I guess what we mean here is, railroad volumes, certainly from the railroad outlook being a bit more muted from the class one’s as we look forward to the next few quarters, albeit maybe more concentrated in intermodal, which you don’t have a ton of exposure to. But your pricing power being quite strong from a combination of high asset prices, reducing excess car supply, high interest rates, just, can you talk a little bit about how those come together in your view of the market and how that impacts your strategy as you look forward over the next, two, three, four quarters? Thank you.
Bob Lyons: Sure Bascome, and I’ll start and as we’ve talked about over the course of the last couple years as there has been fleet attrition in general across the North American network, the recovery and rates has really been more that — one that’s been driven by the supply side than it has on the demand side. So, as we’ve seen total fleet counts come down, utilization go up, that along with interest rates and the price of new cars has been the primary driver to the rate lift. What we haven’t seen is material carload growth, and that would certainly be welcome and we think about carload growth potentially coming from a couple areas. One, just from economic activity and the other being the customers moving more product by rail and shifting from truck and hopefully service levels improve.
We believe there is freight on the sidelines that can go from truck to rail. We hear that from our customers all the time, that they would move more by rail if service levels improved. So we think there’s some pent-up demand there. So today to date, I would break it in kind of again, slice things into two levels. It’s been a supply side recovery so far and we’re looking forward to the demand side of it kicking in as well.
Bascome Majors: Thank you for that. That’s all for me.
Operator: Thank you. We’ll go next now to Brendan McCarthy at Sidoti.
Brendan McCarthy: Hi, yes, my question has actually already been answered just now. Thank you.
Operator: We’ll go next now to Justin Bergner at Gabelli Funds.
Justin Bergner: I think I heard you mention that maybe within your unchanged EPS guidance, you expect North American rail to be a touch better. Did I hear that correctly? And if so, what would be the driver there?
Bob Lyons: Actually, we reference more RRPF kind of fundamentally being a little bit, or Rolls-Royce being a little bit better than we anticipated and maybe that’s more fundamental. The rest of the businesses whether it’s rail North America, rail Europe, India and Trifleet kind of all performing as planned.
Justin Bergner: Okay. Thank you. And that would be sort of on the non-gains on asset sales side that I guess $12 million-ish number for the quarter, Tom
Bob Lyons: Correct. Right. Just kind of looking at the base business.
Justin Bergner: Okay. I think some of the rails spoke to, improving productivity if not during the whole first quarter as sort of we came out of the first — as we came out of the first quarter. Are you seeing that and how is that impacting lease rates sequentially? Is it starting to constrain them in any way?
Tom Ellman: Yeah, so most of the shippers that we talked to remain sceptical about near term improvements in rail service. Most shippers, as Bob mentioned, would probably like to ship a little bit more by rail if the service improved, but they haven’t seen the levels of sustained improvement to make that happen. I would say they’re encouraged by some of the talking points from the railroads, but would like to see more action, particularly on the first mile and last mile.
Justin Bergner: Okay. That’s helpful. And then lastly, there was a sequential sort of year-on-year increase in the profitability of the other segment mostly on the other income and expense line. Is there anything that we be aware of their that’s driving that? Is that likely to continue?
Bob Lyons: Yeah. So that other segment includes both Trifleet and true other items that aren’t any part of the — any part of any other segment. So Trifleet was up a little bit. It was up a little over $0.5 million and that’s rough — and that’s basically due to some improvements in utilization and lease rates. So the majority of it was the true other, other, and that’s about $2 million each from two different things. One is the interest allocation that we do. We allocate that to our various segments based on their target leverage. And when we do that, you can end up with a slight over or under allocation and the remainder goes in that other piece and gets in this case interest income associated with it. The other part of it is pension accounting.
When you look at pension accounting, you’re looking at interest expense and you’re looking at net expected return on pension assets. When you do that, that again can go either direction. So together those things are about a little over $4 million of positive. That is not something that I would look for a particular trend to occur because it can go any direction.
Justin Bergner: Okay. Thanks for clarifying and next quarter.
Operator: We’ll take a follow-up question now from Bascome Majors.
