GATX Corporation

Brian Kenney – President and CEO Robert Lyons – Senior Vice President and Chief Financial Officer

Robert Napoli - Piper Jaffray John Hecht - JMP Securities Rick Shane - Jefferies and Company Paul Bodnar - Longbow Research Mike Grondahl - Northland Securities Art Hatfield - Morgan Keegan Danial Max - Trafelet Steve Barger – Key bank Capital Market

Thank you, Lorie. Good morning, everyone.

Thanks for joining us on our first quarter earnings conference call. I'm joined today by Brian Kenney, our President and CEO of GATX.

I will provide a very brief over view of the results highlighted in our press release earlier this morning and I will open it up to questions. First an administrative matter, I'd like to remind you that any forward looking statement made on this call represents our best judgment as to what may occur in the future.

We have based these forward looking statements on information currently available and disclaim any intention or obligation to update or revise these statements to reflect subsequent events or circumstances. The company’s actual results will depend on a number of competitive and economic factors, some of which may be outside the control of the company.

For more information, I refer you to our 2009 Form 10-K. For the numbers, today we reported 2010 first quarter net income of $18.7 million or $0.40 per diluted share compared to net income of 27.6 million or $0.56 per diluted share for the first quarter of 2009.

Please note that the 2010 and 2009 first quarter result include negative after tax share value adjustments of $0.02 and $0.23 per diluted share respectively related to certain derivates at our European rail affiliate AAE Cargo. As noted in the press release, the first quarter operating results and environment were essentially in line with our expectations as we laid out back in January coming into 2010.

The rail market remains very competitive as all lessors are working aggressively to keep their fleets fully utilized. We continue to have a negative effect on lease renewal pricing relative to expiring rates as noted by our LPI which was negative 15.2% for the quarter.

While the challenges in rail remain formidable, there are some signs of improvement all those sporadic. This dynamic is to be expected as the market has stabilized but is not yet showing consistent signs of recovery.

You will also note I'm sure that re-marketing of rail was very strong in the first quarter. We sold approximately 1,300 cars, a sign that activity in the secondary market has improved versus 2009.

However, I caution again annualizing the first quarter re-marketing income in rail. As many of you know re-marketing activity can be very volatile quarter to quarter and year to year for that matter.

And, it's driven by many different factors, most importantly our fleet portfolio management activity. In specialty, our marine joints ventures performed as we expected, which means the charter rates in the markets that we participate in remain well relative to prior years.

Our aircraft engine leasing joint venture with Rolls-Royce performed very well during the quarter. And American Steamship was not too much to discuss from an operational standpoint as the sailing season just got under way in the last few weeks.

However, costumer inquiry has been solid and demand for iron ore along the Great Lake has increased along with the restarting of a limited number of blast furnaces at the steel manufacturing companies. We'll continue to judicious in bringing vessels back in the service but the early signs in 2010 are positive for ASC.

During the first quarter, we invested approximately $70 million dollars primarily in rail assets as we continue to seek attractive investment opportunity to add assets to the portfolio. As noted in the release, we expect 2010 full year earnings to be in the range of $1.50 to $1.70 per diluted share as we outlined for you back in January.

This guidance excludes any AAE fair value adjustment. Before we move on to questions, one last matter.

For those of you who are in the Chicago area, our annual share holder's meeting is tomorrow at 9:00 am at the Northern Trust, it's at the corner of Monroe and LaSalle and you’re invited to attend. Slides will be available of Brian Kenney's presentation later in today.

And with that quick overview, let's go to questions.

Good morning.

Good morning, Bob.

Couple of quick questions. The share of affiliates earnings was up substantially in the quarter and I was wondering what drove that?

I mean mostly in the rail segment but it was kind of -- it's been a very pretty relatively lumpy item and are there gains from selling cars out of the joint venture or...

Well, the biggest driver, Bob, versus last year is the fact that the first quarter of 2009, recall there was a $14 million adjustment related to the AAE derivative. So, if you normalize for that, you'd be at 15.5 or 16 million versus the 18.3 that we put up in 2010.

The increase in 2010, we did have some re-marketing activity at one of our joint ventures, Southern Capital. Also Rolls Royce had a very good quarter.

So, those with the big drivers. But, the main difference really is that fair value adjustment non cash item.

But, there's no fair value adjustment in this. So, this is -- that 18 million is a clean kind of...?

Yes. There's a $900,000 adjustment.

That's it.

But excluding that 17 million or so is kind of a ongoing number?

Actually, I think the first quarter, if you look at it from an annual perspective, first quarter was very strong because we did have some re-marketing activity both at Southern Capital where we had close to $4 million income item from sales of some cars in that portfolio and then also at Rolls Royce about 2 million of re-marketing activity also helped support very, very strong quarters. So, I wouldn’t annualize that number.

Okay, then on the flip side, the other expenses were up significantly. Is there anything unusual in there, there’s two quarters in a row that the other 19 million of other expenses, the 18 million last quarter, 4 million a year ago.

Yes. Last year -- first on last year's number, we did have, if you recall, in the first quarter of 2009, we had roughly a $6 million positive litigation settlement at American Steamship.

So, that drove down that other expense item by that same amount by 6 million. And, then in first quarter of this year, we had roughly $5 million impairment on some rail cars that will be coming out of service earlier than anticipated due to a industrywide AAR mandate.

Okay.

So those two items alone right there is roughly 11 million of the difference between the years. We also had some additional storage cost of about a million dollars.

Some other operating expenses were up a couple million.

Okay, that’s helpful. Looking at the back log of rail car manufacturer back log jumped up in the March quarter for the first time.

What is going on? Why -- I mean there's still a ton of unused or vehicles off lease, what’s driving the increase in the back log and does that concern you at all?

No. It doesn't really concern us.

There was one large order in the first quarter from rail road for a coal cars, roughly 3,000 car orders. So, that really accounts for the full pick up of the back log.

But that doesn't concern us. That obviously is a class one with a specific need for those cars.

They placed the order. Aside from that there has very little order activity that we can tell.

Thank you.

Morning, thanks for taking my questions. Bob, you talk about pricing and that there's some sporadic stabilization or some factors in the business that tell you it’s stabilizing but maybe too early to call, a market where you might see pricing stabilizing grow.

That said, we are seeing some positive result or maybe better than expected results at some of the rail operators. And, you know historically is there ever a period where pricing is stabilizing, growing faster than other periods of time given some kind of hyper activity or renewed strength in the market?

Hey, guys. Thanks, for taking my question.

Like to talk about pricing strategy and what's going on in terms of different lessors cutting rates or you know try being motivated to keep assets in place. Brian, you alluded to the fact that there are series of well known portfolios out there that are available for sale.

Are you seeing behavior from those lessors that they are being aggressive on price and I want to tie this in with the second question, which is that you've indicated at least during the decline in the cycle that your strategy was to be aggressive on pricing in order to maintain utilization levels? If we are starting to see a rebound, are you shift that strategy a little bit perhaps bring utilization down with the idea that you can drive higher prices, 6 or 12 months from now?

Okay. Well, it's a couple part question.

In terms of the portfolios, I don't know that they are available for sale. It's questionable whether the parents or the larger company consider them a long term hold.

I wouldn’t necessarily call them available for sale in today's market you know part of the reason that they are not sure anybody would show up or buying it. As far as pricing, you know, we don't really see anybody acting that irrational out there in pricing.

Everybody's is trying to keep their cars utilized and put their idle cars to work. I wouldn’t say anybody sticks out in being irrational even the players that are theoretically you know, not long term holders, but current, in fact we've had a success the less couple of quarters displacing those competitors that are in question just because you know the costumer wants to know that they are with a long team player.

So, I would say they haven’t driven down our pricing. In some cases we have been able to realize premium pricing just because of our service capability and who we are in the market.

As far as the shipping strategy in the market recovers, you know, it's certainly not there right now in terms of, you know, I wouldn’t say we’re out there aggressively raising price at all. You know, because of amount of idle cars in the industry.

We want to keep cars to work but yes, if that supply demand balance gets in shape, you know, at some point you want to push price but we’re not anywhere near that right now.

And, I think one other data point to point to with regards to the strategy is again the renewal term which is steadily in March down and was 31 months in the first quarter. So, that gives you some indication that we’re proactively trying to give ourselves an opportunity to replace those cars as the recovery takes hold.

Great. guys, thank you.

I apologize, it was a pretty complex question. Thank you for answering that.

It really helps.

No problem.

Hey, good morning. I wanted to get into some of the car sales I mean, how do you feel -- what types of cars you know, are you looking at selling now?

I mean I would expect that at this point you guys have been more of a net adders to your fleet than net sellers. I just kind of wanted a little more reasoning behind that.

Well, were always active in the sales market. And maybe there was potentially some, a little bit pent up sales activity given that 2009 was a fairly light year.

But, in the ordinary course, we’re always going to be in the market, Paul, selling some cars during the course of the year. And, it's a fleet portfolio management, ongoing fleet portfolio management activity we undertake all the time.

Looking at the cars that you know in the fleet that are good cars, are on long term lease, but they may not be a fit with what our fleet or where we see it going longer term or at particular costumers. So, we you know, we look to sell certain cars.

Yes. Exactly, you manage the age of your portfolio, the costumer mix, the type of equipment and sometimes other people that are buying those cars value the length of the lease and the quality, the credit quality.

There's differing needs and differing ways people value transactions in the market. Let's say we’re both costumer and equipment focused and it's very long term, it's a very long term view.

Okay. And then on remarketing income I know (inaudible) from this quarter forward, but, just as credit markets keep improving, is that something we should expect to in general maybe improve throughout the year although I mean this quarter may have a couple special things in there?

That's a really good question. That's very fair question.

We've seen that as the credit market have improved people have more access to capital. You see more people showing up when there’s cars for sale on the market.

So, yes, we would expect that and that was really better going into the year was reflected in our earnings.

We talked about back in January. Paul, on why you know the strengthening capital markets are important to GATX from a couple of different fronts, not just from cost of debt standpoint but to the extent buyers in the secondary market have access to equity is a good thing.

Is that going to have more of an impact on the specially business or the rail or both?

I would say both.

And then just to go back and clarify something. On the other income, it sounded like rail that wasn't something that was a onetime kind of $5 million hit that you took for those cars?

Yes, you are right Paul. And, that was another expense.

Right.

Yes. That's a onetime, it was 4.8 million.

Good morning, guys. And, thanks for taking the question.

If you could just give us some color into rail trends in the first quarter relative to you know future quarters in 2010. I mean, was this, did you have more cars coming up for renewal in the first quarter, was it heavy?

You know how does it look relative to the rest of the year?

Sure, Mike. This is Bob.

There isn’t really much seasonality to that renewal activity. We came into the year, we’re at about 17,000 cars scheduled for renewal and they really do occur evenly throughout the course of the year.

And they occur -- well, that's a lot of cars you know, 17,000 in the scheme of the overall GATX fleet of 109,000. It's a very manageable number.

And, they also incur in very small lots. They aren’t big, typically big, you know 2,000 or 3,000 cars renewals or anything like that.

They tend to be in the 100, 200, 300 lot size. They were constantly you know -- every day we were dealing with renewal.

So, it did help, that's helpful. I know, it's a difficult thing to figure out and so ...

So, it did help, that's helpful. I know, it's a difficult thing to figure out and so ...

So, it did help, that's helpful. I know, it's a difficult thing to figure out and so ...

You know, it’s fair to say we are lot more serious about it right now than we were a year ago. Because the markets look a little better and we have – there might be some light at the end of the tunnel.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Okay.

Scrap cars typically are at near, very near or at the end of their life.

There’s been a lot of question about freight, and you mentioned covered hoppers and maybe it’s best to use as an example of an train car which was -- this is more market data, it’s probably down from the peak, was probably down 50%, just six or eight or maybe a year ago down 50% from the peak. Since we’re covered by 25%, if you do the math, that still means it is down over 35, almost 40% from the peak.

Forget about the peak. Just look at the long term average, it is still down from the long term average between 15 and 20%.

So, yes. Things have recovered but when I say we’re not jumping up and down, it’s because we’re still renewing higher rate leases and it is still down from the long term average.

So when it’s starts to get that long term average, that’s when you know things start to look better.

That’s great, that’s helpful thanks. And, just using that same math, is that recovery that you talked about for covered hoppers better than what you’ve seen in tanks so far.

You know, it sounds like we are (inaudible) car type specific, I’d say that’s typical. So, there’s some type pressure tank which look a lot better than that, general service.

I’d say maybe even look a little worse than that, really depends on the car type. But then again general service was never down as much (inaudible).

So, it is still car type specific.

It does get very granular, Steve, given that north of a hundred different car type in the fleet and sixty deferent tank car types alone.

That’s a good example.

Okay. I appreciate it, thanks.

Sounds like Bob may have checked out.