Greenbrier Companies (GBX) is set to report FQ1 earnings before the market opens Thursday morning. Analysts expect revenue of $758.81 million and EPS of $1.63. The revenue estimate implies a decline of 1% sequentially. I believe the company will meet or surpass this. However, the devil is in the details.

The Revenue Bogey Should Be No Problem

Greenbrier is coming off solid FQ4 results, in which the company delivered 7% revenue growth Q/Q.

The Manufacturing segment (83% of revenue) was firing on all cylinders; revenue from the segment grew 11% sequentially. The company has diversified its railcar orders away from the troubled energy sector and garnered business from higher-growth areas such as automotive and intermodal.

The explosive growth in the global economy and U.S. energy boom allowed Greenbrier to build an order backlog of 41,300 units valued at $4.7 billion. The backlog is up 42%, versus the $3.3 billion backlog in FY14. Management expects to deliver units of 20,000 to 22,500 in FY16, and expects revenue growth in the high-single digits. The lion's share of those deliveries are in firm backlog or in lease railcars held for syndication. That said, a revenue beat is likely this quarter.

Railcar Orders Is The Most Important Metric

Despite the robust backlog, Greenbrier's railcar orders will likely be the most important metric. In December, the company announced 1,800 new railcar orders since September 1st - 1,300 coming in the month of December. By my estimation, the 500 orders for FQ1 2016 equate to an 83% drop off vis-a-vis FQ4 2015.

The Manufacturing segment (83% of revenue) was firing on all cylinders; revenue from the segment grew 11% sequentially. The company has diversified its railcar orders away from the troubled energy sector and garnered business from higher-growth areas such as automotive and intermodal.

The explosive growth in the global economy and U.S. energy boom allowed Greenbrier to build an order backlog of 41,300 units valued at $4.7 billion. The backlog is up 42%, versus the $3.3 billion backlog in FY14. Management expects to deliver units of 20,000 to 22,500 in FY16, and expects revenue growth in the high-single digits. The lion's share of those deliveries are in firm backlog or in lease railcars held for syndication. That said, a revenue beat is likely this quarter.

Railcar Orders Is The Most Important Metric

Despite the robust backlog, Greenbrier's railcar orders will likely be the most important metric. In December, the company announced 1,800 new railcar orders since September 1st - 1,300 coming in the month of December. By my estimation, the 500 orders for FQ1 2016 equate to an 83% drop off vis-a-vis FQ4 2015.

The company is in a cyclical industry, and sans quantitative easing, its past performance may not be reflective of its future. As the backlog runs off, a lack of new orders will eventually lead to lower revenue.

GBX longs argue that the company has about seven quarters' worth of orders in backlog. The argument leads to issues over valuation and trying to pick the bottom. I wouldn't apply a multiple to current earnings, because they have likely peaked. The task would be to [i] decide the level of Greenbrier's run rate earnings, and [ii] apply a fair multiple to those earnings. If Greenbrier has 30% industry market share, its annual run rate of orders represents about 24,000 for the industry. This is at least 40% below the 40,000-60,000 some believe is healthy.

Given the end to government stimulus packages and the downturn in railcar traffic, we may not reach a bottom in railcar orders anytime soon. For the first 51 weeks of 2015, rail traffic was off 2.3% compared to last year. Until the decline in rail traffic abates, I will remain bearish on GBX.