American Railcar Industries, Inc. (ARII - Snapshot Report) is heading into the rail car down cycle this year and next. This Zacks Rank #5 (Strong Sell) is expected to see falling sales and earnings over the next two years.

American Railcar makes and sells railcars, specifically hopper and tank cars, custom designed railcar parts and other industrial products. It also leases railcars it manufactures to some markets.

Additionally, the company provides railcar repair services through various repair facilities.

Earnings Miss in Q1

On Apr 28, American Railcar reported first quarter 2016 results and missed the Zacks Consensus by 16 cents. Earnings were $1.16 versus the consensus of $1.32.

Revenue fell 33% to $176.2 million from $263.8 million for the year ago quarter. It was driven mostly by lower manufacturing revenue.

It was producing more hopper railcars in the quarter. Hoppers have lower average selling prices than tank railcars due to less material and labor content.

Tank railcars, which are often used by the energy industry, continues to be in a soft market, with decreasing sales.

One bright spot, however, was railcar leasing. Revenue rose 33% to $32.8 million year over year due to an increase in the number of railcars on lease.

As of March 31, 2015, there were 10,556 railcars in its lease fleet, up from 8,381 the year before.

The backlog remains substantial, with 5,958 railcars, with an estimated value of $569.1 million as of March 31, 2016.

Earnings and Sales Expected to Decline

2015 was a record year for American Railcar, as earnings jumped to $6.46 a share. The railcar business is cyclical, however. With tank car orders softening, sales and earnings are now expected to slide.

Analysts expect 2016 revenue to fall 29% year over year with another decline of 23% in 2017.

The 2016 Zacks Consensus Estimate has fallen to $4.23 from $4.64 in the last 90 days. That is a decline of 35% from 2015's record year.

Earnings are expected to fall another 26% in 2017 to $3.12.

What About That Dividend?

American Railcar pays a dividend which is currently yielding 4.1%.

As of March 31, the company had working capital of $267.9 million, including $208.1 million in cash and cash equivalents. The dividend in the first quarter only cost $7.8 million.

Because of its solid cash flow, it has also been buying back shares. In Q1, it bought shares worth $10.9 million and is authorized to buy another $181.7 million under its current share buyback authorization.

Shares Have Sunk But Be Careful

Over the past 2 years, shares have sunk from their highs.

Shares appear cheap, with a forward P/E of just 8.7.

But with sales and earnings both expected to see double digit declines over the next two years, this is a classic case of a value trap.

Shares appear cheap but there's no growth. Investors are rewarded for their patience by the dividend. But until earnings turn around, there are other places you can park your money and get growth and value.

I don't like any of the railcar manufacturers right now. They are all in the same situation with declining railcar sales.

But if you still really want to invest in the transports, you might consider Ryder (R- Analyst Report) instead. It's a Zacks Rank #3 (Hold) and still pays a nice dividend of 2.9%. It's also cheap with a forward P/E of only 9.3.

Ryder is expected to grow earnings this year and next.