Tag Archives: Genesee & Wyoming

Genesee & Wyoming’s Q2 revenue falls, but company beats expectations

Slumping volumes were behind Genesee & Wyoming Inc.’s (GWI) decline in revenue and profit during second-quarter 2016, the company announced yesterday.

Operating revenue fell 7.5 percent to $501.4 million from $542.2 million a year ago. Reported operating income decreased 12.3 percent to $87.2 million; adjusted operating income declined 5.3 percent to $94.4 million.

Reported diluted earnings per common share were down 9.8 percent to 83 cents; adjusted diluted earnings per share remained constant at 93 cents per share, according to a company press release.

GWI reported $48.4 million in net income for the quarter, down from $52.8 million a year ago. Adjusted net income came in at $54 million, compared with $53 million in last year’s second-quarter.

In North America, where GWI earns about 80 percent of its operating income, operating revenue fell 2.1 percent to $304.6 million from $311 million in second-quarter 2015. Reported operating income from the North American operations rose 4.8 percent to $80.8 million.

Also in the second quarter, GWI’s results included $5 million in restructuring costs primarily associated with the company’s U.K./European operations, corporate development and related costs of $2.6 million, and a net gain on the sale of $300,000 in assets. Additionally, the second-quarter 2016 net income includes a $7.2 million income tax benefit associated with the U.S. Short Line Tax Credit, which was not in effect in Q2 2015.

The quarter’s results were “well ahead” of GWI’s outlook, primarily due to the North American operations’ performance, said President and Chief Executive Officer Jack Hellmann.

“Despite a 7 percent decline in North American carloads, favorable revenue mix and effective management of costs led to an improvement in our reported North American operating ratio of 1.3 percentage points to 74.1 percent, and a modest increase in our operating income,” he said.

Meanwhile, GWI’s Australian and U.K./Europe operations were generally in line with expectations, as the company completed a restructuring of its U.K. coal business, Hellmann added.

“While we are pleased with our second quarter results, our reported diluted EPS declined 10 percent and our adjusted diluted EPS excluding the Short Line Tax Credit declined 13 percent compared to last year,” he continued. “As a result, we remain focused on improving the efficiency of our operations amidst uneven business environments in each of our three segments worldwide.”

Additionally, the economic uncertainty continues to provide acquisition and investment opportunities that the company is “carefully evaluating in multiple geographies within our global footprint,” Hellmann said.

North American Railroads: Consolidation in 2014 and Beyond?

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Canadian Pacific Railway CEO and Director E. Hunter Harrison told investors last week that he expects rail consolidation among the largest North American railroads within six years, but his ideas are more than just the usual rumors. One of which is that Kansas City Southern Railway, the smallest of the major railroads, will merge with one of the five other Class I carriers or a third-party that merges two railroads. The major benefit to a KCS buyer would be gaining the only cross-border rail network that connects the U.S. to Mexico’s rapidly growing manufacturing base.

What if each of the western U.S.-based Class I railroads — BNSF Railway and Union Pacific Railroad merge with an eastern counterpart. BNSF or UP, for example, could merge with CSX Transportation or Norfolk Southern Railway. Such a merger wouldn’t “impact the competitive environment,” and shippers would gain better service by having two transcontinental lines. Shippers with access to only one line, who refer to themselves as “captive shippers,” could benefit as well.

Under a dual transcontinental merger scenario, the need for handoffs at the Mississippi River or in Chicago would be reduced, speeding up transit times. The mergers also would reduce corporate costs, because two sets of management would be redundant, and some railyards could be consolidated.

Traditionally, Chicago was the Rail Capital of the United States. Will new Chicago Bypasses develop? What about companies like UPS who rely on Chicago traffic? Union Pacific was created by Abraham Lincoln and Congress to “span the Continent”.Will this happen? A transcontinental merger wouldn’t create major cost savings, nor would it greatly improve service, because interline traffic generally runs smoothly.. Railroads’ differing cultures would only complicate a process. I remember when CSX had just taken over the Selkirk Yard near Albany. There was a blizzard and Selkirk shut down. CSX sent a team of executives to solve the problem. They arrived at the Albany County Airport (built in the 1930’s and not shut because they used strange contraptions called snow plows. These characters arrived in raincoats and rubbers and carrying umbrellas.

The most likely consolidation scenario is a merger or acquisition involving KCS, but the railroad’s high valuation likely is keeping suitors at bay. Acquiring or merging with KCS seven or eight years ago before the railroad’s cross-border business began to take off would have made sense.

The greatest potential for rail consolidation isn’t in the Class I industry but within the small lines that connect to the major railroads. Let’s start with Florida East Coast Railway. Not likely. They are gearing up for the Panama Canal expansion plus their parent company is building a Miami to Orlando passenger train. Just announced purchase of 24 new GE locomotives (see picture at top) .

Genesee & Wyoming, an owner and operator of short lines and regional freight railroads, is best poised to swallow up other lines because the company has access to some $400 million in capital and is the largest strategic player, according to a Stephens research note. Of the 459 privately owned U.S. regional and short lines, which make up about 80 percent of the market, G&W’s network connects with 48 of the lines. Like the larger railroads, many of G&W lines, which total 98 in North America, are seeing intermodal traffic growth.

See more about railroad mergers over history.

 

Railroading Developments In New Hampshire

Last year we wrote about railroad revitalization in New Hampshire.

The New Hampshire Northcoast Corporation (reporting mark NHN) operates part of the former Boston and Maine Corporation‘s Conway Branch between Rollinsford and Ossipee, New Hampshire. The railroad’s primary traffic is quarried sand. It interchanges cars with Pan Am Railways in Dover; the cars are then taken to Boston Sand & Gravel in Massachusetts.

Now we have a new development:

Genesee & Wyoming Inc. has reached an asset purchase agreement with Claremont Concord Railroad to acquire its rail line in Claremont, N.H., and lease to operate over a state-owned line in West Lebanon, N.H., according to a report in the Valley News.

G&W subsidiary New England Central Railroad last week notified the Surface Transportation Board of the transaction, the newspaper reported. A G&W spokesman confirmed to the newspaper that the company was acquiring Claremont Concord, but declined to comment further.

Claremont Concord Railroad owner Christopher Freed did not respond to the newspaper’s requests to comment. He acquired the railroad in 2002 from LaValley Building Supply.