Genesee & Wyoming, Inc. (NYSE: GWR) beat fourth quarter revenue consensus estimates by $4.89 million. Revenue was expected to decrease by 0.2 percent year-over-year (Y/Y), but it increased 0.7 percent Y/Y from $571.6 million to $575.6 million, according to Seeking Alpha. GWR also beat fourth quarter consensus earnings per share (EPS) estimates of $0.89 by $0.11 to $1.00.
The Genesee & Wyoming Inc. is an American short-line railroad holding company that owns or maintains an interest in 120 railroads in five countries – the United States, Canada, Australia, Belgium, the Netherlands and the United Kingdom.
According to the GWR earnings release, operating revenues increased 0.7 percent to $575.6 million from $571.6 million. Reported operating income decreased 0.8 percent to $105.7 million; adjusted operating income increased 5.6 percent to $109.9 million.
Reported diluted EPS were $0.94 with 58.9 million weighted average shares outstanding, compared with reported diluted EPS in the fourth quarter of 2017 of $6.81 with 62.7 million weighted average shares outstanding. Adjusted diluted EPS increased 29.9 percent to $1.00.
Net cash provided by operating activities for the year ended December 31, 2018 increased 15.4 percent to $553.1 million; adjusted free cash flow attributable to GWR before new business investments and grant-funded projects increased 20.8 percent to $326.0 million; adjusted free cash flow attributable to GWR increased 12.1 percent to $280.6 million.
GWR’s North American operations offset loses in Australia and Europe. In addition, GWR repurchased approximately 2.4 million shares of its Class A common stock for $189.6 million during the fourth quarter of 2018.
North America
North America (representing 80 percent of GWR operating income) saw operating revenues increase 5.5 percent from $320.2 million to $338 million. Reporting operating income increased 16.7 percent to $87.2 million, while adjusted operating income increased 18.1 percent to $89.3 million. Operating ratio decreased from 76.7 percent in the fourth quarter of 2017 to 74.2 percent in the fourth quarter of 2018.
“We had uniform strength in our carloads with key drivers including coal, metals and petroleum products,” said John Hellmann, GWR chairman and chief operating officer. “In Q4 2018 our North American operations had 5.8 percent carload growth, a 250 basis point improvement in operating ratio, incremental margins of 75 percent and a 17 percent increase in operating income. These results more than offset the adverse impact of Hurricane Michael, which caused significant damage to rail and customer facilities and cost us approximately $2 million in the fourth quarter.”
Australia
According to the earnings release, operating revenues from GWR’s Australian operations decreased 5.8 percent to $71.1 million from $75.5 million in 2017. The operating ratio decreased from 76.6 percent to 75.1 percent. Adjusted operating income from GWR’s Australian operations decreased 21.2 percent in 2018 to $17.7 million. Australia accounts for 5 percent of GWR’s operations revenue. Freight volumes decreased 1.7 percent.
“Excluding FX, revenues were relatively flat as higher metallic ores and intermodal revenues were offset by lower drought-impacted agricultural products.” said T.J. Gallagher, GWR chief financial officer, during the earnings call.
U.K./Europe
Operating revenue in the U.K./Europe increased 1.7 percent from $163.7 million to $166.5 million. Operating ratio grew from 91.8 percent to 99.5 percent. Adjusted operating income decreased from $4.6 million to $2.8 million. Freight volumes decreased by over 13 percent.
2019 Outlook
With much of GWR’s fourth quarter growth based in the U.S., Hellman expressed confidence in growth in 2019 with the promise of tax cuts for short-line rail operators.
“The tax credit has strong support in the new Congress and bills for a permanent expansion have recently been introduced in both the House and Senate,” said Hellman. “With a potential benefit of $0.60 per share to support investments in our real infrastructure, we are fortunate that the short-line tax credit seems to be that rare piece of legislation with true bipartisan support.”
According to FreightWaves SONAR, GWR stock increased 2.4 percent from $80.50 on February 5 to $82.45 on February 6.
