GWR's Lower Than Expected Earnings Due To Weather, But Guidance And New Business Pipeline Intact

Genesee & Wyoming, Inc. GWR, an American short-line railroad holding company, held a conference call to discuss its first quarter 2019 results. The company reported adjusted earnings per share (EPS) of $0.78 for the first quarter of 2019, which were 11 percent better year-over-year, but less than NASDAQ's consensus estimate of $0.83.

Management reiterated its annual 2019 guidance, which calls for adjusted EPS of $4.30 to $4.50 per share – in-line with the current NASDAQ consensus estimate of $4.38 per share. Newly issued second quarter guidance of $1.00 to $1.10 per share is below the $1.12 consensus estimate. The second quarter 2019 guidance assumes revenue in the $570 million to $590 million range with an 80 percent to 81 percent operating ratio (OR).

The company expects to recover more than half of the carloads lost to weather in the first quarter of 2019, most notably steam coal shipments, given low inventory levels at the power plants it serves. Management said that coal inventories are 20 percent to 25 percent below normal stockpile levels and that the incremental train restarts to re-supply these inventories has taken longer as a result of continued weather delays.

During the quarter, GWR brought on two new lease agreements with short-line railroads in Indiana, which management believes represents 5,000 in annual carloads. Additionally, a plastics distribution facility in Georgia is building a transloading center that will represent 5,000 incremental annual carloads.

When asked about the status of new business and acquisition opportunities, management said that the commercial development pipeline is as active as they've seen in a while across all commodities types, with continued capital investment in the industrial base they serve.

Total revenue was down 3 percent year-over-year to $558.1 million as total carloads declined 6 percent to 761,513 units.

GWR's North American business (approximately 80 percent of operating income) reported 2 percent revenue growth as carloads declined 3 percent. Management said that severe winter weather and flooding in the Midwest caused significant Class I railroad connection issues, costing the company $0.09 per share in earnings. Adjusted operating income in North America declined 4 percent to $70.3 million.

GWR'S FIRST QUARTER 2019 NORTH AMERICAN (SAME RAILROAD) CARLOADS

Revenue declined 13 percent in Australia to $65.1 million as carloads declined 4 percent and revenue per carload declined nearly 8 percent. Management listed lower export coal and drought-constrained agricultural shipments as the reasons for the decline. GWR is seeing lower than expected spot coal shipments, which the company said have been impacted by weaker China-Australia relations. Adjusted operating income declined 12 percent as foreign exchange rates were unfavorable by $7 million.

Revenue in the United Kingdom and Europe was down 8 percent to $160.5 million as the prior comparison included revenue from a now divested intermodal unit. Excluding the divestiture, revenue was basically flat, which included an $11 million foreign exchange headwind. The division reported $1.4 million in operating income from this region, up from the prior period loss of $2 million.

Total adjusted operating income increased 0.5 percent to $87.8 million. The company reported a consolidated adjusted OR of 84.3 percent, which was 50 basis points better year-over-year.

GWR reported cash and equivalents of $70 million, $510 million of borrowing capacity on its revolving credit agreement and 2.8 times adjusted net debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization).

GWR FIRST QUARTER 2019 CARLOADS VS U.S. CLASS I RAILROADS