(Source: Genesee & Wyoming press release, February 8, 2017)
DARIEN, Conn. — Genesee & Wyoming’s (G&W) operating revenues increased $1.7 million, or 0.3%, to $516.5 million, in the fourth quarter of 2016, compared with $514.9 million in the fourth quarter of 2015. G&W’s operating income in the fourth quarter of 2016 was $53.6 million, compared with $94.6 million in the fourth quarter of 2015. G&W’s adjusted operating income in the fourth quarter of 2016 was $104.5 million, compared with $94.2 million in the fourth quarter of 2015.(2)
Reported net income attributable to G&W in the fourth quarter of 2016 was $8.9 million, compared with $84.9 million in the fourth quarter of 2015. Excluding the net impact of certain items affecting comparability between periods as discussed below, adjusted net income attributable to G&W in the fourth quarter of 2016 was $58.3 million, compared with $56.8 million in the fourth quarter of 2015.(2)
Reported diluted EPS attributable to G&W in the fourth quarter of 2016 were $0.15 with 58.8 million weighted average shares outstanding, compared with reported diluted EPS in the fourth quarter of 2015 of $1.47 with 57.9 million weighted average shares outstanding. Excluding the net impact of certain items affecting comparability discussed below, adjusted diluted EPS attributable to G&W in the fourth quarter of 2016 were $0.99 with 58.8 million weighted average shares outstanding, compared with adjusted diluted EPS in the fourth quarter of 2015 of $0.98 with 57.9 million weighted average shares outstanding.(2)
Fourth Quarter Consolidated Highlights
• Completed the acquisition of Providence and Worcester Railroad Company (P&W), a Class III regional freight railroad operating in Massachusetts, Rhode Island, Connecticut and New York, on November 1, 2016.
• Completed the acquisition of Glencore Rail (NSW) Pty Limited (GRail), the third largest coal haulage business in Australia, and concurrently issued a 48.9% equity stake in G&W’s Australian subsidiary, G&W Australia Holdings LP (GWA), the holding company for all of G&W’s Australian businesses, to Macquarie Infrastructure and Real Assets (MIRA) on December 1, 2016.
• Announced agreement to purchase Pentalver Transport Limited (Pentalver), a U.K. based maritime container terminal and transportation business, on December 12, 2016.
• Completed 4,000,000 share offering of Class A Common Stock at $75.00 per share on December 13, 2016. The offering increased G&W’s weighted average shares outstanding in the fourth quarter by approximately 522,000 shares, which reduced G&W’s diluted earnings per common share (EPS) by approximately $0.01.
• Recorded impairment and related charges of $32.0 million in U.K./Europe in the fourth quarter of 2016 in conjunction with G&W’s annual assessment of goodwill combined with previously discussed efforts to address challenges with the U.K. coal and European intermodal businesses.
• Operating revenues increased 0.3% to $516.5 million from $514.9 million, including the recognition of $10.0 million of revenues from a multi-year take-or-pay volume shortfall under a crude-by-rail contract.
• Same railroad operating revenues, excluding a $19.4 million negative impact of foreign currency depreciation, increased 1.8%, including the revenue from the take-or-pay contract.(1)
• Reported operating income decreased 43.4% to $53.6 million;
• Adjusted operating income increased 10.9% to $104.5 million.(2)
• Reported diluted EPS attributable to G&W decreased from $1.47 to $0.15; Adjusted diluted EPS attributable to G&W increased 1% to $0.99.(2)
• The decrease in reported diluted EPS was primarily due to a $0.52 impact from U.K./Europe impairment and related charges in the fourth quarter of 2016 and $0.28 of corporate development and related costs in the fourth quarter of 2016, primarily associated with the GRail, P&W and Pentalver transactions, as well as a $0.34 impact from the full year 2015 Short Line Tax Credit being included in the fourth quarter of 2015 and a $0.17 impact from a reduction in U.K. tax rates in the fourth quarter of 2015, partially offset by a $0.10 benefit recognized in 2016 from a multi-year take-or-pay contract.
Fourth Quarter Segment Highlights
• North America: Operating revenues from G&W’s North American Operations increased 7.9% to $322.2 million from $298.6 million, primarily due to a $17.6 million increase in freight-related revenues, as well as $5.2 million of revenues from new operations. Freight-related revenues in the fourth quarter of 2016 included the recognition of $10.0 million of revenues from a multi-year take-or-pay volume shortfall under a crude-by-rail contract. Reported operating income from G&W’s North American Operations increased 13.9% to $83.4 million; Adjusted operating income from G&W’s North American Operations increased 18.9% to $88.1 million.(2)
• Australia: Operating revenues from G&W’s Australian Operations increased 11.2% to $61.4 million from $55.2 million, primarily due to new operations. Reported operating income from G&W’s Australian Operations decreased from $10.5 million to $2.8 million, primarily due to the loss of the Southern Iron Ore fixed payment and corporate development and related costs associated with the GRail transaction; Adjusted operating income from G&W’s Australian Operations increased 26.4% from $11.0 million to $13.9 million.(2)
• U.K./Europe: Operating revenues from G&W’s U.K./European Operations decreased 17.4% to $133.0 million from $161.0 million, or 4.5% excluding a $21.7 million impact from foreign currency depreciation, primarily due to port congestion at certain U.K. ports, as well as lower Continental Europe intermodal volumes. Reported operating loss from G&W’s U.K./European Operations was $32.6 million, compared with operating income of $10.9 million last year. The operating loss in the U.K./Europe primarily resulted from impairment and related charges of $32.0 million, including $21.5 million of charges related to ERS Railways (ERS) and $10.5 million of charges related to leases of idle excess U.K. coal railcars; Adjusted operating income from G&W’s U.K./European Operations decreased from $9.1 million to $2.5 million.(1)(2)
Comments on Fourth Quarter
Jack Hellmann, President and CEO of G&W, commented, “The fourth quarter of 2016 was extraordinarily active at G&W as we closed on the acquisition of GRail in Australia, we closed on the acquisition of the P&W in the United States, we signed an agreement to acquire Pentalver in the U.K., and we raised $287 million of equity to position ourselves for additional acquisition and investment opportunities. Our reported diluted EPS for the fourth quarter of 2016 were $0.15 which included expenses related to the above transactions as well as impairment and related charges in the U.K./Europe. At the same time, our adjusted diluted EPS of $0.99 included a $0.10 diluted EPS benefit from a multi-year take-or-pay contract. Excluding this benefit, our fourth quarter results were consistent with our outlook as our business performed as expected.” (2)
“In North America, a modest increase in same railroad traffic of 2% and good expense management at each of our eight operating regions resulted in 14% growth in operating income in the fourth quarter of 2016, or 5% excluding the take-or-pay contract and corporate development costs. We held the shares of the newly-acquired P&W in a voting trust for November and December and, upon receipt of Surface Transportation Board approval, the P&W came out of trust on December 31st and our integration team has completed a series of initiatives that are consistent with our acquisition plan.”(2)
“In Australia, the fourth quarter of 2016 was a transition period that included two months of 100% G&W ownership and one month of 51% G&W ownership following the December 1st formation of our partnership with MIRA and the concurrent acquisition of GRail. The transition has been smooth and our Australian operations performed as expected throughout the fourth quarter. With improving commodity prices, a record harvest in South Australia and our expanded presence in the Hunter Valley coal supply chain, our outlook for Australia is promising as we enter 2017.”
“In the U.K./Europe, our financial results continued to underperform in the fourth quarter of 2016, although we expect significant improvement as 2017 unfolds, led by the U.K. and Poland. In the fourth quarter, the efficiency of our U.K. intermodal operations suffered due to congestion and irregular shipping patterns in the ports which masked positive changes to the cost structure of our U.K. heavy haul business. Also in the fourth quarter, we recorded impairment and related charges of US$32 million, which included US$10.5 million of charges related to leases of idle U.K. coal railcars and US$21.5 million of charges related to our ERS operations in Continental Europe. For context, at the time of acquisition, ERS net assets represented approximately 1% of the Freightliner acquisition price. By discontinuing most ERS routes and dramatically shrinking the operations, we expect to bring our remaining business on the continent (port switching and maritime intermodal) back to profitability by mid-2017.”
“Meanwhile we continue to evaluate multiple acquisition and investment opportunities across G&W’s global footprint and have over $500 million of borrowing capacity under our revolving credit facility.”
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