(Source: G&W press release, April 28, 2016)
DARIEN, Conn. — Genesee & Wyoming Inc. (G&W) reported first quarter 2016 financial results on April 28, 2016.
First Quarter Consolidated Highlights:
• Operating revenues increased 21.6% to $482.6 million from $397.0 million.
• Adjusted income from operations decreased 8.2% to $79.6 million; Reported income from operations decreased 21.5% to $57.0 million, primarily due to $21.1 million of charges related to an Australian iron ore customer entering voluntary administration.(1)
• Adjusted diluted earnings per common share (EPS) decreased 7.2% to $0.77; Adjusted diluted EPS (excluding the Short Line Tax Credit) decreased 20.5% to $0.66; Reported diluted EPS increased 11.9% to $0.47.(1)
First Quarter Segment Highlights:
• North America (approximately 80% of G&W’s annual operating income): Operating revenues from G&W’s North American Operations decreased 5.6% to $299.8 million from $317.6 million, while adjusted income from operations remained relatively flat at $70.7 million. Reported income from operations from G&W’s North American Operations increased 22.6% to $70.0 million, primarily due to $12.6 million of costs related to our Freightliner Group Limited acquisition in 2015.(1) Major corporate development costs are recorded in our North American results.
• Australia (approximately 10% of G&W’s annual operating income): Operating revenues from G&W’s Australian Operations decreased 13.6% to $51.8 million from $59.9 million. Adjusted income from operations from G&W’s Australian Operations decreased 36.0% to $10.2 million; Reported loss from operations from G&W’s Australian Operations was $11.8 million, primarily due to $21.1 million of charges resulting from an iron ore customer entering voluntary administration.(1)
• U.K./Europe (approximately 10% of G&W’s annual operating income): Operating revenues from G&W’s U.K./European Operations increased $111.6 million to $131.0 million from $19.5 million primarily due to the full quarter of results from our Freightliner U.K./European operations. Adjusted loss from operations from G&W’s U.K./European Operations was $1.3 million; Reported loss from operations from G&W’s U.K./European Operations was $1.2 million.(1)
Jack Hellmann, President and CEO of G&W, commented, “G&W’s core financial results for the first quarter of 2016 were slightly better than our expectations, although our reported results were negatively impacted by our last remaining iron ore customer in Australia entering voluntary administration. Effective management of operating costs in both North America and Australia more than offset weak results from our U.K./Europe Operations.”
“In North America, where revenue declined 6%, our adjusted operating income increased slightly as a result of proactive cost reductions, which offset both a 36% decline in our coal revenue (due primarily to cheap natural gas and a warm winter) and a 14% decline in our agricultural products revenue (due to low crop prices and a strong U.S. dollar), yielding a 1.8 percentage point improvement in our adjusted operating ratio.”(1)
“In Australia, the bankruptcy of a large iron ore mining/steel manufacturing customer caused us to write-off $21.1 million of accounts receivable and certain assets related to the service. However, the remainder of our Australian business performed better than expected in the first quarter, maintaining an adjusted operating ratio of approximately 80%. As previously announced, starting in April, our Australian operations will lose approximately $20 million in annual fixed revenue due to the customer entering administration.”(1)
“In the U.K./Europe, the first quarter is our seasonally weakest quarter. However, our financial results were below our expectations, primarily due to weak U.K. coal shipments and lower intermodal traffic in Continental Europe. Meanwhile, the restructuring of our U.K. coal business is proceeding as planned, and we continue to expect a strong improvement in our U.K./Europe segment in the second half of 2016.”
“As we look ahead to the remainder of 2016, our outlook for North America and the U.K./Europe is broadly unchanged while our outlook for Australia is modestly weaker. Overall, G&W expects an approximately 12% decline in adjusted diluted EPS in 2016, and an approximately 8% increase in our free cash flow in 2016. In addition, we continue to actively evaluate acquisitions and investments in multiple geographies within our global footprint.”(1)
Financial Results
G&W’s operating revenues increased $85.6 million, or 21.6%, to $482.6 million in the first quarter of 2016, compared with $397.0 million in the first quarter of 2015. G&W’s income from operations in the first quarter of 2016 was $57.0 million, compared with $72.6 million in the first quarter of 2015. G&W’s income from operations included $21.1 million of charges in the 2016 period resulting from an iron ore customer entering voluntary administration in Australia, while the 2015 period included $12.6 million of Freightliner acquisition-related costs.
G&W’s reported net income in the first quarter of 2016 was $27.0 million, compared with reported net income of $23.9 million in the first quarter of 2015. Excluding the net impact of certain items affecting comparability between periods discussed below, G&W’s adjusted net income in the first quarter of 2016 was $44.8 million, compared with adjusted net income of $47.3 million in the first quarter of 2015.(1)
G&W’s reported diluted EPS in the first quarter of 2016 were $0.47 with 58.0 million weighted average shares outstanding, compared with reported diluted EPS in the first quarter of 2015 of $0.42 with 57.1 million weighted average shares outstanding. G&W’s adjusted diluted EPS in the first quarter of 2016 were $0.77 with 58.0 million weighted average shares outstanding, compared with adjusted diluted EPS in the first quarter of 2015 of $0.83 with 57.1 million weighted average shares outstanding.(1)
G&W’s effective income tax rate was 32.2% in the first quarter of 2016, compared with 41.4% in the first quarter of 2015. The first quarter of 2016 included an income tax benefit of $6.3 million associated with the U.S. Short Line Tax Credit, which was not in effect during the first quarter of 2015. The Short Line Tax Credit was extended retroactively in the fourth quarter of 2015 for calendar years 2015 and 2016.
North American Operations traffic decreased 39,521 carloads, or 9.3%, to 383,192 carloads in the first quarter of 2016. The traffic decrease was principally due to decreases of 30,934 carloads of coal and coke traffic (primarily in the Midwest, Ohio Valley, Central and Northeast regions), 3,703 carloads of minerals and stone traffic (primarily in the Northeast Region) and 2,322 carloads of agricultural products traffic (primarily in the Mountain West Region). All remaining traffic decreased by a net 2,562 carloads.
Income from operations from G&W’s North American Operations in the first quarter of 2016 was $70.0 million, compared with $57.1 million in the first quarter of 2015. The operating ratio for North American Operations was 76.7% in the first quarter of 2016, compared with an operating ratio of 82.0% in the first quarter of 2015. Adjusted income from operations from G&W’s North American Operations in the first quarter of 2016 was $70.7 million, compared with adjusted income from operations of $69.4 million in the first quarter of 2015. The adjusted operating ratio for North American Operations was 76.4% in the first quarter of 2016, compared with an adjusted operating ratio of 78.2% in the first quarter of 2015. (1)
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