(Genesee & Wyoming issued the following news release on August 2.)
GREENWICH, Conn. — Genesee & Wyoming Inc. (GWI) reported today that net income in the second quarter of 2005 increased 4.9% to $11.4 million, compared to net income of $10.8 million in the second quarter of 2004. GWI’s diluted earnings per share in the second quarter of 2005 increased 5.1% to $0.41 with 27.7 million shares outstanding, compared to diluted earnings per share of $0.39 with 27.5 million shares outstanding in the second quarter of 2004. GWI’s results in the second quarter of 2005 include a $0.7 million non-cash foreign currency translation adjustment on intercompany debt in Mexico, which reduced GWI’s diluted EPS by approximately $0.02.
North American Results
In the second quarter of 2005, North American revenue increased 25.2% to $92.7 million, compared to $74.1 million in the second quarter of 2004. This $18.7 million increase in revenue included $9.5 million in same-railroad growth, $5.0 million from railroads acquired from Rail Management Corporation on June 1, 2005, $2.7 million from the Tazewell & Peoria Railroad, and $1.5 million from two short-lines recently acquired from CSX Corp. The 12.9% growth in same-railroad freight revenue was balanced across multiple commodity groups, with particular strength in paper, which increased by $1.8 million, or 18.7%; lumber and forest products, which increased by $1.7 million, or 26.8%; minerals and stone, which increased by $1.0 million, or 18.0%; and metals, which increased by $1.0 million, or 17.9%. In addition, same-railroad non-freight revenue increased by $2.3 million, or 12.9%.
North American operating income in the second quarter of 2005 increased 18.0% to $16.0 million, compared with $13.6 million in the second quarter of 2004. The North American operating ratio was 82.7% in the second quarter of 2005, compared with 81.7% in the second quarter of 2004. GWI’s results in the second quarter of 2005 included $0.6 million of legal expense related to the settlement of a commercial dispute, while results for the second quarter of 2004 included $0.5 million of equity issuance expense associated with last year’s secondary offering. The Company’s operating results for the second quarter of 2005 were also unfavorably impacted by a 35.7% increase in the price of diesel fuel, as the average price per gallon reached $1.71.
North American traffic in the second quarter of 2005 increased 24,181 carloads, or 15.4%, to 181,643 carloads. Same-railroad traffic in the second quarter of 2005 increased 5,210 carloads, or 3.3%. Revenue per carload in the second quarter of 2005 increased 7.0% to $380. Same-railroad revenue per carload increased 9.3% in the second quarter of 2005 due to a combination of rate increases, fuel escalation provisions and shipments of certain higher yielding traffic.
GWI’s North American Free Cash Flow for the six months ended June 30, was $28.8 million (defined as Cash from Operations of $39.4 million less Cash used in Investing of $248.8 million, excluding the Cost of Acquisitions of $238.2 million) compared with $19.4 million of Free Cash Flow (defined as Cash from Operations of $30.7 million less Cash used in Investing of $11.3 million) for the six months ended June 30, 2004. See the attached schedule for a description and discussion of Free Cash Flow.
Australian Results (Equity Accounting)
In Australia, revenue at GWI’s 50%-owned subsidiary, Australian Railroad Group (ARG), increased 5.3% to US$86.0 million in the second quarter of 2005, compared with US$81.7 million in the second quarter of 2004. The US$4.3 million increase in revenue was principally due to a 30.5% increase in non-freight revenue resulting from higher third-party fuel sales and an increase in track and crossing work for third parties. ARG’s freight revenue for the quarter was unchanged year over year, although the mix of business was significantly altered. A US$7.4 million reduction in grain shipments was offset by a US$3.7 million increase in iron ore shipments, a US$1.5 million increase in alumina and bauxite shipments and an approximately US$2.3 million increase in all other shipments, including a new intermodal service between Melbourne and Adelaide which commenced in June 2005. In Australian dollars, ARG’s total revenue declined 2.1% in the second quarter of 2005 compared with the second quarter of 2004. In comparing the second quarter of 2005 with the second quarter of 2004, the Australian dollar strengthened 6.6%.
ARG’s operating income in the second quarter of 2005 was US$13.6 million, compared with operating income of US$16.5 million in the second quarter of 2004. The operating ratio was 84.2% in the second quarter of 2005, compared with 79.9% in the second quarter of 2004. ARG’s operating results for the second quarter of 2005 were adversely impacted by a 39.9% increase in the price of diesel fuel compared to the second quarter of 2004. In addition, ARG continues to incur significant hiring and training costs for new locomotive drivers in preparation for increasing rail shipments in the second half of 2005 and into 2006.
Equity income from ARG was US$2.3 million in the second quarter of 2005, compared with US$3.5 million of equity income in the second quarter of 2004.
Mortimer B. Fuller III, Chairman and Chief Executive Officer of GWI, commented, “We enter the second half of 2005 with our business in excellent condition and our free cash flow generation at record levels. As demonstrated by the second quarter, our North American operations are performing well and are more than offsetting the high price of diesel fuel. Meanwhile, the integration of the Rail Management railroads is proceeding according to plan and we expect a significant contribution for the rest of the year. This smooth transition is thanks to the strength of our management team which has been working tirelessly to achieve a successful outcome.”
Mr. Fuller continued, “In Australia, while ARG’s results for the second quarter have suffered from higher fuel prices, lower grain shipments and delays in new iron ore and alumina traffic, ARG’s outlook has never been brighter. Much of the fuel cost increase is being gradually recovered through escalation provisions, the number of contract drivers has been significantly reduced from a year ago and equipment maintenance in Western Australia has been brought in house. Grain shipments have recently improved to provide storage capacity for this year’s harvest which begins in the fourth quarter. Although delayed, iron ore and alumina shipments will come. A significant new intermodal contract from Melbourne to Adelaide has begun. ARG will see these benefits in part in the second half of 2005 and in full in 2006. After a series of major capital expenditure projects to support the expansion of its business, ARG’s free cash flow generation is expected to strengthen substantially in 2006.”