BOCA RATON, Fla. — RailAmerica, Inc., the world’s largest short line and regional railroad operator, today announced that its 2003 revenue and earnings are projected to improve slightly over 2002 despite the drought that is impacting its Australian railroad. The Company anticipates fiscal 2003 earnings in the range of $0.80 to $0.85 per diluted share.
The Company had not previously issued 2003 guidance. The Company is issuing this guidance in response to numerous inquiries relating to the impact of the drought on its operation in Australia and its recent announcement of work force rationalization and cost reductions. The Company does not intend to issue future guidance on a regular basis or to update this information, except in connection with its normal carload and earnings press releases.
North America
The Company stated that its North American rail operations, which comprise approximately 75% of its total revenue, are expected to grow both “same railroad” carloads and revenue in the 5% to 6% range in 2003, versus 2002. Despite the outlook for a continuing weak domestic economy, improved shipments will be driven by the Company’s diverse commodity base and improved service from our Class I interchange partners, while cost cutting initiatives should allow for improved operating margins.
Australia
In Australia, the impact of the worst drought in 100 years has caused a significant downturn in results from the Company’s Freight Australia operations, where 20% of total revenue is derived. Freight Australia’s 2003 revenue is projected to decline approximately 25% from 2001, a normalized grain year. The railroad has aggressively sought to offset the lower revenue by winning three new, long-term contracts that will result in over $18 million in non-grain related revenue. In addition, Freight Australia recently announced job force reductions and related cost-cutting measures.
As previously announced, the southeast Australia grain region served by the Company’s Freight Australia railroad has been severely affected by the lack of rain. Grain shipments, which accounted for 44% of Freight Australia’s freight carloads in 2001, are expected to fall to less than 20% in 2003. The drought has impacted the entire Australian continent as well, as grain tonnage is projected to be 66% lower for 2002 than in 2001.
Chile
The Company’s Ferronor railroad in Chile, which comprises 5% of total revenue, expects 2003 revenue to grow in the 16% to 18% range over 2002. In 2003, this railroad should continue to benefit from new take-or-pay transportation contracts announced during late 2001 and 2002.
2003 Consolidated Results
In total, the Company expects 2003 revenue of approximately $460 million and EBITDA of approximately $125 million, both slight improvements over 2002. Interest expense for 2003, including amortization costs, should approach $41 million, $5 million lower than 2002 due to the new financing closed this past May. Depreciation and amortization should be approximately $39 million. 2003 capital expenditures are anticipated to remain flat at $65 million, while free cash flow is expected to range between $20 and $25 million. The Company’s 2003 tax rate is estimated at 34%. On approximately 35 million outstanding diluted shares, the Company anticipates fiscal 2003 earnings in the range of $0.80 to $0.85, up slightly from the current 2002 consensus estimate of $.80.
Gary O. Marino, Chairman, President & CEO of RailAmerica, said, “We are pleased to project improvements in our 2003 results despite the severe drought in Australia and a continuing weak global economy. Domestically, our North American railroad operations are expected to continue to grow revenue and improve their operating ratio over 2002. Our Chilean operations should continue to benefit in 2003 from our new copper business. In addition, the recently announced company-wide cost-cutting initiatives should result in savings of more than $10 million in 2003, which will help offset the decline in Australian grain business.
“Unfortunately, the drought conditions in Australia remain beyond our control. Through the last six months of 2002 alone, it has cost us approximately $8.0 million in operating income and 16 cents in earnings per share, as compared with 2001. Freight Australia has aggressively sought to offset the lower revenue by scaling back labor and discretionary capital spending, as well as seeking and winning additional non-grain-related business contracts.”
Marino continued, “Our core North American rail operations will continue to provide a solid base for future growth in 2003 and beyond. We are already improving margins and spending our capital more prudently. Our expectation is that Freight Australia will once again become a major contributor in 2004 with a recovery of the grain crop on that continent, along with the new transportation contracts of other commodity types which we have recently been awarded.
“Finally, we are excited about RailAmerica’s future prospects. In addition to a delevered balance sheet, we have a highly positive working capital position and the financial capability to complete strategic acquisitions. The market for acquisitions has grown stronger, especially in North America, and we expect to take full advantage of the opportunities that are present while adhering to our strategy of making acquisitions that are accretive, improve our balance sheet and generate free cash flow. RailAmerica’s long-term growth plan remains solid — strong internal growth through focused marketing and the completion of strategic acquisitions. We are well-positioned to execute our business plan which will lead to enhanced shareholder value in 2003 and beyond.”
RailAmerica, Inc. (www.railamerica.com), the world’s largest short line and regional railroad operator, owns 49 railroads operating approximately 12,800 route miles in the United States, Canada, Australia and Chile. In North America, the Company’s railroads operate in 27 states and six Canadian provinces. Internationally, the Company operates an additional 4,300 route miles under track access arrangements in Australia and Argentina. In July 2001, the Company was named to the Russell 2000(R) Index.