(The following article by Scott Cendrowski was posted on the Palm Beach Post website on June 23.)
BOCA RATON, Fla. — RailAmerica Inc. announced Thursday it was reorganizing its five divisions into three and immediately dismissing 20 managers as part of a five-year plan to reduce redundancies after a string of railroad acquisitions and sales.
One analyst said the Boca Raton-based short-line railroad operator’s plan will trim down a company that made quick purchases without adequate coordination.
“In the past, it never had a real focused plan. It just kept being built up real fast,” said Jason Seidl, a senior transportation analyst at Credit Suisse, which has an investment banking relationship with RailAmerica.
Seidl rates RailAmerica as “outperform” and increased his 12-month target price in April to $15 from $12.75.
“Now that they have a plan, it gives investors a little comfort that this company is going to do the right thing for shareholders,” he said.
Shares in the company (NYSE: RRA, $10.45) rose during a down day on Wall Street, gaining 8 cents, or nearly 1 percent, after the announcement.
The restructuring plan moves some budget and human resource functions from RailAmerica’s corporate offices to new East, Central and West divisions. Each division will have a newly appointed president.
The revamped structure replaces a setup in which the heads of five regions reported to the chiefs of two “corridors.”
RailAmerica Chief Financial Officer Michael Howe said the initiatives will save $10 million to $15 million annually starting next year, after information technology and organizational improvements are made during this year’s third and fourth quarters.
Howe said the company has had a strong incentive to grow and acquire railroads, but that “it was time to take a look at the organization and view where it was going over the next five years.”
“We moved some of the functions in corporate down into business units to make it more efficient and cost-effective, and to give them more budgeting and management control,” he said.
The company said a pre-tax charge of $1.8 million in the second quarter will reflect cash and stock severance packages for the 20 managers who were eliminated.
During its first quarter, which ended March 31, RailAmerica posted net income of $15 million, or 39 cents a diluted share, up from $6.2 million, or 16 cents a diluted share, at the same time a year before.
The increase came from the sale of discontinued operations.
In a May report on RailAmerica’s five-year strategy, Robert W. Baird & Co. analyst Jon Langenfeld said the reorganization plan is encouraging, but rated the stock “neutral,” pointing to under-invested infrastructure, elevated cost structure and high fuel prices.
“Divestiture of rail operations outside of North America, divestiture of non-core domestic railroads, and a refined acquisition strategy… leaves RRA as a better-focused organization,” wrote Langenfeld, who is based in Milwaukee.
In October, RailAmerica bought four railroads in Texas, New York and Arkansas from Pittsburgh-based aluminum producer Alcoa for $77.5 million. In the following months, it sold four railroads for a combined $29 million.
This month Providence & Worcester Railroad Co., which operates a 545-mile New England freight-rail service, said it had entered a confidentiality agreement with RailAmerica to explore unspecified business opportunities. A RailAmerica spokeswoman declined to say whether the company was considering an acquisition.
The Boca Raton-based short-line railroad operator has 42 railroads and 7,800 miles of track in the United States and Canada.