This fellow knows how to turn around a railroad. Why did he think he could run a telecom business?
According to Forbes Magazine, Robert W. Anestis shot to fame in the railroad world when he broke the caboose union. After testifying to federal arbitrators in 1990 about overstaffing of freight trains, the number of required train personnel was slashed from five to two, helping trim labor costs industrywide. (The stock price of his railroad, Chicago Northwestern, doubled within a year as a result.) Over the next decade Anestis solidified his reputation by helping CSX and Union Pacific shuck noncore assets.
Naturally he jumped at the chance to run his own show in 1999. Some show. Running up the Atlantic coast from Miami to Jacksonville, Florida East Coast Industries–a publicly traded railroad launched in 1895 by Henry M. Flagler, a cofounder with John D. Rockefeller of Standard Oil–had endured one of the longest bankruptcies in U.S. corporate history, from the 1930s through the 1950s. Rescued finally in 1961 by St. Joe, Florida’s largest private landowner, the line was limping along when Anestis was brought in to lead it as it was spun off to St. Joe shareholders.
He saw a potential gold mine: nearly 20,000 acres of undeveloped land, much of it in choice spots in cities and near the coast. “Railroads don’t like to give stuff up,” says Anestis. But he had plans to sell off some plots and build offices and industrial parks on other parcels, something St. Joe had begun on a small scale. In his first year Anestis sold $77 million worth and built a 35-person real estate staff. Last year occupancy rates were 92%, compared with 78% in 1998; during the same period operating income (earnings before interest, taxes, depreciation and amortization) jumped to $42 million from $27 million.
But like many entrepreneurs who caught digital fever, Anestis had ideas of gilding his Old Economy company. He was talked into a $350 million investment in a telecom subsidiary, laying 1,850 miles of fiber-optic cable next to his railroad tracks. Linking up Florida cities and connecting to the cable landings that feed into South America seemed a smart idea back in 1999.
By last December it was a calamity. Some of Anestis’ largest customers–including 360networks and Enron Broadband Services–were slipping into bankruptcy. With the value of fiber plunging, the company wrote down 28%, or $98 million, of its investment in 2001, contributing to a $62 million loss on revenue of $299 million. Even this writeoff possibly didn’t go far enough; fiber nowadays sometimes changes hands at pennies on the dollar.
Too bad the telecom disaster has obscured results at the railroad. During his tenure operating income for the line has pushed ahead 17%, to $71 million last year. That’s thanks, in part, to efficiencies on the cost side, including $500,000 in annual fuel savings from switching off the locomotive diesels when they are not in use. (Leaving them running is a bad habit born in northern states, where it’s hard to start a diesel in the winter.) The railroad has eagerly pursued new clients to reduce its dependence on hauling limestone for road construction. Some new business–$2 million a year–comes from Tropicana, which added a bottling plant alongside the railroad in return for a guarantee that juice would be delivered to the Northeast within 48 hours.
There is a potential bonanza in the company’s tracks along the West Palm Beach-Miami corridor. Interstate 95, the region’s lifeline, is filled and widened to capacity, and local leaders are eager to build a new commuter line. Rail consultant Robert Starzel figures Anestis’ 88 miles of track rights could fetch $500 million.
The telecom albatross continues to drag down results. A first-quarter loss of $5 million pushed the company slightly into the red. Yet more evidence that wise companies stick to what they do best.