Genesee & Wyoming Reports Results for the Third Quarter of 2018

Business Wire 30-Oct-2018 6:00 AM

Genesee & Wyoming Inc. (G&W) (NYSE:GWR)

Third Quarter 2018 Consolidated Highlights Compared with Third Quarter 2017

• Operating revenues increased 4.6% to $603.3 million from $576.9 million.
• Reported operating income increased 16.4% to $127.8 million; Adjusted operating income increased 14.3% to $130.5 million.⁽¹⁾
• Reported diluted earnings per common share (EPS) increased 45.0% to $1.16 with 60.1 million weighted average shares outstanding, compared with reported diluted EPS in the third quarter of 2017 of $0.80 with 62.5 million weighted average shares outstanding; Adjusted diluted EPS increased 51.9% to $1.23.⁽¹⁾
• G&W completed its previously authorized $300 million share repurchase plan as of October 19, 2018; G&W authorized a new $500 million share repurchase plan on October 25, 2018.

Jack Hellmann, Chairman, President and CEO of G&W, commented, "Our financial results for the third quarter of 2018 were strong, with reported diluted earnings per share increasing 45% and adjusted diluted earnings per share increasing 52%. Our North American financial results (approximately 80% of operating income) were uniformly positive led by 11.5% revenue growth, an operating ratio that improved around 300 basis points to 71.2%, and a 25% increase in operating income. Meanwhile, third quarter results in our Australia Region (approximately 15% of operating income) and U.K./Europe Region (approximately 5% of operating income) were slightly below our expectations."

"Our commercial outlook remains positive in all three of our geographic segments, however, we expect our fourth quarter financial results to be adversely impacted by three items. In North America, Hurricane Michael struck our Bay Line Railroad and customer facilities in Panama City, Florida in October, which will result in higher expenses and lower shipment levels. In Australia, we expect delays in certain coal shipments in New South Wales that will shift into early 2019. And in the U.K., where our restructuring is proceeding on plan, our ability to staff new and existing business is being constrained by near-term locomotive driver shortages, which will squeeze fourth quarter margins as we further ramp up training and hiring."

"We continue to actively analyze investment opportunities in multiple geographies, as well as investments in our own shares. In mid-October, we completed our previously announced $300 million share repurchase program, and our Board recently approved a share repurchase program for an additional $500 million of Common Stock. We expect to execute this program opportunistically, as we evaluate the intrinsic value of our shares, the relative attractiveness of acquisitions and investments, as well as our leverage profile and overall business conditions."

Third Quarter Segment Highlights

• North America: Operating revenues from G&W's North American Operations increased 11.5% to $355.7 million from $318.9 million. Reported operating income from G&W's North American Operations increased 24.7% to $102.5 million; Adjusted operating income from G&W's North American Operations increased 23.4% to $102.6 million.⁽¹⁾
• Australia: Operating revenues from G&W's 51.1% owned Australian Operations decreased 5.6% to $76.7 million from $81.3 million. Reported operating income from G&W's Australian Operations decreased 7.0% to $20.7 million; Adjusted operating income from G&W's Australian Operations decreased 9.2% to $19.8 million.⁽¹⁾
• U.K./Europe: Operating revenues from G&W's U.K./European Operations decreased 3.3% to $170.9 million from $176.7 million. Revenues for the third quarter of 2017 included $13.9 million of revenues from G&W's Continental Europe intermodal business, ERS Railways B.V. (ERS), which was sold in June 2018. Reported operating income from G&W's U.K./European Operations, which included $2.6 million in 2017 from ERS, decreased to $4.6 million from $5.4 million; Adjusted operating income from G&W's U.K./European Operations, which included $3.3 million in 2017 from ERS, decreased to $8.1 million from $9.3 million.⁽¹⁾

Financial Results

G&W's operating revenues increased $26.4 million, or 4.6%, to $603.3 million in the third quarter of 2018, compared with $576.9 million in the third quarter of 2017. G&W's operating income in the third quarter of 2018 was $127.8 million, compared with $109.8 million in the third quarter of 2017. G&W's adjusted operating income in the third quarter of 2018 was $130.5 million, compared with $114.2 million in the third quarter of 2017.⁽¹⁾

G&W's effective income tax rate in the third quarter of 2018 was 30.0%, compared with 36.4% in the third quarter of 2017. The decrease in the effective income tax rate was primarily a result of the Tax Cuts and Jobs Act of 2017 (TCJA), which decreased the United States federal corporate income tax rate from 35% to 21%.

Reported net income attributable to G&W in the third quarter of 2018 was $69.6 million, compared with reported net income attributable to G&W of $50.2 million in the third quarter of 2017. Excluding the net impact of certain items affecting comparability between periods discussed below, G&W's adjusted net income attributable to G&W in the third quarter of 2018 was $73.8 million, compared with $50.6 million in the third quarter of 2017.⁽¹⁾

G&W's reported diluted EPS in the third quarter of 2018 were $1.16 with 60.1 million weighted average shares outstanding, compared with reported diluted EPS in the third quarter of 2017 of $0.80 with 62.5 million weighted average shares outstanding. G&W's adjusted diluted EPS in the third quarter of 2018 were $1.23 with 60.1 million weighted average shares outstanding, compared with adjusted diluted EPS in the third quarter of 2017 of $0.81 with 62.5 million weighted average shares outstanding.⁽¹⁾

Items Affecting Comparability

In the third quarter of 2018 and 2017, G&W's results included certain items affecting comparability between the periods that are set forth in the following table (in millions, except per share amounts):

In the third quarter of 2018, G&W's results included restructuring and related costs of $3.3 million, primarily driven by our optimization activities in the U.K., corporate development and related costs of $0.3 million and a gain on a settlement in Australia of $0.9 million from the recovery of pre-petition claims associated with Arrium Limited's voluntary administration (bankruptcy) in the second quarter of 2016. As a result of the TCJA, the third quarter of 2018 also included a $1.6 million measurement period adjustment to the one-time transition (toll) tax on earnings of certain foreign subsidiaries.

In the third quarter of 2017, G&W's results included restructuring costs of $2.6 million, primarily in G&W's U.K./European Region, as well as corporate development and related costs of $1.7 million, primarily related to the acquisition and integration of Pentalver Transport Limited (Pentalver). The third quarter of 2017 also included the recognition of $3.3 million of previously unrecognized tax benefits resulting from the lapse of the statute of limitations on acquired liabilities for uncertain tax positions.

Third Quarter Results by Segment

Operating revenues from G&W's North American Operations increased $36.8 million, or 11.5%, to $355.7 million in the third quarter of 2018, compared with $318.9 million in the third quarter of 2017.

G&W's North American Operations had operating income of $102.5 million in the third quarter of 2018, compared with $82.2 million in the third quarter of 2017. The operating ratio for North American Operations was 71.2% in the third quarter of 2018, compared with an operating ratio of 74.2% in the third quarter of 2017. Adjusted operating income from G&W's North American Operations in the third quarter of 2018 was $102.6 million, compared with adjusted operating income of $83.1 million in the third quarter of 2017. The adjusted operating ratio for North American Operations was 71.2% in the third quarter of 2018, compared with an adjusted operating ratio of 73.9% in the third quarter of 2017.⁽¹⁾

Operating revenues from G&W's Australian Operations decreased $4.6 million, or 5.6%, to $76.7 million in the third quarter of 2018, compared with $81.3 million in the third quarter of 2017. Excluding a $6.0 million decrease due to the impact of foreign currency depreciation, Australian Operations revenues increased $1.4 million, or 1.9%, primarily due to an increase in freight revenues.⁽²⁾

G&W's Australian Operations had operating income of $20.7 million in the third quarter of 2018, compared with $22.3 million in the third quarter of 2017. The operating ratio for Australian Operations was 73.0% in the third quarter of 2018, compared with an operating ratio of 72.6% in the third quarter of 2017. Adjusted operating income from G&W's Australian Operations was $19.8 million in the third quarter of 2018, compared with adjusted operating income of $21.8 million in the third quarter of 2017. The adjusted operating ratio for Australian Operations was 74.2% in the third quarter of 2018, compared with an adjusted operating ratio of 73.2% in the third quarter of 2017.⁽¹⁾

Operating revenues from G&W's U.K./European Operations decreased $5.8 million, or 3.3%, to $170.9 million in the third quarter of 2018, compared with $176.7 million in the third quarter of 2017. Excluding $13.7 million of revenues from G&W's divested ERS operations for the third quarter of 2017 and a $1.2 million decrease due to the impact of foreign currency depreciation, U.K./European same railroad revenues increased $9.1 million, or 5.6%, primarily due to increases in freight-related and freight revenues in the U.K. and Poland.⁽²⁾

G&W's U.K./European Operations had operating income of $4.6 million in the third quarter of 2018, compared with $5.4 million in the third quarter of 2017, which included $2.6 million from ERS. The operating ratio for U.K./European Operations was 97.3% in the third quarter of 2018, compared with an operating ratio of 97.0% in the third quarter of 2017. Adjusted operating income from G&W's U.K./European Operations was $8.1 million in the third quarter of 2018, compared with adjusted operating income of $9.3 million in the third quarter of 2017, which included $3.3 million from ERS. The adjusted operating ratio for U.K./European Operations was 95.2% in the third quarter of 2018, compared with an adjusted operating ratio of 94.7% in the third quarter of 2017.⁽¹⁾

Adjusted Free Cash Flow Measures ⁽¹⁾

Adjusted free cash flow measures for the nine months ended September 30, 2018 and 2017 were as follows (in millions):

Share Repurchase Program

During the third quarter of 2018, G&W repurchased approximately 0.9 million shares of Class A Common Stock for $78.2 million, which resulted in a reduction of approximately 0.3 million shares in our weighted average diluted shares outstanding for the third quarter.

Conference Call and Webcast Details

As previously announced, G&W's conference call to discuss financial results for the third quarter of 2018 will be held on Tuesday, October 30, 2018, at 11 a.m. EDT. The dial-in number for the teleconference in the U.S. is (800) 288-9626; outside the U.S., the dial-in number is (612) 332-0345, or the call may be accessed live over the Internet (listen only) at www.gwrr.com/investors. Management will be referring to a slide presentation that will also be available at gwrr.com/investors. The webcast will be archived at www.gwrr.com/investors until the following quarter's earnings press release. Telephone replay is available for 30 days beginning at 1 p.m. EDT on October 30, 2018, by dialing (800) 475-6701 (or outside the U.S., dialing 320-365-3844). The access code is 439197.

About G&W

G&W owns or leases 121 freight railroads organized in nine locally managed operating regions with 8,000 employees serving 3,000 customers.

• G&W's seven North American regions serve 41 U.S. states and four Canadian provinces and include 115 short line and regional freight railroads with more than 13,000 track-miles.
• G&W's Australia Region serves New South Wales, the Northern Territory and South Australia and operates the 1,400-mile Tarcoola-to-Darwin rail line. The Australia Region is 51.1% owned by G&W and 48.9% owned by a consortium of funds and clients managed by Macquarie Infrastructure and Real Assets.
• G&W's U.K./Europe Region includes the U.K.'s largest rail maritime intermodal operator and second-largest freight rail provider, as well as regional services in Continental Europe.

G&W subsidiaries and joint ventures also provide rail service at more than 40 major ports, rail-ferry service between the U.S. Southeast and Mexico, transload services, contract coal loading, and industrial railcar switching and repair.

From time to time, we may use our website as a channel of distribution of material company information. Financial and other material information regarding G&W is routinely posted on and accessible at www.gwrr.com/investors. In addition, you may automatically receive email alerts and other information about us by enrolling your email address in the "Email Alerts" section of www.gwrr.com/investors. The information contained on or connected to our Internet website is not deemed to be incorporated by reference in this press release or filed with the United States Securities and Exchange Commission.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains forward-looking statements regarding future events and the future performance of Genesee & Wyoming Inc. that are based on current expectations, estimates and projections about our industry, management's beliefs and assumptions made by management. Words such as "anticipates," "intends," "plans," "believes," "could," "should," "seeks," "expects," "will," "estimates," "trends," "outlook," variations of these words and similar expressions are intended to identify these forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to forecast, including the following: risks related to the operation of our railroads; severe weather conditions and other natural occurrences, which could result in shutdowns, derailments, railroad network and port congestion or other substantial disruption of operations; customer demand and changes in our operations or loss of important customers; exposure to the credit risk of customers and counterparties; changes in commodity prices; consummation and integration of acquisitions; economic, political and industry conditions, including employee strikes or work stoppages; retention and contract continuation; legislative and regulatory developments, including changes in environmental and other laws and regulations to which we or our customers are subject; increased competition in relevant markets; funding needs and financing sources, including our ability to obtain government funding for capital projects; international complexities of operations, currency fluctuations, finance, tax and decentralized management; challenges of managing rapid growth, including retention and development of senior leadership; unpredictability of fuel costs; susceptibility to and outcome of various legal claims, lawsuits and arbitrations; increase in, or volatility associated with, expenses related to estimated claims, self-insured retention amounts and insurance coverage limits; consummation of new business opportunities; decrease in revenues and/or increase in costs and expenses; susceptibility to the risks of doing business in foreign countries; uncertainties arising from a referendum in which voters in the United Kingdom (U.K.) approved an exit from the European Union (E.U.), commonly referred to as Brexit; our ability to integrate acquired businesses successfully or to realize the expected synergies associated with acquisitions; risks associated with our substantial indebtedness; failure to maintain satisfactory working relationships with partners in Australia; failure to maintain an effective system of internal control over financial reporting as well as disclosure controls and procedures and other risks including, but not limited to, those noted in our 2017 Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q under "Risk Factors." Therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Forward-looking statements speak only as of the date of this press release or as of the date they were made. G&W does not undertake, and expressly disclaims, any duty to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

* Represents physical railcars and the estimated railcar equivalents of commodities transported by metric ton or other measure, as well as intermodal units.