Genesee & Wyoming Reports Results for the Fourth Quarter of 2018

Business Wire 6-Feb-2019 6:00 AM

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

Fourth Quarter 2018 Consolidated Highlights Compared with Fourth Quarter 2017

• Operating revenues increased 0.7% to $575.6 million from $571.6 million.
• Reported operating income decreased 0.8% to $105.7 million; Adjusted operating income increased 5.6% to $109.9 million.⁽¹⁾
• Reported diluted earnings per share (EPS) were $0.94 with 58.9 million weighted average shares outstanding, compared with reported diluted EPS in the fourth quarter of 2017 of $6.81 with 62.7 million weighted average shares outstanding; Adjusted diluted EPS increased 29.9% to $1.00.⁽¹⁾
• G&W repurchased approximately 2.4 million shares of its Class A Common Stock for $189.6 million during the fourth quarter of 2018.
• Net cash provided by operating activities for the year ended December 31, 2018 increased 15.4% to $553.1 million; adjusted free cash flow attributable to G&W before new business investments and grant funded projects increased 20.8% to $326.0 million; adjusted free cash flow attributable to G&W increased 12.1% to $280.6 million.⁽¹⁾
• A number of items affect comparability between the fourth quarter of 2018 and 2017, the most significant of which was the impact of the U.S. Tax Cuts and Jobs Act (TCJA) enacted in December 2017.

Fourth Quarter 2018 Segment Highlights Compared with Fourth Quarter of 2017

• North America: Operating revenues from G&W's North American Operations increased 5.5% to $338.0 million from $320.2 million. Reported operating income from G&W's North American Operations increased 16.7% to $87.2 million; Adjusted operating income from G&W's North American Operations increased 18.1% to $89.3 million.⁽¹⁾
• Australia: Operating revenues from G&W's Australian Operations decreased 5.8% to $71.1 million from $75.5 million. Reported operating income from G&W's Australian Operations remained relatively flat at $17.7 million. Adjusted operating income from G&W's Australian Operations decreased 21.2% to $17.7 million.⁽¹⁾
• U.K./Europe: Operating revenues from G&W's U.K./European Operations decreased 5.3% to $166.5 million from $175.8 million. Revenues in the fourth quarter of 2017 included $12.2 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 $0.8 million in 2017 from ERS, decreased to $0.8 million, compared with $14.2 million in 2017; Adjusted operating income from G&W's U.K./European Operations decreased 51.8% to $2.8 million.⁽¹⁾

Jack Hellmann, Chairman and CEO of G&W, commented, "In the fourth quarter of 2018, our reported diluted EPS were $0.94 compared with $6.81 in the fourth quarter of 2017. Our adjusted diluted EPS increased 30% to $1.00 in the fourth quarter of 2018, led by a 17% increase in our North American operating income due to 5.8% growth in carloads and a 250 basis point improvement in our operating ratio. The strong results in North America more than offset weaker performance in our Australian and U.K./European operations."⁽¹⁾

"For the full year, our reported diluted EPS were $4.03 in 2018 compared with $8.79 in 2017. Our adjusted diluted EPS increased 32.3% to $3.85 in 2018 and we expect double digit adjusted diluted EPS growth in 2019."⁽¹⁾

"In addition to solid earnings growth, G&W generated record cash flow in 2018. With strong cash generation, which significantly exceeded our reported net income, and approximately $455 million of availability under our revolving credit facility, we continue to evaluate potential investments in multiple geographies as well as investments in our own shares. During the fourth quarter of 2018, we repurchased 2.4 million shares of our common stock for approximately $190 million."

Financial Results

G&W's operating revenues increased $4.0 million, or 0.7%, to $575.6 million, in the fourth quarter of 2018, compared with $571.6 million in the fourth quarter of 2017. G&W's reported operating income in the fourth quarter of 2018 was $105.7 million, compared with $106.5 million in the fourth quarter of 2017. Excluding the net impact of certain items affecting comparability between periods as discussed below, G&W's adjusted operating income in the fourth quarter of 2018 was $109.9 million, compared with $104.0 million in the fourth quarter of 2017.⁽¹⁾

Reported net income attributable to G&W in the fourth quarter of 2018 was $55.6 million, compared with $426.6 million in the fourth quarter of 2017. Excluding the net impact of certain items affecting comparability between periods as discussed below, adjusted net income attributable to G&W in the fourth quarter of 2018 was $59.1 million, compared with $48.6 million in the fourth quarter of 2017.⁽¹⁾

G&W's reported diluted EPS in the fourth quarter of 2018 were $0.94 with 58.9 million weighted average shares outstanding, compared with reported diluted EPS in the fourth quarter of 2017 of $6.81 with 62.7 million weighted average shares outstanding. Excluding certain items affecting comparability listed below, G&W's adjusted diluted EPS in the fourth quarter of 2018 were $1.00 with 58.9 million weighted average shares outstanding, compared with adjusted diluted EPS in the fourth quarter of 2017 of $0.77 with 62.7 million weighted average shares outstanding.⁽¹⁾

Items Affecting Comparability

In the fourth 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 fourth quarter of 2018, G&W's results included $2.2 million of restructuring and related costs, primarily in the U.K., lease return costs of $2.1 million associated with two railroad leases in Canada that expired in the fourth quarter of 2018, a $1.4 million gain on sale of an investment and $1.4 million of tax adjustments associated with prior periods.

In the fourth quarter of 2017, G&W's results included an $8.9 million reduction to other expenses as a result of the buyout of the Freightliner Group Limited (Freightliner) deferred consideration agreements with certain former Freightliner management holders, Australia impairment and related charges of $4.9 million, which included $5.9 million related to the write-down of track assets on idle branch lines in South Australia, partially offset by a $0.9 million recovery of prior year impairment and related costs associated with Arrium Limited's voluntary administration, $1.4 million of restructuring costs, $1.1 million of corporate development and related costs and a $1.1 million reduction to expense associated with a prior year accrual established for the restructuring of our U.K. coal business. The fourth quarter of 2017 also included a $371.9 million estimated income tax benefit primarily as a result of reducing the value of our net deferred tax liabilities from a 35% U.S. federal income tax rate to the newly enacted rate of 21% associated with the TCJA signed into law in December 2017.

Fourth Quarter Results by Segment

Operating revenues from G&W's North American Operations increased $17.8 million, or 5.5%, to $338.0 million in the fourth quarter of 2018, compared with $320.2 million in the fourth quarter of 2017.

G&W's North American Operations had operating income in the fourth quarter of 2018 of $87.2 million, compared with $74.7 million in the fourth quarter of 2017. The operating ratio for North American Operations was 74.2% in the fourth quarter of 2018, compared with an operating ratio of 76.7% in the fourth quarter of 2017. Adjusted operating income from G&W's North American Operations in the fourth quarter of 2018 was $89.3 million, compared with $75.6 million in the fourth quarter of 2017. The adjusted operating ratio for North American Operations was 73.6% in the fourth quarter of 2018, compared with 76.4% in the fourth quarter of 2017.⁽¹⁾

Operating revenues from G&W's Australian Operations decreased $4.4 million, or 5.8%, to $71.1 million in the fourth quarter of 2018, compared with $75.5 million in the fourth quarter of 2017. Excluding a $5.0 million decrease due to the impact of foreign currency depreciation, Australian Operations revenues increased by $0.6 million, or 0.8%.⁽²⁾

G&W's Australian Operations had operating income in the fourth quarter of 2018 of $17.7 million, compared with $17.6 million in the fourth quarter of 2017. The operating ratio for Australian Operations was 75.1% in the fourth quarter of 2018, compared with an operating ratio of 76.7% in the fourth quarter of 2017. Adjusted operating income from G&W's Australian Operations in the fourth quarter of 2018 was $17.7 million, compared with $22.5 million in the fourth quarter of 2017. The adjusted operating ratio for Australian Operations was 75.1% in the fourth quarter of 2018, compared with 70.2% in the fourth quarter of 2017.⁽¹⁾

Operating revenues from G&W's U.K./European Operations decreased $9.3 million, or 5.3%, to $166.5 million in the fourth quarter of 2018, compared with $175.8 million in the fourth quarter of 2017. Excluding $12.2 million from G&W's divested ERS operations for the fourth quarter of 2017 and a $5.2 million decrease due to the impact of foreign currency depreciation, U.K./European Operations same railroad revenues increased $8.1 million, or 5.1%.⁽²⁾

G&W's U.K./European Operations had operating income in the fourth quarter of 2018 of $0.8 million, compared with $14.2 million in the fourth quarter of 2017, which included $0.8 million from ERS. The operating ratio for U.K./European Operations was 99.5% in the fourth quarter of 2018, compared with 91.9% in the fourth quarter of 2017. Adjusted operating income from G&W's U.K./European Operations in the fourth quarter of 2018 was $2.8 million, compared with $5.9 million in the fourth quarter of 2017, which included $1.3 million from ERS. The adjusted operating ratio for U.K./European Operations was 98.3% in the fourth quarter of 2018, compared with 96.7% in the fourth quarter of 2017.⁽¹⁾

Consolidated Annual Results

2018 Annual Segment Highlights Compared with 2017

• North America: Operating revenues from G&W's North American Operations increased 6.6% to $1,358.9 million from $1,274.3 million. Reported operating income from G&W's North American Operations increased 12.8% to $343.1 million from $304.3 million; Adjusted operating income from G&W's North American Operations increased 10.7% to $346.3 million from $312.9 million.⁽¹⁾
• Australia: Operating revenues from G&W's Australian Operations decreased 1.9% to $301.7 million from $307.5 million. Reported operating income from G&W's Australian Operations increased 3.9% to $80.3 million from $77.3 million; Adjusted operating income from G&W's Australian Operations decreased to $73.1 million from $82.2 million.⁽¹⁾
• U.K./Europe: Operating revenues from G&W's U.K./European Operations increased 9.9% to $688.0 million from $626.2 million, primarily due to new operations from the Pentalver Transport Limited (Pentalver) acquisition, as well as a $19.3 million benefit from foreign currency appreciation. Reported operating income from G&W's U.K./European Operations decreased to $0.1 million from $10.5 million; Adjusted operating income from G&W's U.K./European Operations increased to $15.3 million from $13.8 million.⁽¹⁾⁽²⁾

G&W's provision for income taxes for the year ended December 31, 2018 was $64.5 million compared with a benefit from income taxes of $261.3 million for the year ended December 31, 2017. The income tax provision for the year ended December 31, 2018 included an income tax benefit of $31.6 million associated with the retroactive extension of the United States Short Line Tax Credit for fiscal year 2017, which was enacted in February 2018, income tax expense adjustments of $5.1 million related primarily to deferred income taxes recorded in prior periods and a $1.6 million measurement period adjustment to the one-time transition (toll) tax on earnings of certain foreign subsidiaries. The benefit from income taxes for year ended December 31, 2017 included an income tax benefit of approximately $394 million resulting from reducing the value of our net deferred tax liabilities from a 35% United States federal income tax rate to the newly enacted rate of 21%, partially offset by an estimated transitional (toll) tax of approximately $22 million, both associated with the TCJA.

Reported net income attributable to G&W for the year ended December 31, 2018 was $244.4 million, compared with $549.1 million for the year ended December 31, 2017. Excluding the impact of certain items affecting comparability listed below, adjusted net income attributable to G&W for the year ended December 31, 2018 was $233.6 million, compared with $182.0 million for the year ended December 31, 2017.⁽¹⁾

G&W's diluted EPS for the year ended December 31, 2018 were $4.03 with 60.6 million weighted average shares outstanding, compared with diluted EPS of $8.79 with 62.5 million weighted average shares outstanding for the year ended December 31, 2017. Excluding certain items affecting comparability listed below, G&W's adjusted diluted EPS for the year ended December 31, 2018 were $3.85 with 60.6 million weighted average shares outstanding, compared with adjusted diluted EPS of $2.91 with 62.5 million weighted average shares outstanding for the year ended December 31, 2017.⁽¹⁾

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

Adjusted Free Cash Flow Measures ⁽¹⁾

Adjusted free cash flow measures for the years ended December 31, 2018 and 2017 were as follows (in millions):

Share Repurchase Program

During the fourth quarter of 2018, G&W repurchased 2.4 million shares of Class A Common Stock for $189.6 million, which resulted in a reduction of 0.8 million shares in our weighted average diluted shares outstanding for the fourth quarter of 2018. During the year ended December 31, 2018, G&W repurchased 6.0 million shares of Class A Common Stock for $460.1 million, which resulted in a reduction of 2.4 million shares in our weighted average diluted shares outstanding for the year ended December 31, 2018.

Conference Call and Webcast Details

As previously announced, G&W's conference call to discuss financial results for the fourth quarter of 2018 will be held on Wednesday, February 6, 2019, at 11 a.m. EST. The dial-in number for the teleconference in the U.S. is (800) 230-1085; outside the U.S. is (612) 288-0329, 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. EST on February 6, 2019 by dialing (800) 475-6701 (or outside the U.S., dial 320-365-3844). The access code is 458664.

About G&W

G&W owns or leases 120 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 114 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 Security 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, funding costs 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 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.