Strong financials in Genesee & Wyoming’s North American Operations unit a more than offset weaker performance in the company’s Australian and U.K./European Operations. As well, the company expects to increase its capital program this year.
Consolidated Highlights, 4Q18 vs. 4Q17
- 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.
- Reported diluted earnings per share (EPS) were $0.94, with 58.9 million weighted average shares outstanding, compared with reported diluted EPS in 4Q17 of $6.81 with 62.7 million weighted average shares outstanding. Adjusted diluted EPS increased 29.9% to $1.00.
- G&W repurchased approximately 2.4 million shares of its Class A Common Stock for $189.6 million during 4Q18.
- Net cash provided by operating activities for the year ended Dec. 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.
- A number of items affect comparability between the 4Q18 and4Q17, the most significant of which was the impact of the U.S. Tax Cuts and Jobs Act (TCJA), enacted in December 2017.
Segment Highlights, 4Q18 vs. 4Q17
- North American Operations: Operating revenues increased 5.5% to $338.0 million from $320.2 million. Reported operating income increased 16.7% to $87.2 million. Adjusted operating income f increased 18.1% to $89.3 million.
- Australian Operations: Operating revenues decreased 5.8% to $71.1 million from $75.5 million. Reported operating income remained relatively flat at $17.7 million. Adjusted operating income decreased 21.2% to $17.7 million.
- K./European Operations: Operating revenues decreased 5.3% to $166.5 million, from $175.8 million. Revenues in 4Q17 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 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 decreased 51.8% to $2.8 million.
“In the fourth quarter of 2018, our reported diluted EPS were $0.94 compared with $6.81 in the fourth quarter of 2017,” commented Chairman and CEO Jack Hellmann. “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. 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.”
“In addition to solid earnings growth, G&W generated record cash flow in 2018,” Hellmann noted. “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.”
Genesee & Wyoming is expected to increase its capital spending slightly this year after earnings beat analyst estimates. That’s the takeaway from G&W’s earnings report, released Feb. 6, and a recent presentation at the NRC Conference in Marco Island, Fla.
G&W forecasts a capex spend of $215 million in 2019. The company spent some $205.7 million in capital last year, up dramatically from the $181.8 million of 2017. G&W Vice President Purchasing Kristine Storm told attendees at the NRC conference in January 2019 that 99% of the company’s mechanical and engineering spend is now bid by a centralized purchasing department. The idea, she said, is to increase the quality of purchasing while reducing costs.
Among the more notable programs to be bid in 2019 are:
- 40% of the capex allocation will go to crossties. The company will purchase some 850,000 ties this year. Contractors won’t see much of the installation work, however. Only 30% of switch and crosstie installation is outsourced, Storm said.
- G&W plans to spend some $23 million on bridge rehabilitation this year. That’s consistent with 2018’s bridge spend, and roughly $4 million more than in 2017. Most of the available work involves timber repairs, concrete masonry work, and new tie decks.
- Complete removal of 125 crossing signals.
- The estimated capital budget for Positive Train Control (PTC) work in 2019 is $9 million.
- The company’s specialty engineering services this year include rail flaw detection on 18,900 track-miles; track geometry testing on 14,300 track-miles; tie testing on 8,000 track-miles; and vegetation control on 16,000 track-miles.
The biggest engineering problem in 2019 for G&W involves the massive damage caused to the Bay Line Railroad by Hurricane Michael. That storm tore up miles of track and destroyed millions of dollars worth of equipment. Repairing the damage seems beyond the realm of possibility. “We’re going to plow it down and start over. That’s what I’m hearing our options are,” Storm said.
One key item to note is that maintenance-of-way and engineering vendors are required to complete a new pre-qualification form prior to competing for contracts. Details can be found on G&W’s procurement site.
Engineering Editor Paul Conley Contributed to this story.