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Genesee & Wyoming's (GWR +0.00%) growth-by-acquisition strategy paid off during the fourth quarter as recent additions boosted results. The company also benefited from a noticeable pickup in rail volumes in both the U.S. and Australia, which helped offset weakness in Europe. These positives should enable the company to maintain its momentum in 2017, especially since it already has more deals in the pipeline and the balance sheet to continue buying.
Metric |
Q4 2016 |
Q4 2015 |
Year-Over-Year Change |
---|---|---|---|
Revenue |
$516.5 million |
$546.3 million |
0.3% |
Adjusted net income |
$58.3 million |
$56.8 million |
2.6% |
Adjusted EPS |
$0.99 |
$0.98 |
1% |
Data source: Genesee & Wyoming. EPS = earnings per share.
Genesee & Wyoming closed several deals during the quarter:
Image source: Getty Images.
CEO Jack Hellmann commented on the quarter by saying that:
The fourth quarter of 2016 was extraordinarily active at G&W as we closed on the acquisition of GRail in Australia, we closed on the acquisition of the P&W in the United States, we signed an agreement to acquire Pentalver in the U.K., and we raised $287 million of equity to position ourselves for additional acquisition and investment opportunities. Our reported diluted EPS for the fourth quarter of 2016 were $0.15 which included expenses related to the above transactions, as well as impairment and related charges in the U.K./Europe. At the same time, our adjusted diluted EPS of $0.99 included a $0.10 diluted EPS benefit from a multi-year take-or-pay contract. Excluding this benefit, our fourth-quarter results were consistent with our outlook as our business performed as expected.
Genesee & Wyoming has worked hard to take advantage of the slowdown in the rail sector to make acquisitions across the globe. The company completed two deals last quarter, signed another, and just yesterday agreed to a fourth transaction. While the recently closed deals clearly boosted fourth-quarter results, it's worth noting that its earlier deal for Freightliner has not paid off as expected.
Last quarter, the company recorded a series of charges relating to that U.K./Europe business, including the decision to discontinue some of its ERS Railways operations. The company is working on righting this business, with hopes of bringing it back to profitability by mid-year.
Despite that misstep, Genesee & Wyoming is actively pursuing more deals. CEO Jack Hellman noted that the company continues to evaluate "multiple acquisitions and investment opportunities across" its global footprint. He pointed out that it has a war chest of more than $500 million of available credit under its revolving credit facility to finance future transactions.