Genesee & Wyoming (GWR +0.00%) finished up 2017 on a solid note, delivering revenue and earnings that were in line with its expectations thanks to several new additions over the course of the year. Those new operations, when combined with improving business conditions across all its operating regions, has the rail company expecting even stronger results in 2018.
Genesee & Wyoming results: The raw numbers
|
Metric |
Q4 2017 |
Q4 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$571.6 million |
$516.5 million |
10.7% |
|
Adjusted net income |
$105.7 million |
$103.4 million |
2.2% |
|
Adjusted earnings per share |
$0.77 |
$0.84 |
(8.3%) |
Data source: Genesee & Wyoming.
What happened with Genesee & Wyoming this quarter?
The start-up of new international operations led the way:
- Revenue in North America slipped 0.6% versus the year-ago period to $320.2 million due to a decrease in freight revenue. Driving the decline was a 1.9% drop in carloads as a result of lower coal and agricultural products traffic. This dip pushed adjusted operating income down 13.6% to $75.5 million.
- Revenue from company's Australia segment jumped 23.1% to $75.5 million thanks to new operations, which helped drive carloads up 61.4% year over year. That said, if it wasn't for those additions and a positive impact from foreign exchange changes, revenue in the segment would have only increased 1.3%. However, thanks to those factors, adjusted operating income leaped 66.1% versus the year-ago quarter to $22.5 million.
- The U.K./Europe segment also benefited from new operations and foreign currency fluctuations, which helped drive revenue up 32.3% to $175.8 million. Without those two factors, revenue would have dipped 3.8% year over year because carloads decreased 2.6% due to lower intermodal traffic in Europe. However, the company offset that decline thanks to the impact of the new operations and its restructuring initiatives, which combined to catapult adjusted operating income more than 200% above the year-ago level to $7.6 million.
- While revenue and adjusted net income were higher than last year's fourth quarter, per-share earnings after adjustments dropped because Genesee & Wyoming's outstanding share count has risen from 58.8 million shares to 62.7 million shares. That's a result of issuing $300 million of new shares at the very end of 2016 to pay for the Pentalver Transport transaction in Europe.
- One other thing worth noting about the quarter is that the company recorded a large tax benefit of $371.9 million, or $5.94 per share due to the new U.S. tax law signed in December. That pushed the company's unadjusted earnings up to $6.81 per share, well above the unadjusted $0.15 per share it pulled in during the year-ago quarter.
- For the full year, revenue rose 10.3% to $2.2 billion, while adjusted operating income was up 11% to $415.5 million. However, adjusted earnings dipped 7% to $2.91 per share due to the higher share count.
Image source: Getty Images.
What management had to say
CEO Jack Hellmann commented on the company's results:
Our reported diluted EPS for the fourth quarter of 2017 were $6.81, of which a significant portion was a $372 million benefit from new tax legislation in the United States. Excluding the tax benefit and certain other items, our adjusted diluted EPS were $0.77 in the fourth quarter, as revenues in each of our geographic segments, North America, Australia and the U.K./Europe, finished the year in-line with our expectations. In 2017, we generated adjusted free cash flow attributable to G&W of $250 million, a 3.6% increase over 2016, as we effectively managed both expenses and capital expenditures to more than offset flat revenue.
As Hellmann pointed out, after adjusting for the big one-time boost from the tax-law change, Genesee & Wyoming's results came in about as expected. New operations helped push revenue and earnings higher, though the per-share results slipped because of an increase in the share count. However, that should even out over time as the company's new operations continue driving growth.
Looking forward
That's exactly what Hellmann sees happening in 2018, with the CEO stating that "in 2018, with an improving business outlook in each of our operating regions, we expect double-digit growth in both adjusted earnings per share and adjusted free cash flow attributable to G&W." Meanwhile, he noted that the company has about $400 million of borrowing capacity on its credit facility, giving it ample firepower to make additional acquisitions and investments this year to move the needle even further.
