Genesee & Wyoming (GWR) reported strong third-quarter results, driven by its North American segment as well as a lower tax rate. Those positives more than offset weakness in its international operations. However, while the company's outlook for all its business segments remains positive, it anticipates some near-term headwinds, which will impact its fourth-quarter results.
Genesee & Wyoming results: The raw numbers
| Metric | Q3 2018 | Q3 2017 | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $603.3 million | $576.9 million | 4.6% |
| Adjusted net income | $73.8 million | $50.6 million | 45.8% |
| Adjusted EPS | $1.23 | $0.81 | 51.9% |
Data source: Genesee & Wyoming.
What happened with Genesee & Wyoming this quarter?
North America led the way:
- Revenue from Genesee & Wyoming's North American operations rose 11.5% from the year-ago period to $355.7 million due to stronger volumes, especially for coal and coke products, metals, and agricultural products. That revenue growth helped boost this segment's adjusted operating income by 23.4% to $102.6 million.
- The company's revenue from Australia slipped 5.6% to $76.7 million. While carloads rose thanks to strong coal and coke product shipments, freight revenue dipped due to lower pricing per carload. Meanwhile, freight-related revenue also declined versus the year-ago period. That weaker revenue weighted on adjusted operating profit, which slipped 9.2% to $19.8 million.
- The U.K./Europe segment's revenue dipped 3.3% to $170.9 million, due mainly to the sale of the company's ERS Railways business earlier in the year. That asset sale also weighed on this segment's adjusted operating income, which decreased from $9.3 million to $8.1 million.
- The strength of the company's North American operations, which contribute 80% of its operating income, along with a much lower tax rate, helped drive the surge in net income.
- The rail company completed its $300 million share repurchase plan in mid-October, which helped provide an additional boost to earnings per share. That led Genesee & Wyoming to authorize a new $500 million stock buyback program.
Image source: Getty Images.
What management had to say
CEO Jack Hellmann commented on the company's quarterly results, saying:
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.
Strength in the company's North American segment helped drive results higher during the quarter. Total freight carloads rose from 407,697 in the year-ago period to 446,219 thanks to nearly across the board growth. In addition to moving more carloads, the company hauled in a higher average revenue per carload, which rose from $596 to $613. Those healthy results more than offset weakness in the company's international operations.
Looking forward
Hellman noted that the company's "commercial outlook remains positive in all three of our geographic segments." However, he warned that "we expect our fourth quarter financial results to be adversely impacted by three items," which included the impact from Hurricane Michael, delays in some coal shipments in Australia that will shift to 2019, and a shortage of locomotive drivers in the U.K. that will squeeze margins as it ramps training and hiring.
