Genesee & Wyoming (GWR +0.00%) initially thought that the fourth quarter might not be as strong as the previous ones due to some possible headwinds. However, the company more than overcame those issues to post solid results to end 2018.
While revenue barely nudged higher due to foreign-exchange fluctuations, earnings leaped. The company did a solid job holding down costs, which boosted margins. The regional railway operator expects healthy earnings growth to continue in 2019 as North American volumes keep rising while it maintains a firm lid on expenses.
Genesee & Wyoming results: The raw numbers
|
Metric |
Q4 2018 |
Q4 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$575.6 million |
$571.6 million |
0.7% |
|
Adjusted net income |
$59.1 million |
$48.6 million |
21.6% |
|
Adjusted EPS |
$1.00 |
$0.77 |
29.9% |
Data source: Genesee & Wyoming. EPS = earnings per share.
What happened with Genesee & Wyoming this quarter?
North America led the way:
- Revenue from Genesee & Wyoming's North American operations rose 5.5% from the year-ago period to $338 million, due to a 5.8% increase in carloads. That revenue growth, when combined with improving margins, helped boost this segment's adjusted operating income 18.1%, to $89.3 million.
- The company's revenue from Australia declined 5.8%, to $71.1 million, due entirely to foreign-exchange fluctuations, without which revenue would have increased by 0.8%. That issue also weighed on adjusted operating profit, which slumped 21.2%, to $17.7 million.
- The U.K./Europe segment's revenue slumped 5.3%, to $166.5 million, due to the sale of ERS Railways last year, as well as foreign-exchange fluctuations. Revenue would have increased 5.1% without those two factors. These issues also weighed on this segment's adjusted operating income, which plummeted 51.8%, to $2.8 million.
- For the full year, revenue rose 6.7%, to $2.35 billion, while adjusted earnings jumped 32.3%, to $3.85 per share, boosted in part by share repurchases, which totaled $189.6 million during the fourth quarter. The company also generated $280.6 million in free cash flow for the year, which was a 12.2% increase from 2017.
Image source: Getty Images.
What management had to say
CEO Jack Hellmann commented on the company's quarterly results by stating that: "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."
Strength in the company's North American segment during the fourth quarter continued to drive its performance. For the full year, North American revenue grew 6.6%, while adjusted operating profit increased 10.7%, thanks to an increase in carloads and higher margins, which helped offset more moderate profit growth in U.K./Europe and weakness in Australia.
Looking forward
Genesee & Wyoming "expect[s] double-digit adjusted diluted EPS growth in 2019," according to Hellmann. The CEO further noted that the company generated record cash flow last year, which provided it with the money to repurchase shares, as well as pay down its credit facility, leaving it with about $455 million in available credit. That gives it the financial flexibility to "continue to evaluate potential investments in multiple geographies, as well as investments in our own shares," according to Hellman.
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