Not that you'd really know it from the financial reports or the strength of the stock, but the third quarter was actually a challenging one for short-line rail operator Genesee & Wyoming (NYSE:GWR). Nevertheless, a good management team rises to its challenges and produces results, not excuses. That's just what happened here.

Reported revenue rose about 36% in the quarter, with about 80% of that growth coming from acquisitions. Same-rail traffic was actually down a bit in the quarter, hurt by ongoing disruptions in the Powder River Basin and very difficult year-over-year comparisons in the coal and metals categories. Nevertheless, the operating ratio improved yet again, and consolidated earnings per share rose almost 41%, even when excluding a $0.09-per-share benefit from the sale of surplus rail.

Australian operations, which are included on the G&W income statement as equity income, were also challenging in this quarter. Revenue was down in local currency, and same-rail traffic declined as increased iron ore shipments couldn't quite offset lower grain shipments. Operating income declined slightly, and the equity income contribution declined by about one-third to $2.4 million.

Though it was a challenging quarter, overall year-to-date free cash flow is still up 38%. Furthermore, I'd hope that the Aussie business is close to bottoming. Comparisons in the grain business should improve, and there is the potential for new business in the metals and intermodal segments. I wouldn't expect a fast improvement in same-rail traffic for the North American business, but there's still room to improve its operating ratio.

Because of G&W's status as a short-line operator in the U.S., it's somewhat dependent upon the health and smooth operation of Class 1 railroads like Burlington Northern Santa Fe (NYSE:BNI) and Union Pacific (NYSE:UNP). By the same token, though, G&W's rail lines literally go right past many of their dedicated customers' back doors.

I'd liken G&W to Canadian National (NYSE:CNI) or Burlington -- they're all good companies operating in a flourishing time for the rails. But my cash flow analysis makes me as leery of G&W as I am of its larger brethren. I really like the company, but I'm not in the habit of paying up to buy stocks.

For more insight on the iron horses:

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).