Short-line railroad operator Genesee & Wyoming (NYSE:GWR) posted another period of solid results for its first quarter. Although the Australian segment of the business was a bit weaker than expected, the North American segment made up the difference.
North American revenue climbed 16.1% on a 9% increase in carloads and a nearly 6% increase in revenue per carload. On a same-rail basis, the company saw nearly 12% growth, with a 4.8% increase in traffic and a 7.5% increase in revenue per carload.
The usual suspects boosted the North American results. Coal revenue grew more than 14%, lumber improved 29%, and revenue from metals shipments grew 12%. Paper was also particularly strong in the quarter, with revenue up by nearly 23%.
Despite a nearly 38% rise in fuel costs, the company improved its operating ratio to 83%, and operating income climbed by more than 23% from the prior year.
Results from down under, though, were not quite as robust. Revenue climbed about 2.5% as improvements in iron ore, alumina, and other metals helped offset a decline in grain shipments.
The operating ratio worsened to 83.6% (from 78.6%) on the back of higher fuel prices, as well as two derailments on company tracks. Even though third-party operators caused the derailments, management attributes more than 2% of the operating-ratio drop to the costs of cleaning up the messes.
Management left forward guidance unchanged, though investors should note that consensus analyst expectations are actually pegged just a bit above management guidance. What's more, management guidance does not account for the risk that Burlington Northern (NYSE:BNI) might begin trying to institute fuel surcharges for the company.
More than a few readers have written me about my prior takes on Genesee & Wyoming; they've wanted to know why I don't own the stock if I like the company so much. The answer is pretty simple -- I'm a cheapskate.
Genesee & Wyoming is a great railroad, and it trades at a discount to its peers, but I'd rather buy it at a low-teens P/E than at a high-teens P/E. The difference between the two gives me a nice little margin of safety just in case traffic drops off or the company hits a bump or two in the road.
And so again, that's where I'll leave it today. I still think Genesee & Wyoming is a great railroad, but I don't own the shares, and I'm not likely to unless I can get them at a good discount. After all, buying great companies doesn't guarantee any sort of investment success -- buying great companies at great prices is what really does the trick over the long haul.
Philip Durell and the whole Motley Fool Inside Value crew definitely believe in buying great companies at even better prices. To get the full scoop on what the value hounds are hunting for, take a free 30-day trial today.
Hit the rails with these other Foolish takes:
- CP's Nice Ride on the Rails
- Still Looney for the Rails
- Iron Horses Keep Galloping
- Genesee Rides Smooth Rails
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
