Genesee & Wyoming : Reports Results for the Fourth Quarter of 2014

Genesee & Wyoming Inc. (G&W) (NYSE:GWR)

Fourth Quarter Highlights

• Total operating revenues increased 6.1% to $415.6 million.
• Adjusted income from operations (operating income) increased 18.4% to $113.4 million; Reported income from operations increased 19.7% to $113.5 million. (1)
• Adjusted operating ratio improved 2.9 percentage points to 72.7%; Reported operating ratio of 72.7% (73.8% North American & European Operations; 67.3% Australian Operations). (1)
• Adjusted income before income taxes (pre-tax income) increased 23.5% to $102.3 million; Reported income before income taxes increased 25.0% to $102.3 million. (1)
• Adjusted diluted earnings per common share (EPS) of $1.12, a 19.1% increase in adjusted diluted EPS; Reported diluted EPS of $1.53. (1)

Comments on Fourth Quarter

Jack Hellmann, President and CEO of G&W, commented, “Our financial results for the fourth quarter of 2014 were solid, as our North American operations performed well thanks to a good U.S. economy, which more than offset weakness in our Australian operations. In the fourth quarter, G&W’s revenues increased 6%, our operating ratio improved 3.1 percentage points to 72.7%, and our adjusted diluted EPS increased 19.1%.” (1)

“In North America, our operating income increased 28% in the fourth quarter despite weaker than expected petroleum products shipments, and our North American operating ratio improved 3.4 percentage points to 74%. In Australia, our operating income declined 4% due to weaker shipments from both iron ore and intermodal customers, although effective cost controls resulted in an Australian operating ratio of 67%.”

Comments on Full Year 2014 and 2015

Jack Hellmann continued, “After a slow start to 2014 due to severe winter weather, G&W’s pre-tax income increased approximately 17% for the final nine months of 2014 led by the relative strength of the U.S. economy and the successful integration of the Rapid City, Pierre & Eastern Railroad (RCP&E). In addition, our cash flow was at record levels in 2014 as we generated free cash flow before business investments of $296 million.” (1)

“In 2015, we expect continued growth from our North American operations, which represents approximately 80% of our revenue, partially offset by a contraction in our Australian operations, which represents approximately 20% of our revenue, due to the closure of several iron ore mines. Overall we expect mid-teens growth in G&W’s pre-tax income in 2015, and we also continue to evaluate acquisition and investment opportunities worldwide.”

Fourth Quarter Financial Results

G&W reported net income in the fourth quarter of 2014 of $87.6 million, compared with net income of $58.1 million in the fourth quarter of 2013. Excluding the net impact of certain items affecting comparability between periods as discussed below, G&W’s adjusted net income in the fourth quarter of 2014 was $64.0 million, compared with adjusted net income of $53.0 million in the fourth quarter of 2013. (1)

G&W’s reported diluted EPS in the fourth quarter of 2014 were $1.53 with 57.1 million weighted average shares outstanding, compared with diluted EPS in the fourth quarter of 2013 of $1.03 with 56.8 million weighted average shares outstanding. Excluding the net impact of certain items affecting comparability discussed below, G&W’s adjusted diluted EPS in the fourth quarter of 2014 were $1.12 with 57.1 million weighted average shares outstanding, compared with adjusted diluted EPS in the fourth quarter of 2013 of $0.94 with 56.8 million weighted average shares outstanding. (1)

In the fourth quarter of 2014 and 2013, G&W’s results included certain items affecting comparability between the periods that are set forth in the following table (in millions, except per share amounts).

Explanation of Items Affecting Comparability

In December 2014, the U.S. Short Line Tax Credit (which had previously expired on December 31, 2013) was extended for fiscal year 2014. In the fourth quarter of 2014, G&W recorded a tax benefit of $27.0 million associated with the extension of the Short Line Tax Credit, which included $19.6 million for the first three quarters of 2014 and $7.4 million for the fourth quarter of 2014. In addition, net income and diluted EPS for the fourth quarter of 2014 were reduced by approximately $3.5 million and $0.06 per share, respectively, due to the application of the full year 2014 effective tax rate to the results of the first three quarters of 2014.

In the fourth quarter of 2014, G&W’s results also included business development and related costs of $1.6 million and net gain on sale of assets of $1.7 million. In the fourth quarter of 2013, G&W results included $1.2 million of business development and related costs, $1.0 million of RailAmerica integration and acquisition-related costs, net gain on asset sales of $1.3 million, a valuation allowance on foreign tax credits (FTC) generated in prior years of $2.0 million and a $7.6 million benefit associated with the Short Line Tax Credit.

Results

In the fourth quarter of 2014, G&W’s total operating revenues increased $24.0 million, or 6.1%, to $415.6 million, compared with $391.7 million in the fourth quarter of 2013. The increase included $20.7 million in revenues from the newly established RCP&E. These revenues were partially offset by a $9.2 million decrease from the net depreciation of foreign currencies relative to the U.S. dollar. Excluding the net impact from foreign currency depreciation, G&W’s same railroad operating revenues, which exclude revenues from RCP&E, increased $12.5 million, or 3.3%.

G&W’s same railroad freight revenues in the fourth quarter of 2014 were $298.1 million, compared with $297.5 million in the fourth quarter of 2013. Excluding a $6.8 million decrease from the impact of foreign currency depreciation, G&W’s same railroad freight revenues increased by $7.4 million, or 2.6%.

G&W’s same railroad non-freight revenues in the fourth quarter of 2014 were $96.8 million, compared with $94.2 million in the fourth quarter of 2013. Excluding a $2.4 million decrease from the impact of foreign currency depreciation, G&W’s same railroad non-freight revenues increased by $5.0 million, or 5.5%.

G&W’s traffic in the fourth quarter of 2014 increased 38,235 carloads, or 8.1%, to 510,141 carloads. Excluding 16,542 carloads from RCP&E, same railroad traffic in the fourth quarter of 2014 increased 21,693 carloads, or 4.6%. The same railroad traffic increase was principally due to increases of 11,303 carloads of minerals and stone traffic (across most of G&W’s regions), 10,073 carloads of coal and coke traffic (primarily in the Midwest and Ohio Valley regions) and 4,321 carloads from G&W’s other commodity group (primarily in overhead Class I shipments), partially offset by a 6,023 carload decrease in agricultural products traffic (primarily due to decreased shipments in the Australia, Ohio Valley and Midwest regions, partially offset by increased shipments in the Central Region). All remaining traffic increased by a net 2,019 carloads.

G&W’s income from operations in the fourth quarter of 2014 was $113.5 million, compared with $94.8 million in the fourth quarter of 2013. G&W’s operating ratio in the fourth quarter of 2014 was 72.7%, compared with an operating ratio of 75.8% in the fourth quarter of 2013. Income from operations in the fourth quarter of 2014 included a net gain on sale of assets of $1.7 million, partially offset by business development and related costs of $1.6 million. Income from operations in the fourth quarter of 2013 included business development and related costs of $1.2 million as well as $1.0 million of RailAmerica integration and acquisition-related costs, partially offset by net gain on sale of assets of $1.3 million. Excluding these items, G&W’s adjusted income from operations increased $17.7 million, or 18.4%, to $113.4 million. G&W’s adjusted operating ratio improved 2.9 percentage points to 72.7% in the fourth quarter of 2014, compared with 75.6% in the fourth quarter of 2013. (1)

Consolidated Annual Results

G&W reported net income for the year ended December 31, 2014 of $261.0 million ($368.1 million pre-tax), compared with net income of $272.1 million ($318.4 million pre-tax) for the year ended December 31, 2013. Excluding the impact of certain items affecting comparability listed below, G&W’s adjusted net income for the year ended December 31, 2014 was $233.5 million ($372.8 million adjusted pre-tax), compared with adjusted net income of $214.7 million ($332.9 million adjusted pre-tax) for the year ended December 31, 2013. (1)

G&W’s diluted EPS for the year ended December 31, 2014 were $4.58 with 57.0 million weighted average shares outstanding, compared with diluted EPS of $4.79 with 56.7 million weighted average shares outstanding for the year ended December 31, 2013. Excluding certain items affecting comparability listed below, G&W’s adjusted diluted EPS for the year ended December 31, 2014 were $4.10 with 57.0 million weighted average shares outstanding, compared with adjusted diluted EPS of $3.78 with 56.7 million weighted average shares outstanding for the year ended December 31, 2013. (1)

G&W’s 2014 and 2013 annual results included certain items affecting comparability between the periods that are set forth in the following table (in millions, except per share amounts).

Conference Call and Webcast Details

As previously announced, G&W’s conference call to discuss financial results for the fourth quarter of 2014 will be held on Tuesday, February 10, 2015, at 11 a.m. ET. The dial-in number for the teleconference in the U.S. is (800) 230-1096; outside the U.S. is (612) 332-0802, or the call may be accessed live over the Internet (listen only) at www.gwrr.com/investors, by selecting “Q4 2014 Genesee & Wyoming Earnings Conference Call Webcast.” Management will be referring to a slide presentation that will also be available at gwrr.com/investors. The webcast will be archived at www.gwrr.com/investors, until the following quarter’s earnings press release. Telephone replay is available for 30 days beginning at 1 p.m. ET on February 10, 2015 by dialing (800) 475-6701 (or outside the U.S., dial 320-365-3844). The access code is 345263.

About G&W

G&W owns and operates short line and regional freight railroads in the United States, Australia, Canada, the Netherlands and Belgium. In addition, G&W operates the 1,400-mile Tarcoola to Darwin rail line, which links the Port of Darwin with the Australian interstate rail network in South Australia. Operations currently include 116 railroads organized in 11 regions, with more than 15,000 miles of owned and leased track, 5,200 employees and over 2,000 customers. We provide rail service at 37 ports in North America, Australia and Europe and perform contract coal loading and railcar switching for industrial customers.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains forward-looking statements regarding future events and the future performance of Genesee & Wyoming Inc. that are based on current expectations, estimates and projections about our industry, management’s beliefs, and assumptions made by management. Words such as “anticipates,” “intends,” “plans,” “believes,” “could,” “should,” “seeks,” “expects,” “will,” “estimates,” “trends,” “outlook,” variations of these words and similar expressions are intended to identify these forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to forecast, including the following: risks related to the operation of our railroads; severe weather conditions and other natural occurrences, which could result in shutdowns, derailments, railroad network congestion or other substantial disruption of operations; customer demand and changes in our operations; exposure to the credit risk of customers and counterparties; changes in commodity prices; consummation and integration of acquisitions; economic, political and industry conditions (including employee strikes or work stoppages); retention and contract continuation; legislative and regulatory developments, including changes in environmental and other laws and regulations to which we are subject; increased competition in relevant markets; funding needs and financing sources, including our ability to obtain government funding for capital projects; international complexities of operations, currency fluctuations, finance, tax and decentralized management; challenges of managing rapid growth including retention and development of senior leadership; unpredictability of fuel costs; susceptibility to various legal claims and lawsuits; increase in, or volatility associated with, expenses related to estimated claims, self-insured retention amounts, and insurance coverage limits; consummation of new business opportunities; decrease in revenues and/or increase in costs and expenses; susceptibility to the risks of doing business in foreign countries; our ability to realize the expected synergies associated with acquisitions; and others including, but not limited to, those noted in our 2013 Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q under “Risk Factors.” Therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Forward-looking statements speak only as of the date of this press release or as of the date they were made. G&W does not undertake, and expressly disclaims, any duty to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.