A Closer Look at Genesee & Wyoming’s 1Q16 Earnings

(Continued from Prior Part)

GWR’s Australian revenue in 1Q16

Genesee & Wyoming’s (GWR) revenue from Australian operations in 1Q16 fell to $51.8 million from $59.9 million in 1Q15. This represents a fall of 13.6%.

GWR’s 1Q15 revenue didn’t include the impact of Freightliner Group’s Australian operations. However, in 1Q16 it consolidated Freightliner’s operations. Even including Freightliner, GWR’s revenue in the reported quarter fell.

Excluding the impact of foreign exchange translations, GWR’s 1Q16 revenue fell by 5.9% on a year-over-year basis. The major reason for the fall was a $11.0 million, or 47%, reduction in Australian mining revenue associated with freight and freight-related business. This was due to the closure of three customer mines in 2015.

In addition, 1Q16 revenue was negatively impacted by a $1.3 million, or 8%, fall in intermodal operations. This was primarily due to lower fuel surcharges during Easter. However, this was somewhat pacified by Freightliner’s revenue. Note that Freightliner Australia contributed $10.9 million to GWR’s 1Q16 revenue.

GWR’s Australian operations

Genesee & Wyoming’s Australian operations include rail freight services in New South Wales, the Northern Territory, and South Australia. The company also operates a 1,400 mile Tarcoola-to-Darwin rail line in Australia.

Freightliner Group transported coal and containerized agricultural products in New South Wales. After its acquisition, GWR merged Freightliner’s Australian business into its own Australian operations.

Management’s guidance

GWR expects Australian revenue in the range of $210 million–$220 million for 2016. For 2Q16, it foresees $55 million in revenue. The company anticipates that Australian revenue will fall by approximately 10% year-over-year.

Southern Iron, a subsidiary of Arrium (ARI), filed for bankruptcy in Australia. GWR had a $15.0 million revenue receipt contract with Southern Iron for the remaining three quarters of 2016.

GWR declared that it wouldn’t be receiving the $15.0 million in revenue receipts from Southern Iron, since the latter’s iron mine was under care and maintenance. The company also expects a significant reduction in coal volumes in its Australian operations for the rest of 2016.

Peer group guidance

Investors should note that GWR’s management provided detailed guidance for 1Q16 and 2016. However, its 2Q16 numerical predictions are falling. Even though GWR is not a Class I railroad company, it’s often compared with other Class I railroad companies.

Among its peer group, Union Pacific (UNP) has not issued guidance for the current year. The same is the case with Kansas City Southern (KSU). However, eastern US peers such as CSX (CSX) and Norfolk Southern (NSC) have both issued 2016 business outlooks.