Genesee & Wyoming Reports Results for the First Quarter of 2019

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    DARIEN, Conn.–(BUSINESS WIRE)–Genesee & Wyoming Inc. (G&W) (NYSE:GWR)

    First Quarter 2019 Consolidated Highlights Compared with First
    Quarter 2018

    • Operating revenues decreased 2.9% to $558.1 million from $574.7
      million.
    • Reported operating income decreased 8.3% to $79.7 million; Adjusted
      operating income increased 0.5% to $87.8 million despite negative
      effects from severe winter weather and flooding in North America.(1)
    • Reported diluted earnings per common share (EPS) decreased 42.9% to
      $0.68 with 57.1 million weighted average shares outstanding, compared
      with reported diluted EPS in the first quarter of 2018 of $1.19 with
      62.9 million weighted average shares outstanding; Adjusted diluted EPS
      increased 11.4% to $0.78.(1)
    • Reported net income and diluted EPS for the first quarter of 2019
      included $5.4 million, or $0.10 per share, of restructuring and
      related costs. Reported net income and diluted EPS for the first
      quarter of 2018 included a $31.6 million, or $0.50 per share, income
      tax benefit associated with the U.S. Short Line Tax Credit for fiscal
      year 2017 that was enacted retroactively in February 2018.

    Company Comments

    Jack Hellmann, Chairman and Chief Executive Officer of G&W, commented,
    “In the first quarter of 2019, our adjusted diluted EPS increased over
    11%, despite severe winter weather and flooding in North America that
    impeded shipments from connecting Class I railroads to our Midwest and
    Canada regions. These weather impacts resulted in a $0.09, or 10%,
    reduction in diluted EPS compared with our first quarter guidance. We
    expect to recover a portion of the winter-affected traffic in the coming
    months, our outlook for North American rail shipments remains positive
    and our 2019 annual guidance remains unchanged.”

    “In the first quarter of 2019, we implemented cost reduction initiatives
    in each of our three geographic segments. In North America, we
    consolidated our Central Region into our Midwest and Southern regions.
    In the U.K./Europe, we continued to make reductions in our overhead cost
    structure and to invest in technology, and in Australia, we streamlined
    rail operations concurrent with the termination of grain operations on
    the Eyre Peninsula narrow gauge network.”

    “Finally, in the first quarter of 2019, we evaluated several potential
    acquisitions and investments. And in March, we signed two long-term
    leases of short line railroads in Indiana that create a contiguous
    400-mile, four-railroad footprint (CERA-TPW-TZPR-IMRR) within our
    Midwest Region, spanning from Eastern Indiana to Western Illinois with
    connections to six Class I railroads.”

    First Quarter Segment Highlights

    • North America: Operating revenues from G&W’s North American Operations
      increased 2.1% to $332.4 million from $325.6 million. Revenue for the
      first quarter of 2018 included $5.5 million of revenues from leased
      railroads in Canada, for which the leases expired at the end of 2018.
      Reported operating income from G&W’s North American Operations, which
      was negatively impacted by severe winter weather in the United States
      and Canada and flooding in the Midwestern United States, decreased
      5.3% to $69.3 million; Adjusted operating income from G&W’s North
      American Operations decreased 4.2% to $70.3 million.(1)
    • Australia: Operating revenues from G&W’s 51.1% owned Australian
      Operations decreased 13.0% to $65.1 million from $74.8 million.
      Reported operating income from G&W’s Australian Operations decreased
      21.7% to $12.5 million; Adjusted operating income from G&W’s
      Australian Operations decreased 11.9% to $14.1 million. Operating
      income from G&W’s Australian Operations were negatively impacted by
      $1.5 million from foreign currency depreciation and $1.5 million from
      drought conditions in South Australia and New South Wales, which were
      partially offset by a decrease in expenses.(1)
    • U.K./Europe: Operating revenues from G&W’s U.K./European Operations
      decreased 7.8% to $160.5 million from $174.2 million. Revenues for the
      first quarter of 2018 included $14.7 million of revenues from G&W’s
      former Continental Europe intermodal business, ERS Railways B.V.
      (ERS), which was sold in June 2018. Reported operating loss from G&W’s
      U.K./European Operations remained relatively flat at $2.1 million.
      Adjusted operating income from G&W’s U.K./European Operations
      increased to $3.4 million from an adjusted operating loss of $2.0
      million in 2018.(1)

    Financial Results

    G&W’s operating revenues decreased $16.6 million, or 2.9%, to $558.1
    million in the first quarter of 2019, compared with $574.7 million in
    the first quarter of 2018. G&W’s operating income in the first quarter
    of 2019 was $79.7 million, compared with $86.9 million in the first
    quarter of 2018. Excluding certain items affecting comparability between
    periods discussed below, G&W’s adjusted operating income in the first
    quarter of 2019 was $87.8 million, compared with $87.4 million in the
    first quarter of 2018.(1)

    G&W’s provision for income taxes in the first quarter of 2019 was $14.3
    million, while the benefit from income taxes for the first quarter of
    2018 was $15.9 million. G&W’s effective tax rate for the first quarter
    of 2019 was 26.9%, compared with 26.2% in the first quarter of 2018,
    excluding the $31.6 million income tax benefit from the retroactive
    extension of the of the U.S. Short Line Tax Credit for fiscal year 2017
    that was enacted in February 2018.

    Reported net income attributable to G&W in the first quarter of 2019 was
    $38.7 million, compared with reported net income attributable to G&W of
    $75.1 million in the first quarter of 2018. Excluding the net impact of
    certain items affecting comparability between periods discussed below,
    G&W’s adjusted net income attributable to G&W in the first quarter of
    2019 was $44.4 million, compared with $43.8 million in the first quarter
    of 2018.(1)

    G&W’s reported diluted EPS in the first quarter of 2019 were $0.68 with
    57.1 million weighted average shares outstanding, compared with reported
    diluted EPS in the first quarter of 2018 of $1.19 with 62.9 million
    weighted average shares outstanding. G&W’s adjusted diluted EPS in the
    first quarter of 2019 were $0.78 with 57.1 million weighted average
    shares outstanding, compared with adjusted diluted EPS in the first
    quarter of 2018 of $0.70 with 62.9 million weighted average shares
    outstanding.(1)

    Items Affecting Comparability

    In the first quarter of 2019 and 2018, 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):

                   

    Income/(Loss)
    Before Income
    Taxes
    Impact

    After-Tax Net
    Income/(Loss)
    Attributable
    to

    G&W Impact

    Diluted EPS
    Impact

    Three Months Ended March 31, 2019

    Corporate development and related costs $ (0.4 ) $ (0.3 ) $ (0.01 )
    Restructuring and related costs $ (7.6 ) $ (5.4 ) $ (0.10 )
     

    Three Months Ended March 31, 2018

    Corporate development and related costs $ (0.2 ) $ (0.1 ) $
    Restructuring and related costs $ (0.3 ) $ (0.2 ) $
    2017 Short Line Tax Credit $ $ 31.6 $ 0.50
     

    In the first quarter of 2019, G&W’s results included restructuring and
    related costs of $7.6 million, primarily driven by our optimization
    activities in the U.K., and corporate development and related costs of
    $0.4 million.

    In the first quarter of 2018, G&W’s results included a $31.6 million
    income tax benefit associated with the U.S. Short Line Tax Credit for
    fiscal year 2017 that was enacted in February 2018.

    First Quarter Results by Segment

    Operating revenues from G&W’s North American Operations increased $6.8
    million, or 2.1%, to $332.4 million in the first quarter of 2019,
    compared with $325.6 million in the first quarter of 2018. Excluding
    $5.5 million of revenues from lease expirations in Canada for the first
    quarter of 2018 and a $1.1 million decrease due to the impact of foreign
    currency depreciation, North American Operations same railroad revenues
    increased $13.3 million, or 4.2%, primarily due to increases in freight
    and freight-related revenues.

    G&W’s North American Operations were negatively impacted by extreme
    winter weather in the United States and Canada and flooding in the
    Midwestern United States. Operating income from G&W’s North American
    Operations was $69.3 million in the first quarter of 2019, compared with
    $73.2 million in the first quarter of 2018. The operating ratio for
    North American Operations was 79.1% in the first quarter of 2019,
    compared with 77.5% in the first quarter of 2018. Adjusted operating
    income from G&W’s North American Operations in the first quarter of 2019
    was $70.3 million, compared with $73.4 million in the first quarter of
    2018. The adjusted operating ratio for North American Operations was
    78.9% in the first quarter of 2019, compared with an adjusted operating
    ratio of 77.5% in the first quarter of 2018.(1)

    Operating revenues from G&W’s Australian Operations decreased $9.7
    million, or 13.0%, to $65.1 million in the first quarter of 2019,
    compared with $74.8 million in the first quarter of 2018. Excluding a
    $7.0 million decrease due to the impact of foreign currency
    depreciation, Australian Operations revenues decreased $2.7 million, or
    4.0%, primarily due to decreases in drought impacted agricultural
    products freight revenues and freight-related revenues.(2)

    G&W’s Australian Operations had operating income of $12.5 million in the
    first quarter of 2019, compared with $16.0 million in the first quarter
    of 2018. The operating ratio for Australian Operations was 80.8% in the
    first quarter of 2019, compared with 78.7% in the first quarter of 2018.
    Adjusted operating income from G&W’s Australian Operations was $14.1
    million in the first quarter of 2019, compared with $16.0 million in the
    first quarter of 2018. The adjusted operating ratio for Australian
    Operations was 78.4% in the first quarter of 2019, compared with 78.6%
    in the first quarter of 2018. Operating income from G&W’s Australian
    Operations was negatively impacted by $1.5 million from foreign currency
    depreciation and $1.5 million from drought conditions in South Australia
    and New South Wales, which were partially offset by a decrease in
    expenses.(1)

    Operating revenues from G&W’s U.K./European Operations decreased $13.7
    million, or 7.8%, to $160.5 million in the first quarter of 2019,
    compared with $174.2 million in the first quarter of 2018. Excluding
    $14.7 million of revenues from G&W’s divested ERS operations for the
    first quarter of 2018 and an $11.0 million decrease due to the impact of
    foreign currency depreciation, U.K./European Operations same railroad
    revenues increased $12.1 million, or 8.1%, primarily due to increases in
    U.K. intermodal freight-related and freight revenues.(2)

    G&W’s U.K./European Operations had an operating loss of $2.1 million in
    the first quarter of 2019, compared with and operating loss of $2.2
    million in the first quarter of 2018, which included operating income of
    $0.5 million from ERS. The operating ratio for G&W’s U.K./European
    Operations of 101.3% in the first quarter of 2019 remained unchanged
    compared with the first quarter of 2018. Adjusted operating income from
    G&W’s U.K./European Operations was $3.4 million in the first quarter of
    2019, compared with an adjusted operating loss of $2.0 million in the
    first quarter of 2018, which included operating income of $0.5 million
    from ERS. The adjusted operating ratio for U.K./European Operations was
    97.9% in the first quarter of 2019, compared with 101.2% in the first
    quarter of 2018.(1)

    Adjusted Free Cash Flow Measures (1)

    Adjusted free cash flow measures for the three months ended March 31,
    2019 and 2018 were as follows (in millions):

         
    Three Months Ended
    March 31,
    2019     2018
    Net cash provided by operating activities $ 103.4 $ 101.4
    Allocation of adjusted cash flow to noncontrolling interest(a) (7.1 ) (9.0 )
    Adjusted net cash provided by operating activities attributable to
    G&W
    $ 96.3 $ 92.4
    Core capital expenditures(b) (59.5 ) (41.4 )
    Adjusted free cash flow attributable to G&W before new business
    investments and grant funded projects
    $ 36.8 $ 51.0
    New business investments (1.6 ) (7.5 )
    Grant funded projects, net of proceeds received from outside parties(c) 2.4   (0.4 )
    Adjusted free cash flow attributable to G&W $ 37.6   $ 43.1  
     
    (a)   Allocation of adjusted cash flow to noncontrolling interest
    (Macquarie Infrastructure and Real Assets’ (MIRA’s) 48.9% equity
    ownership of G&W Australia Holdings LP (GWA) since December 1, 2016)
    is calculated as 48.9% of the total of (i) cash flow provided by
    operating activities of G&W’s Australian Operations, less (ii) net
    purchases of property and equipment of G&W’s Australian Operations.
    The timing and amount of actual distributions, if any, from GWA to
    G&W and MIRA made in any given period will vary and could differ
    materially from the amounts presented. No such distributions were
    made for the three months ended March 31, 2019 and 2018. G&W
    expressly disclaims any direct correlation between the allocation of
    adjusted cash flow to noncontrolling interest and actual
    distributions made in any given period.
    (b) Core capital expenditures represent purchases of property and
    equipment as presented on the Statement of Cash Flows less grant
    proceeds from outside parties, insurance proceeds for the
    replacement of assets and proceeds from disposition of property and
    equipment, each of which as presented on the Statement of Cash
    Flows, less new business investments and grant funded projects.
    (c) Grant funded projects represent purchases of property and equipment
    for projects partially or entirely funded by outside parties, net of
    grant proceeds from outside parties as presented on the Statement of
    Cash Flows.
     

    Share Repurchase Program

    During the first quarter of 2019, G&W repurchased 64,860 shares of Class
    A Common Stock for $4.8 million, which resulted in a reduction of 59,095
    shares in our weighted average diluted shares outstanding for the first
    quarter of 2019. During the first quarter of 2018, G&W repurchased
    792,921 shares of Class A Common Stock for $57.4 million, which resulted
    in a reduction of 51,106 shares in our weighted average diluted shares
    outstanding for the first quarter of 2018.

    Conference Call and Webcast Details

    As previously announced, G&W’s conference call to discuss financial
    results for the first quarter of 2019 will be held on Tuesday, April 30,
    2019, at 11 a.m. EDT. The dial-in number for the teleconference in the
    U.S. is (800) 230-1085; outside the U.S., the dial-in number is (612)
    288-0329, or the call may be accessed live over the Internet (listen
    only) at www.gwrr.com/investors.
    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. EDT on April 30, 2019, by
    dialing (800) 475-6701 (or outside the U.S., dialing 320-365-3844). The
    access code is 458667.

    About G&W

    G&W owns or leases 120 freight railroads organized in eight locally
    managed operating regions with 8,000 employees serving 3,000 customers.

    • G&W’s six North American regions serve 41 U.S. states and four
      Canadian provinces and include 114 short line and regional freight
      railroads with more than 13,000 track-miles.
    • G&W’s Australia Region serves New South Wales, the Northern Territory
      and South Australia and operates the 1,400-mile Tarcoola-to-Darwin
      rail line. The Australia Region is 51.1% owned by G&W and 48.9% owned
      by a consortium of funds and clients managed by Macquarie
      Infrastructure and Real Assets.
    • G&W’s U.K./Europe Region includes the U.K.’s largest rail maritime
      intermodal operator and second-largest freight rail provider, as well
      as regional services in Continental Europe.

    G&W subsidiaries and joint ventures also provide rail service at more
    than 40 major ports, rail-ferry service between the U.S. Southeast and
    Mexico, transload services, contract coal loading, and industrial
    railcar switching and repair.

    From time to time, we may use our website as a channel of distribution
    of material company information. Financial and other material
    information regarding G&W is routinely posted on and accessible at www.gwrr.com/investors.
    In addition, you may automatically receive email alerts and other
    information about us by enrolling your email address in the “Email
    Alerts” section of www.gwrr.com/investors.
    The information contained on or connected to our Internet website is not
    deemed to be incorporated by reference in this press release or filed
    with the United States Securities and Exchange Commission.

    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 and port congestion or other
    substantial disruption of operations; customer demand and changes in our
    operations or loss of important customers; 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 or our customers 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 and outcome of various
    legal claims, lawsuits and arbitrations; 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; uncertainties arising from a referendum in which voters in
    the United Kingdom (U.K.) approved an exit from the European Union
    (E.U.), commonly referred to as Brexit; our ability to integrate
    acquired businesses successfully or to realize the expected synergies
    associated with acquisitions; risks associated with our substantial
    indebtedness; failure to maintain satisfactory working relationships
    with partners in Australia; failure to maintain an effective system of
    internal control over financial reporting as well as disclosure controls
    and procedures and other risks including, but not limited to, those
    noted in our 2018 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.

    1.   Adjusted operating income, adjusted operating ratio, adjusted net
    income attributable to G&W, adjusted diluted earnings per common
    share (EPS), and the adjusted free cash flow measures of adjusted
    net cash provided by operating activities attributable to G&W,
    adjusted free cash flow attributable to G&W and adjusted free cash
    flow attributable to G&W before new business investments and grant
    funded projects are non-GAAP financial measures and are not intended
    to replace financial measures calculated in accordance with GAAP.
    The information required by Item 10(e) of Regulation S-K under the
    Securities Act of 1933 and the Securities Exchange Act of 1934 and
    Regulation G under the Securities Exchange Act of 1934, including a
    reconciliation to their most directly comparable financial measures
    calculated in accordance with GAAP, is included in the tables
    attached to this press release.
     
    2. Foreign exchange impact is calculated by comparing the prior period
    results translated from local currency to U.S. dollars using current
    period exchange rates to the prior period results in U.S. dollars as
    reported.
     
     
    GENESEE & WYOMING INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF OPERATIONS
    FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
    (in thousands, except per share amounts)
    (unaudited)
             
    Three Months Ended
    March 31,
    2019 2018
    OPERATING REVENUES $ 558,089 $ 574,661
    OPERATING EXPENSES 478,379   487,748  
    OPERATING INCOME 79,710 86,913
    INTEREST INCOME 547 498
    INTEREST EXPENSE (27,610 ) (25,236 )
    OTHER INCOME/(LOSS), NET 419   (2,040 )
    INCOME BEFORE INCOME TAXES 53,066 60,135
    (PROVISION FOR)/BENEFIT FROM INCOME TAXES (14,260 ) 15,890  
    NET INCOME $ 38,806 $ 76,025
    LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST 100   927  
    NET INCOME ATTRIBUTABLE TO GENESEE & WYOMING INC. $ 38,706   $ 75,098  
    BASIC EARNINGS PER COMMON SHARE ATTRIBUTABLE TO GENESEE & WYOMING
    INC. COMMON STOCKHOLDERS:
    $ 0.69   $ 1.21  
    WEIGHTED AVERAGE SHARES – BASIC 56,368   61,918  
    DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO GENESEE & WYOMING
    INC. COMMON STOCKHOLDERS:
    $ 0.68   $ 1.19  
    WEIGHTED AVERAGE SHARES – DILUTED 57,132   62,887  
     
     
    GENESEE & WYOMING INC. AND SUBSIDIARIES
    CONSOLIDATED BALANCE SHEETS
    AS OF MARCH 31, 2019 AND DECEMBER 31, 2018
    (in thousands)
    (unaudited)
             
    March 31, December 31,
    2019 2018
    ASSETS
    CURRENT ASSETS:
    Cash and cash equivalents $ 70,108 $ 90,387
    Accounts receivable, net 439,527 426,305
    Materials and supplies 59,368 56,716
    Prepaid expenses and other 66,125   54,185
    Total current assets 635,128   627,593
    PROPERTY AND EQUIPMENT, net 4,643,936 4,613,014
    GOODWILL 1,120,212 1,115,849
    INTANGIBLE ASSETS, net 1,429,602 1,430,197
    DEFERRED INCOME TAX ASSETS, net 5,261 4,616
    OTHER ASSETS, net(a) 547,669   77,192
    Total assets $ 8,381,808   $ 7,868,461
    LIABILITIES AND EQUITY
    CURRENT LIABILITIES:
    Current portion of long-term debt $ 26,522 $ 28,303
    Accounts payable 282,917 288,070
    Accrued expenses(a) 232,731   165,280
    Total current liabilities 542,170   481,653
    LONG-TERM DEBT, less current portion 2,391,695 2,425,235
    DEFERRED INCOME TAX LIABILITIES, net 886,183 877,721
    DEFERRED ITEMS – grants from outside parties 328,347 326,520
    OTHER LONG-TERM LIABILITIES(a) 576,133 127,280
    TOTAL EQUITY 3,657,280   3,630,052
    Total liabilities and equity $ 8,381,808   $ 7,868,461
    (a)   On January 1, 2019, G&W adopted Accounting Standards Update (ASU)
    2016-02, Leases. The new standard requires lessees to recognize
    operating leases on their balance sheet as a right-of-use asset with
    a corresponding lease liability. This resulted in approximately $495
    million of assets and a corresponding amount of liabilities being
    recognized on G&W’s balance sheet as of March 31, 2019. Capital
    leases will continue to be recognized on the balance sheet but are
    now referred to as “finance” leases, as required by the new standard.
     

    Contacts

    Michael Williams of G&W Corporate Communications
    1-203-202-8900
    [email protected]

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