How Genesee & Wyoming Beat Its 2Q17 Earnings Guidance

1 2 3 4 5 6
Part 5
How Genesee & Wyoming Beat Its 2Q17 Earnings Guidance PART 5 OF 6

Inside Genesee & Wyoming’s 2Q17 Operating Margins

2Q17 operating margins

Let’s take a look now at Genesee & Wyoming’s (GWR) overall and segmental operating margins. In 2Q17, its operating margins expanded by 140 basis points, or 1.4%, to 18.8%. The margin was 17.4% in the same quarter last year.

The company’s operating income rose 16.2%, or by $14.4 million to $101.3 million in 2Q17, from $87.2 million in 2Q16.

Inside Genesee &amp; Wyoming’s 2Q17 Operating Margins

Interested in GWR? Don't miss the next report.

Receive e-mail alerts for new research on GWR

Success! You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

Segmental operating margins in 2Q17

In 2Q17, GWR’s North American operations saw a ~1.0% contraction in adjusted operating margins to 25.7%. The segment’s adjusted operating income almost remained unchanged in the same quarter year-over-year. It seems that the core pricing rise of 3.0% was negatively impacted by costs associated with the integration of an unfavorable business mix.

Adjusted operating margins in GWR’s European operations rose 2.0% to 4.0% in the reported quarter. Segmental adjusted operating income rose $3.0 million in the same quarter due to the inclusion of two months of operations at Pentalver. If we exclude the impact of currency translations, the UK-European same railroad adjusted operating income rose $1.0 million.

In GWR’s Australian operations, operating margins rose 7.8% in 2Q17. The company recorded 26.4% operating margins compared to 18.6% in the same quarter in 2016. Adjusted operating income for its Australian operations rose $10.0 million due to the GRail acquisition and stronger metallic ores and agricultural products.

Management outlook in 2017

Genesee & Wyoming anticipates 50.0% margins on incremental revenues in North America and Australia. It expects North American operating income of $88.0 million. It expects $24.0 million and $11.0 million, respectively, for its Australian and European operations. In 2017, GWR aims to achieve an operating margin of 25.0%, 27.0%, and 4.0% for its North American, Australian, and European operations, respectively.

Peer group operating margins

Since GWR is a non-Class I railroad with open-access operations across Europe and Australia, it has lower operating margins. The Canadian-born railroads normally have higher margins than their US peers. Let’s take a look at the operating margins for GWR’s peers in 2Q17 compared to 2Q16:

  • Canadian National Railway (CNI): 44.9% versus 45.5%
  • Canadian Pacific Railway (CP): 41.9% versus 41.0%
  • Union Pacific (UNP): 38.2% versus 36.5%
  • Kansas City Southern (KSU): 36.5% versus 35.1%
  • Norfolk Southern (NSC): 33.7% versus 31.4%
  • CSX (CSX): 32.7% versus 29.6%

Investors interested in transportation sector stocks may want to opt for the iShares US Industrials (IYJ), which holds 5.9% in major US railroads.

In the next and final part of this series, we’ll take a look at analysts’ opinions on GWR and its peers.


Please select a profession that best describes you: