Strong Volumes Drive Genesee and Wyoming’s North American Revenue



Genesee and Wyoming’s North American revenue

Genesee and Wyoming’s (GWR) nine North American regions serve 41 US states and four Canadian provinces. The company has 113 short line and regional freight railroads with 13,000+ track miles. The company’s North American operations fetched revenue of $322.2 million in 4Q16 against $298.6 million in 4Q15. Thus, the company reported a 7.9% rise in 4Q16 revenue.

The company closed the acquisition of Providence & Worcester in North America on November 1, 2016. Thus, the North American operations’ revenue includes two months of P&W revenue in 4Q16. However, excluding the P&W acquisition impact, the North American railroad revenue rose 6.2%, or $18.4 million, in 4Q16.

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4Q16 North American carloads

In the last quarter of 2016, North American carloads were up 3.8% compared with 4Q15. But, the same railroad volumes rose 2% in 4Q16. Much of the increase came from agricultural products’ carloads, up by 7.5%. Even the coal carloads were up 19% owing to increased steam coal shipments in GWR’s Midwest and Central regions. The metal carloads were up 14% due to higher scrap steel in the company’s Southern region.

Management outlook

GWR expects a slightly higher core pricing gain in 1Q17 against a 2% core pricing increase in 4Q16. However, the company is cautious about volume growth in North American operations in 1Q17.

The Providence & Worcester acquisition is expected to be complete on April 1, 2017, and contribute $30.0 million to North American revenue in 2017. However, the North American coal (ARLP) revenue is anticipated to fall by $5.0 million. The shrinkage of coal traffic in the Utah region is expected to impact the coal revenue in coming quarters.

Coal (BTU) had been a matter of concern for railroads (UNP) in 2016. However, with the recent rise in coal prices, the coal hauling prospects of railroads including GWR has gone up.

Investors interested in exposure to transportation companies can consider the SPDR S&P Transportation ETF (XTN). This ETF holds 14.8% in GWR’s peer group including Genesee & Wyoming.

Next, we’ll look at the performance of GWR’s UK and European operations in 4Q16.


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