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Why Genesee and Wyoming’s Australian Revenue Rose in 4Q16

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Genesee and Wyoming’s Australian revenue

Genesee and Wyoming’s (GWR) Australia operations cover 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. In GWR’s Australian operations, the 4Q16 revenue went up 11.2% to $61.3 million from $55.2 million in 4Q15.

In 4Q16, GWR’s Australian freight revenue rose 11.2% to $40.2 million from $28.2 million in 4Q15. However, the Australian freight-related revenue fell 22.6% to $19.6 million from $25.3 million in the fourth quarter of 2015. Notably, the share of freight revenue in GWR’s Australian operations went up from 65.6% in 4Q16 from 51.2% in the last quarter of 2015.

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Australian carloads in 4Q16

Australian carloads rose 78.2% inorganically in 4Q16. Though the volumes of metallic ores rose sharply by 39.8%, the petroleum products’ carloads fell 16.9% in the same quarter. Importantly, the same railroad carloads were up 2% in the last quarter of 2016. The GRail and other acquisitions added nearly 35% to GWR’s Australian carloads in 4Q16.

Management guidance

GWR expects Australian revenue to grow 30% in 2017, mainly on account of the GRail acquisition. The company anticipates flat growth for Australian revenue operations. The strong Australian dollar coupled with higher carloads of intermodal and agricultural products are expected to boost these revenues in 2017. However, the declining mining revenue is forecasted to negatively impact the Australian revenue in the current fiscal year.

2017 holds some promise for GWR since there has been positive momentum in energy-related commodities. This will most likely benefit the railroad giants like Union Pacific (UNP), CSX (CSX), and BNSF Railway (BRK-B) since they have a higher exposure to energy commodities in terms of carloads.

ETF investment   

GWR forms part of the First Trust Mid Cap Core AlphaDEX Fund (FXR), which invests 1.5% of its holdings in GWR stock. GWR is not a US Class I railroad. But if you want to invest in class I railroads, then consider the iShares Transportation Average ETF (IYT), which holds 23.7% in Class I railroads.

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