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Behind Genesee & Wyoming’s Rising European Revenues in 3Q17

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Genesee & Wyoming’s European revenues

Genesee & Wyoming’s (GWR) European revenues reached $176.7 million in 3Q17, which was 29.3% higher than the $136.7 million it reported for 3Q16.

The company’s guidance had been $175.0 million–$180.0 million, and so GWR’s actual revenues in its European operations were in line.

GWR’s reported rise in its 3Q17 revenues was favorably compensated by the newly acquired Pentalver’s revenues of $39.2 million and a rise of $3.4 million in UK intermodal. This revenue growth was negatively offset by an $8.0-million revenue loss due to ERS restructuring and a $1.7-million revenue loss in the UK due to changes in business mix.

European carloads in 3Q17

Genesee & Wyoming’s European carloads fell ~4% from nearly 283,000 in 3Q16 to ~294,000 in 3Q17. Coal (UNG) and coke accounted for the highest (59%) fall in European carloads, followed by intermodal traffic. The decline in carloads was compensated by agricultural products and minerals and stone.

Management insights

Genesee & Wyoming expects to see $175.0 million–$180.0 million in revenues from its European operations in 4Q17. On an annual basis in 2017, the company foresees $620.0 million–$630.0 million. On the volumes front, GWR estimates 270,000–280,000 carloads in its European operations in 4Q17, while same railroad operations are likely to lose ~4% in volumes on a YoY (year-over-year) basis.

In 2017, GWR expects its UK and European carloads to shrink 1%. The company’s estimates are based on lower Continental Europe intermodal volumes due to ERS Railways’ restructuring. GWR also predicts lower volumes of UK coal traffic in 4Q17. This should get compensated from the estimated higher volumes of minerals and stone and UK intermodal shipments.

Given its 3Q17 earnings, one thing is clear about the intermodal business of class-I railroads (KSU) (CSX): they are all facing stiff competition from trucking (JBHT) in the medium-margin intermodal business.

In the next part, we’ll take a look at GWR’s Australian segment operations in 3Q17.

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