Weak coal market, mine closures impact Genesee & Wyoming 2Q earnings

Genesee & Wyoming Inc.'s second-quarter 2015 earnings report contained mixed results: Operating revenue soared 30.8 percent to $542.2 million from $414.6 million in second-quarter 2014, but same railroad operating revenue fell 10.2 percent primarily due to weak coal, iron ore and steel shipments, the company reported yesterday.

Also, adjusted income from operations decreased 9.6 percent to $99.8 million, and adjusted diluted earnings per share dropped 17 percent to 93 cents.

The company posted $52.8 million in net income for the quarter, compared with $60.7 million in the same period a year ago. Adjusted net income was $53 million, compared with $63.7 million in second-quarter 2014.

“Our financial results for the second quarter of 2015 were consistent with our updated guidance. However, our results were disappointing with second quarter adjusted diluted earnings per share declining 17 percent versus last year,” said President and Chief Executive Officer Jack Hellmann in a press release.

North American operating income was down 10 percent primarily due to significant weakness in utility coal and steel and scrap shipments in the United States, which more than overcame the benefits of the Pinsly Arkansas acquisition and Rapid City, Pierre & Eastern startup, he said.

"In North America, our same railroad revenue excluding the impact of foreign currency declined 8.2 percent, with the two largest areas of weakness being a 31 percent decline in coal revenue, primarily due to competition from low priced natural gas, and a 22 percent decline in steel and scrap revenue, primarily due to competition from imported steel," said Hellmann. "In response to the revenue shortfall, we aggressively reduced expenses, maintaining a North American operating ratio of 75.4 percent."

In Australia, operating income plunged 40 percent, primarily due to customers closing several iron ore mines. Partially offsetting these declines was a "positive earnings contribution" from the company’s newly acquired Freightliner Group, which was included in G&W’s financial results for the first full period in the second quarter, Hellmann said.

In the year's second half, G&W expects financial results to improve based on “modest improvements” in North American carloads, seasonal improvements in the U.K./Europe business including intermodal shipments, and a sharp focus on additional cost reductions, Hellmann said.

"Meanwhile, we continue to generate strong free cash flow and to evaluate a range of acquisition and investment opportunities worldwide," he said.