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The Weather Hit Genesee & Wyoming Inc's Volumes in the Third Quarter

Genesee & Wyoming (NYSE: GWR) faced several weather-related headwinds during the third quarter. The company temporarily shut down several short lines as a precaution because of two hurricanes while grain shipments from the Midwest came in below expectations due to drought conditions. Those factors caused its financial results to come in a bit less than anticipated. 

Genesee & Wyoming results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$576.9 million

$501.0 million

15.2%

Adjusted net income

$50.6 million

$47.9 million

5.6%

Adjusted EPS

$0.81

$0.82

-1.2%

Data source: Genesee & Wyoming.

Image source: Getty Images.

What happened with Genesee & Wyoming this quarter? 

Recent acquisitions continue to drive revenue growth:

  • Revenue in North America rose 2.8% versus the year-ago period to $318.9 million due primarily to the recent additions of the Heart of Georgia Railroad and Providence & Worcester. That said, adjusted operating income slipped 5.9% to $83 million due to a 1.9% decline in same railroad shipments stemming from the impact that a drought in the Midwest had on agricultural product shipments and the effect of shutting down several lines due to hurricanes.
  • The company's Australia segment delivered a 50.1% increase in revenue to $176.7 million, primarily due to the impact of its Glencore Rail joint venture. That transaction helped boost adjusted operating income from $7.4 billion to $21.8 million.
  • The U.K./Europe segment benefited from improving business conditions and the recently completed acquisition of Pentalver Transport Limited. Those factors helped drive revenue up 29.3% to $176.7 million. Meanwhile, adjusted operating profit improved from $0.7 million in the year-ago quarter to $11 million due to those factors as well as the impact of the company's turnaround efforts.
  • While revenue and adjusted net income rose versus the year-ago period, earnings declined on a per-share basis. That's because Genesee & Wyoming's outstanding share count has risen from 58.2 million to 62.5 million after the company issued $300 million in stock last December to help fund the Pentalver Transport deal and pay down debt.
  • The company generated $42.8 million in free cash flow during the quarter and now has more than $80 million in cash, up from $32 million at the beginning of the year.

What management had to say 

CEO Jack Hellmann commented on the company's third-quarter results, noting that:

In the third quarter of 2017, we reported financial results that were modestly weaker than expected, with reported diluted EPS of $0.80 and adjusted diluted EPS of $0.81. In North America, our same railroad shipments declined 1.9% in the third quarter, primarily due to lower agricultural products carloads caused by drought in the Midwest. Overall, we were pleased with the performance of our North American operating team in the third quarter as we successfully navigated through two hurricanes and related precautionary shutdowns of several short lines.

Genesee & Wyoming's results came in a bit less than expected during the quarter due to weather-related headwinds in North America. That said, the company was able to partially overcome that weakness due to the strength of its international operations. Hellmann noted that the turn-around in its U.K./Europe business was "right on target" and that "business conditions have continued to improve." Meanwhile, the company was able to overcome mining strikes in Australia and post excellent results thanks to the structure of its contracts as well as taking advantage of openings to move more volumes for new customers.

Looking forward 

Hellmann stated that "our outlook for G&W remains positive." He pointed out that in North America, "broader economic activity is solid" and that the company "expects to benefit from a tightening trucking market." Meanwhile, it's pursuing several new projects in Australia now that commodity prices have improved. Finally, he noted that the company continues to generate strong free cash flow, giving it the ability to "evaluate a range of acquisition and investment opportunities across our global footprint of railroads."

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Genesee & Wyoming. The Motley Fool has a disclosure policy.