North American same railroad operating income declined 4%, to $69.3 million. Operating expenses rose 17%, more than offsetting a 13% rise in revenue at the company’s North American railroads. North American operations account for 80% of G&W’s operating income.
Overall, G&W reported a 2.9% decline in revenue from its North American, Australian, and European business segments. Overall operating income, adjusted for the impact of one-time items, increased 0.5%. Adjusted earnings per share increased 11%, to 78 cents.
The impact of weather was a 10% hit on earnings per share, G&W said, as North American carloads fell 1.2% in the quarter.
CEO Jack Hellmann said he expects more than half of the quarter’s lost volume, such as coal bound for G&W-served power plants in the Midwest, to be recovered in the coming months as operations return to normal on Class I connections.
Despite the first quarter setback, G&W maintained its full-year guidance, and Hellmann says the broader North American economy looks strong. The company also has unusually strong and broad-based industrial development opportunities across its short lines, he says.
On the earnings call with analysts and investors, G&W executives declined to comment on a Bloomberg news report from March that claimed the short line operator was seeking an investment partner or considering the outright sale of the company.
The Class I shift toward operating plans based on Precision Scheduled Railroading will ultimately help G&W short lines increase merchandise volumes, says Michael Miller, president of G&W’s North American operations.
More consistent interchange allows G&W to better plan its operations, he says, and more reliable service should capture additional carload volume.
Miller says G&W short lines have seen service improvements from CSX Transportation, which is two years into its transition to the operating model favored by the late chief executive E. Hunter Harrison.
G&W executives say they do not expect PSR changes at Union Pacific or Norfolk Southern to increase the potential for Class I route spinoffs.
