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.
How much will BREXIT affect GWI’s Freightliner unit in the UK?
Because they can’t get the growth rates short term investors want when the online operations aren’t growing fast enough. G&W typically makes their acquisitions look like growth as they buy their way into new business and maximize operations and bring on a few new customers via development.
But when its gets expensive and dirty, investors take flight. Management wants growth because investors want growth. They will tolerate revenue reductions due to weather or other external events, but if the CEO told investors he was cutting dividends to help pay for capital expenses (like new rail), he would be out of a job in a month.
So to finance more acquisitions, G&W needs a partner to provide the capital.
With the way CSX was pricing their line sales last year, hardly anyone could afford it.
CSX policy seems to be either we make a lot of money selling it, or we make a lot of money by eliminating anyone else having it. (unless it becomes a bike trail)