Genesee & Wyoming Missed the Mark on Commodities
Genesee & Wyoming's 4Q15 Earnings: On Track or Derailed?
Genesee & Wyoming’s 4Q15 revenues
The health of railroads largely depends on better shipments and commodity prices. It seems Genesee & Wyoming (GWR) missed the mark and thus the revenues. Levels of commodity production coupled with end users’ demand augment shipments. Genesee & Wyoming’s 4Q15 revenues were $514.8 million, whereas analysts estimated revenues of $517.3 million.
Investors should note that excluding the impact of the Freightliner acquisition, GWR’s 4Q15 revenues were down by 11%. It’s important to note that GWR’s management issued a revenue guidance of $515–$530 million in October 2015. Looking at the above numbers, it was just able to meet its own guidance.
Why shipments were down
The extreme fall in the price of commodities such as iron ore, copper, manganese, and crude oil resulted in reduced shipments. The rapid shift of power generation plants from coal to natural gas and other renewable energy alternatives in the United States and the United Kingdom took a toll on GWR’s coal shipments. Strength of the US dollar negatively impacted GWR-served steel producers and agricultural customers’ competitiveness in the global markets. It resulted in more low shipments.
Management outlook
Genesee & Wyoming expects $2.0 billion in revenues for the next four quarters, almost flat with 2015 levels. In the first quarter of 2016, the company expects revenues of $475 million. It has clearly stated that it doesn’t expect the commodity headwinds to change in 2016.
Genesee & Wyoming’s 4Q15 revenues declined 11%. In the peer group, Kansas City Southern’s (KSU) 4Q15 revenues declined 7%. The Eastern operator CSX (CSX) also reported a decline of 13% in 4Q15 revenues from its 2014 levels. Revenues for CSX’s competitor Norfolk Southern (NSC) declined 12% for the same period.
These companies, excluding GWR, form part of the portfolio holding of the Industrial Select Sector SPDR ETF (XLI). XLI holds 7.3% in railroads.
Segmental reorganization
With the Freightliner acquisition in early 2015, GWR reorganized its reportable segments. It started reporting results of operations in three segments instead of two. Following are the segments and their 4Q15 revenue contributions:
North American operations: 58%
Australian operations: 11%
UK and European operations: 31%
In the next part, we’ll discuss the segmental performance and management’s outlook for each segment.
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