Genesee & Wyoming's Q4 net income up 67% year-over-year to US$33.3M on revenues of US$210.4M, up 24%; results below expectations due in part to extended outage of transmission line to major power plant, lag in diesel fuel cost recovery, CEO says

GREENWICH, Connecticut , February 8, 2012 (press release) – Genesee & Wyoming Inc. (GWI) (NYSE: GWR - News) reported net income in the fourth quarter of 2011 of $33.3 million, compared with net income of $19.9 million in the fourth quarter of 2010. GWI's diluted earnings per share (EPS) in the fourth quarter of 2011 were $0.77 with 42.9 million weighted average shares outstanding, compared with diluted EPS of $0.47 with 42.3 million weighted average shares outstanding in the fourth quarter of 2010.

In the fourth quarter of 2011 and 2010, GWI’s results included certain significant items that are set forth in the table below ($ in millions, except per share amounts).

GWI’s income from operations (operating income) in the fourth quarter of 2011 and for the twelve months ended December 31, 2011 was $45.4 million and $191.8 million respectively, with an operating ratio of 78.4% and 76.9% respectively.

Comments from the Chief Executive Officer

Jack Hellmann, President and CEO of GWI commented, "Our fourth quarter revenues increased 24% to $210 million and our adjusted operating income increased 22% to $45 million, with an adjusted operating ratio of 78.6% (1). Our diluted earnings per share of $0.77 were a Company-record for the fourth quarter. Nevertheless, our operating results in both North America and Australia were lower than our expectations. In North America, our results were affected by the extended outage of a transmission line to a major power plant, a lag in diesel fuel cost recovery and higher transportation expense. In Australia, our fourth quarter results were affected by the derailment resulting from the washout of a main line bridge over the Edith River by Cyclone Grant on December 27th, as well as higher operating expense in the Adelaide to Darwin corridor."

"Our 2011 results were good. First, we completed the year with a reportable injury index of 0.53 per 200,000 man hours, which made our consolidated results the safest in the railroad industry for the third consecutive year. Second, our revenue increased 32% to $829 million, our adjusted operating income increased 35% to $191 million and our adjusted operating ratio was 77.0%, all Company records (1). Finally, our reported earnings per share increased more than 40%."

"Looking ahead, we anticipate that our business will build over the course of 2012. During the first quarter of 2012, we expect our Australian operations to continue to be negatively impacted by the Edith River bridge closure until its scheduled reopening in mid-February and our North American operations to be adversely affected by lower steam coal shipments in the U.S. due to warm winter weather. Offsetting these items, we expect favorable 2012 contributions from the newly acquired Arizona Eastern Railway, the final delivery of new high horsepower locomotives for our Australian intermodal service in the second quarter, as well as the start-up of a new Australian iron ore contract in the fourth quarter of 2012. We believe that this ramp-up in our core business combined with several potential new investments in the natural resources sector in North America and Australia positions us well for the second half of 2012 and beyond.”

Results from Continuing Operations

In the fourth quarter of 2011, GWI's total operating revenues increased $40.7 million, or 24.0%, to $210.4 million, compared with $169.7 million in the fourth quarter of 2010. The increase included $27.5 million in revenues from acquisitions and a $13.2 million, or 7.8%, increase in same railroad operating revenues. During the fourth quarter of 2011, the net appreciation of foreign currencies increased same railroad operating revenues by $0.8 million. Other than the $0.8 million net impact from foreign currency, GWI’s same railroad operating revenues increased $12.5 million, or 7.3%.

Same railroad freight revenues in the fourth quarter of 2011 increased by $11.1 million, or 10.4%, to $117.8 million, compared with $106.7 million in the fourth quarter of 2010. Other than a $0.4 million increase from the net impact of foreign currency appreciation, GWI’s same railroad freight revenues increased by $10.7 million, or 10.0%.

GWI's traffic in the fourth quarter of 2011 was 246,794 carloads, an increase of 21,824 carloads, or 9.7%, compared with the fourth quarter of 2010. The increase in carloads included 19,030 carloads from acquisitions and an increase of 2,794 carloads, or 1.2%, from same railroad traffic in the fourth quarter of 2011. The same railroad traffic increase was principally due to increases of 6,257 carloads of metals traffic, 3,112 carloads of minerals and stone traffic, 2,149 carloads of farm and food products traffic, partially offset by a decline of 5,626 carloads of coal and coke traffic and 2,497 carloads of other commodity traffic. All remaining traffic decreased by a net 601 carloads.

Average same railroad freight revenues per carload increased 9.1% in the fourth quarter of 2011. The net appreciation of the Australian and Canadian dollars versus the U.S. dollar, higher fuel surcharges and changes in commodity mix increased average revenues per carload by 0.5%, 2.3% and 0.6%, respectively. Other than these factors, same railroad average freight revenues per carload increased 5.7%. Average freight revenues per carload were impacted by changes in the mix of customers within certain commodity groups, primarily coal and metals.

GWI’s same railroad non-freight revenues in the fourth quarter of 2011 increased by $2.1 million, or 3.3%, to $65.1 million compared with $63.0 million in the fourth quarter of 2010. Other than a $0.3 million increase from the net impact from foreign currency, GWI’s same railroad non-freight revenues increased by $1.8 million, or 2.8%, primarily due to higher railcar switching revenues in the U.S. and Canada.

GWI's operating income in the fourth quarter of 2011 was $45.4 million, an increase of $21.5 million, compared with $23.9 million in the fourth quarter of 2010. The operating ratio was 78.4% in the fourth quarter of 2011 compared with an operating ratio of 85.9% in the fourth quarter of 2010. In the fourth quarter of 2011, operating income benefited $3.0 million from net gain/(loss) on the sale and impairment of assets, partially offset by Edith River derailment costs of $1.8 million and business/corporate development costs of $0.8 million. In the fourth quarter of 2010, operating income was reduced $24.0 million as a result of FreightLink acquisition-related expenses, partially offset by an $8.7 million gain from a legal settlement associated with a past acquisition and $2.2 million in gains on the sale of assets. Excluding these items, GWI's adjusted operating ratio was 78.6% in the fourth quarter of 2011, compared with an adjusted operating ratio of 78.2% in the fourth quarter of 2010. (1)

GWI’s effective tax rate was 16.0% in the fourth quarter of 2011, which included acquisition-related tax benefits of approximately $1.9 million. The fourth quarter 2011 tax rate also reflects the benefit of a valuation allowance reduction of $0.9 million and a benefit of $1.2 million related to the cumulative effect of adjusting the first nine months of 2011 to the full year 2011 effective tax rate. GWI’s effective tax rate in the fourth quarter of 2010 was a negative 22.4%, driven primarily by the retroactive impact of the Short Line Tax Credit for the first nine months of 2010 of $7.8 million. The Short Line Tax Credit was extended during the fourth quarter of 2010 for the period from January 1, 2010, through December 31, 2011.

Consolidated Annual Results – Continuing Operations

GWI reported net income for the twelve months ended December 31, 2011, of $119.5 million, compared with net income of $81.3 million for the twelve months ended December 31, 2010. GWI's diluted EPS for the twelve months ended December 31, 2011 were $2.79 with 42.8 million weighted average shares outstanding, compared with diluted EPS of $1.94 with 41.9 million weighted average shares outstanding for the twelve months ended December 31, 2010. For the twelve months ended December 31, 2011, GWI reported income from continuing operations of $119.5 million, a 51.9% increase over $78.7 million for the twelve months ended December 31, 2010. GWI's diluted earnings per share from continuing operations were $2.79 for the twelve months ended December 31, 2011 (with 42.8 million weighted average shares outstanding), a 48.4% increase over $1.88 for the twelve months ended December 31, 2010 (with 41.9 million weighted average shares outstanding).

GWI’s 2011 results included $5.7 million in net gain/(loss) on the sale and impairment of assets ($3.9 million after-tax, or $0.09 per diluted share), $3.5 million of business/corporate development costs ($2.3 million after-tax, or $0.05 per diluted share), $1.8 million of Edith River derailment costs ($1.3 million after-tax, or $0.03 per diluted share), $1.9 million of acquisition-related income tax benefits ($0.04 per diluted share) and a $0.9 million gain on sale of investments ($0.8 million after-tax, or $0.02 per diluted share). GWI’s 2010 results included a total of $28.2 million in FreightLink acquisition-related expenses ($19.2 million after-tax, or $0.46 per diluted share), $6.4 million in gains on the sale of assets ($4.3 million after-tax, or $0.10), a $2.3 million gain on the reversal of restructuring charges ($1.5 million after-tax, or $0.04 per diluted share) related to the Huron Central Railway, an $8.7 million gain associated with a legal settlement ($5.1 million after-tax, or $0.12 per diluted share) and $1.7 million of acquisition-related foreign currency expense ($1.1 million after-tax, or $0.03 per diluted share).

GWI’s continuing operations generated free cash flow of $39.9 million and $117.6 million for the twelve months ended December 31, 2011 and 2010, respectively. For the twelve months ended December 31, 2011, changes in working capital decreased net cash flow from operating activities by $36.8 million. Of the $36.8 million, $12.3 million was due to an increase in accounts receivable driven by an increase in business in 2011 and $25.6 million was due to a reduction in accounts payable and accrued expenses. The $25.6 million included $13.0 million associated with the payment of Australian stamp duty for the acquisition of Freightlink in Australia. For the twelve months ended December 31, 2010, changes in working capital increased net cash flow from operating activities by $18.5 million.

Net cash used in investing activities of $235.1 million for the twelve months ended December 31, 2011, included $178.7 million in purchases of property and equipment, including $78.2 million for the investment in new Australian locomotives and wagons and $89.9 million in net cash paid for acquisitions, partially offset by $22.6 million in grant proceeds received from outside parties and $9.5 million from the sale of assets. Net cash used in investing activities of $388.9 million for the twelve months ended December 31, 2010, included $320.0 million in net cash paid for acquisitions, $119.8 million in purchases of property and equipment, partially offset by $40.8 million in grant proceeds received from outside parties and $10.0 million from the sale of assets.

 
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2011 AND 2010
(in thousands, except per share amounts)
(unaudited)
                                         
          Three Months Ended       Twelve Months Ended      
          December 31,       December 31,      
          2011       2010       2011       2010      
                                         
OPERATING REVENUES         $ 210,386         $ 169,671         $ 829,096         $ 630,195        
                                         
OPERATING EXPENSES           164,998           145,752           637,317           499,785        
INCOME FROM OPERATIONS           45,388           23,919           191,779           130,410        
                                         
INTEREST INCOME           757           800           3,243           2,397        
INTEREST EXPENSE           (7,852 )         (6,900 )         (38,617 )         (23,147 )      
GAIN ON SALE OF INVESTMENT           13           -           907           -        
OTHER INCOME/(EXPENSE), NET           1,307           (1,520 )         712           (827 )      
                                         
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES           39,613           16,299           158,024           108,833        
                                         
PROVISION FOR/(BENEFIT FROM) INCOME TAXES           6,339           (3,653 )         38,531           30,164        
                                         
INCOME FROM CONTINUING OPERATIONS           33,274           19,952           119,493           78,669        
                                         
INCOME/(LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX           1           (82 )         (9 )         2,591        
                                         
NET INCOME         $ 33,275         $ 19,870         $ 119,484         $ 81,260        
                                         
BASIC EARNINGS PER SHARE:                                        
BASIC EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS         $ 0.83         $ 0.51         $ 2.99         $ 2.02        
BASIC EARNINGS PER COMMON SHARE FROM DISCONTINUED OPERATIONS           -           -           -           0.07        
BASIC EARNINGS PER COMMON SHARE         $ 0.83         $ 0.51         $ 2.99         $ 2.09        
                                         
WEIGHTED AVERAGE SHARES - BASIC           40,166           39,219           39,912           38,886        
                                         
DILUTED EARNINGS PER SHARE:                                        
DILUTED EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS         $ 0.77         $ 0.47         $ 2.79         $ 1.88        
DILUTED EARNINGS PER COMMON SHARE FROM DISCONTINUED OPERATIONS           -           -           -           0.06        
DILUTED EARNINGS PER COMMON SHARE         $ 0.77         $ 0.47         $ 2.79         $ 1.94        
                                         
WEIGHTED AVERAGE SHARES - DILUTED           42,946           42,313           42,772           41,889        
                                                         
 
About Genesee & Wyoming Inc.

GWI owns and operates short line and regional freight railroads and provides railcar switching services in the United States, Australia, Canada, the Netherlands and Belgium. In addition, we operate the Tarcoola to Darwin rail line, which links the Port of Darwin with the Australian interstate rail network in South Australia. Operations currently include 65 railroads organized in 10 regions, with more than 7,600 miles of owned and leased track and approximately 1,400 additional miles under track access arrangements. We provide rail service at 17 ports in North America and Europe and perform contract coal loading and railcar switching for industrial customers.

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