Genesee & Wyoming Reports Results for the Fourth Quarter of 2018

DARIEN, Conn.–(BUSINESS WIRE)–Genesee & Wyoming Inc. (G&W) (NYSE:GWR)

Fourth Quarter 2018 Consolidated Highlights Compared with Fourth
Quarter 2017

  • Operating revenues increased 0.7% to $575.6 million from $571.6
    million.
  • Reported operating income decreased 0.8% to $105.7 million; Adjusted
    operating income increased 5.6% to $109.9 million.(1)
  • Reported diluted earnings per share (EPS) were $0.94 with 58.9 million
    weighted average shares outstanding, compared with reported diluted
    EPS in the fourth quarter of 2017 of $6.81 with 62.7 million weighted
    average shares outstanding; Adjusted diluted EPS increased 29.9% to
    $1.00.(1)
  • G&W repurchased approximately 2.4 million shares of its Class A Common
    Stock for $189.6 million during the fourth quarter of 2018.
  • Net cash provided by operating activities for the year ended December
    31, 2018 increased 15.4% to $553.1 million; adjusted free cash flow
    attributable to G&W before new business investments and grant funded
    projects increased 20.8% to $326.0 million; adjusted free cash flow
    attributable to G&W increased 12.1% to $280.6 million.(1)
  • A number of items affect comparability between the fourth quarter of
    2018 and 2017, the most significant of which was the impact of the
    U.S. Tax Cuts and Jobs Act (TCJA) enacted in December 2017.

Fourth Quarter 2018 Segment Highlights Compared with Fourth Quarter
of 2017

  • North America: Operating revenues from G&W’s North American Operations
    increased 5.5% to $338.0 million from $320.2 million. Reported
    operating income from G&W’s North American Operations increased 16.7%
    to $87.2 million; Adjusted operating income from G&W’s North American
    Operations increased 18.1% to $89.3 million.(1)
  • Australia: Operating revenues from G&W’s Australian Operations
    decreased 5.8% to $71.1 million from $75.5 million. Reported operating
    income from G&W’s Australian Operations remained relatively flat at
    $17.7 million. Adjusted operating income from G&W’s Australian
    Operations decreased 21.2% to $17.7 million.(1)
  • U.K./Europe: Operating revenues from G&W’s U.K./European Operations
    decreased 5.3% to $166.5 million from $175.8 million. Revenues in the
    fourth quarter of 2017 included $12.2 million of revenues from G&W’s
    Continental Europe intermodal business, ERS Railways B.V. (ERS), which
    was sold in June 2018. Reported operating income from G&W’s
    U.K./European Operations, which included $0.8 million in 2017 from
    ERS, decreased to $0.8 million, compared with $14.2 million in 2017;
    Adjusted operating income from G&W’s U.K./European Operations
    decreased 51.8% to $2.8 million.(1)

Jack Hellmann, Chairman and CEO of G&W, commented, “In the fourth
quarter of 2018, our reported diluted EPS were $0.94 compared with $6.81
in the fourth quarter of 2017. Our adjusted diluted EPS increased 30% to
$1.00 in the fourth quarter of 2018, led by a 17% increase in our North
American operating income due to 5.8% growth in carloads and a 250 basis
point improvement in our operating ratio. The strong results in North
America more than offset weaker performance in our Australian and
U.K./European operations.”(1)

“For the full year, our reported diluted EPS were $4.03 in 2018 compared
with $8.79 in 2017. Our adjusted diluted EPS increased 32.3% to $3.85 in
2018 and we expect double digit adjusted diluted EPS growth in 2019.”(1)

“In addition to solid earnings growth, G&W generated record cash flow in
2018. With strong cash generation, which significantly exceeded our
reported net income, and approximately $455 million of availability
under our revolving credit facility, we continue to evaluate potential
investments in multiple geographies as well as investments in our own
shares. During the fourth quarter of 2018, we repurchased 2.4 million
shares of our common stock for approximately $190 million.”

Financial Results

G&W’s operating revenues increased $4.0 million, or 0.7%, to $575.6
million, in the fourth quarter of 2018, compared with $571.6 million in
the fourth quarter of 2017. G&W’s reported operating income in the
fourth quarter of 2018 was $105.7 million, compared with $106.5 million
in the fourth quarter of 2017. Excluding the net impact of certain items
affecting comparability between periods as discussed below, G&W’s
adjusted operating income in the fourth quarter of 2018 was $109.9
million, compared with $104.0 million in the fourth quarter of 2017.(1)

Reported net income attributable to G&W in the fourth quarter of 2018
was $55.6 million, compared with $426.6 million in the fourth quarter of
2017. Excluding the net impact of certain items affecting comparability
between periods as discussed below, adjusted net income attributable to
G&W in the fourth quarter of 2018 was $59.1 million, compared with $48.6
million in the fourth quarter of 2017.(1)

G&W’s reported diluted EPS in the fourth quarter of 2018 were $0.94 with
58.9 million weighted average shares outstanding, compared with reported
diluted EPS in the fourth quarter of 2017 of $6.81 with 62.7 million
weighted average shares outstanding. Excluding certain items affecting
comparability listed below, G&W’s adjusted diluted EPS in the fourth
quarter of 2018 were $1.00 with 58.9 million weighted average shares
outstanding, compared with adjusted diluted EPS in the fourth quarter of
2017 of $0.77 with 62.7 million weighted average shares outstanding.(1)

Items Affecting Comparability

In the fourth quarter of 2018 and 2017, G&W’s results included certain
items affecting comparability between the periods that are set forth in
the following table (in millions, except per share amounts).

           
 

Income/(Loss)
Before Income
Taxes Impact

After-Tax Net
Income/(Loss)
Attributable
to
G&W

Impact

Diluted EPS
Impact

Three Months Ended December 31, 2018

Restructuring and related costs $ (2.2 ) $ (1.7 ) $ (0.03 )
Canadian railroad lease return costs $ (2.1 ) $ (1.5 ) $ (0.02 )
Gain on sale of investment $ 1.4 $ 1.0 $ 0.02
Prior period tax adjustments $ $ (1.4 ) $ (0.02 )
 

Three Months Ended December 31, 2017

Buyout of Freightliner deferred consideration agreements $ 8.9 $ 8.9 $ 0.14
Australia impairment and related costs $ (4.9 ) $ (1.8 ) $ (0.03 )
Restructuring costs $ (1.4 ) $ (1.2 ) $ (0.02 )
Corporate development and related costs $ (1.1 ) $ (0.7 ) $ (0.01 )
U.K. coal restructuring and related charges $ 1.1 $ 0.9 $ 0.01
Impact of U.S. Tax Cuts and Jobs Act (TCJA) $ $ 371.9 $ 5.94
 

In the fourth quarter of 2018, G&W’s results included $2.2 million of
restructuring and related costs, primarily in the U.K., lease return
costs of $2.1 million associated with two railroad leases in Canada that
expired in the fourth quarter of 2018, a $1.4 million gain on sale of an
investment and $1.4 million of tax adjustments associated with prior
periods.

In the fourth quarter of 2017, G&W’s results included an $8.9 million
reduction to other expenses as a result of the buyout of the
Freightliner Group Limited (Freightliner) deferred consideration
agreements with certain former Freightliner management holders,
Australia impairment and related charges of $4.9 million, which included
$5.9 million related to the write-down of track assets on idle branch
lines in South Australia, partially offset by a $0.9 million recovery of
prior year impairment and related costs associated with Arrium Limited’s
voluntary administration, $1.4 million of restructuring costs, $1.1
million of corporate development and related costs and a $1.1 million
reduction to expense associated with a prior year accrual established
for the restructuring of our U.K. coal business. The fourth quarter of
2017 also included a $371.9 million estimated income tax benefit
primarily as a result of reducing the value of our net deferred tax
liabilities from a 35% U.S. federal income tax rate to the newly enacted
rate of 21% associated with the TCJA signed into law in December 2017.

Fourth Quarter Results by Segment

Operating revenues from G&W’s North American Operations increased $17.8
million, or 5.5%, to $338.0 million in the fourth quarter of 2018,
compared with $320.2 million in the fourth quarter of 2017.

G&W’s North American Operations had operating income in the fourth
quarter of 2018 of $87.2 million, compared with $74.7 million in the
fourth quarter of 2017. The operating ratio for North American
Operations was 74.2% in the fourth quarter of 2018, compared with an
operating ratio of 76.7% in the fourth quarter of 2017. Adjusted
operating income from G&W’s North American Operations in the fourth
quarter of 2018 was $89.3 million, compared with $75.6 million in the
fourth quarter of 2017. The adjusted operating ratio for North American
Operations was 73.6% in the fourth quarter of 2018, compared with 76.4%
in the fourth quarter of 2017.(1)

Operating revenues from G&W’s Australian Operations decreased $4.4
million, or 5.8%, to $71.1 million in the fourth quarter of 2018,
compared with $75.5 million in the fourth quarter of 2017. Excluding a
$5.0 million decrease due to the impact of foreign currency
depreciation, Australian Operations revenues increased by $0.6 million,
or 0.8%.(2)

G&W’s Australian Operations had operating income in the fourth quarter
of 2018 of $17.7 million, compared with $17.6 million in the fourth
quarter of 2017. The operating ratio for Australian Operations was 75.1%
in the fourth quarter of 2018, compared with an operating ratio of 76.7%
in the fourth quarter of 2017. Adjusted operating income from G&W’s
Australian Operations in the fourth quarter of 2018 was $17.7 million,
compared with $22.5 million in the fourth quarter of 2017. The adjusted
operating ratio for Australian Operations was 75.1% in the fourth
quarter of 2018, compared with 70.2% in the fourth quarter of 2017.(1)

Operating revenues from G&W’s U.K./European Operations decreased $9.3
million, or 5.3%, to $166.5 million in the fourth quarter of 2018,
compared with $175.8 million in the fourth quarter of 2017. Excluding
$12.2 million from G&W’s divested ERS operations for the fourth quarter
of 2017 and a $5.2 million decrease due to the impact of foreign
currency depreciation, U.K./European Operations same railroad revenues
increased $8.1 million, or 5.1%.(2)

G&W’s U.K./European Operations had operating income in the fourth
quarter of 2018 of $0.8 million, compared with $14.2 million in the
fourth quarter of 2017, which included $0.8 million from ERS. The
operating ratio for U.K./European Operations was 99.5% in the fourth
quarter of 2018, compared with 91.9% in the fourth quarter of 2017.
Adjusted operating income from G&W’s U.K./European Operations in the
fourth quarter of 2018 was $2.8 million, compared with $5.9 million in
the fourth quarter of 2017, which included $1.3 million from ERS. The
adjusted operating ratio for U.K./European Operations was 98.3% in the
fourth quarter of 2018, compared with 96.7% in the fourth quarter of
2017.(1)

Consolidated Annual Results

2018 Annual Segment Highlights Compared with 2017

  • North America: Operating revenues from G&W’s North American Operations
    increased 6.6% to $1,358.9 million from $1,274.3 million. Reported
    operating income from G&W’s North American Operations increased 12.8%
    to $343.1 million from $304.3 million; Adjusted operating income from
    G&W’s North American Operations increased10.7%to
    $346.3 million from $312.9 million.(1)
  • Australia: Operating revenues from G&W’s Australian Operations
    decreased 1.9% to $301.7 million from $307.5 million. Reported
    operating income from G&W’s Australian Operations increased 3.9% to
    $80.3 million from $77.3 million; Adjusted operating income from G&W’s
    Australian Operations decreased to $73.1 million from $82.2 million.(1)
  • U.K./Europe: Operating revenues from G&W’s U.K./European Operations
    increased 9.9% to $688.0 million from $626.2 million, primarily due to
    new operations from the Pentalver Transport Limited (Pentalver)
    acquisition, as well as a $19.3 million benefit from foreign currency
    appreciation. Reported operating income from G&W’s U.K./European
    Operations decreased to $0.1 million from $10.5 million; Adjusted
    operating income from G&W’s U.K./European Operations increased to
    $15.3 million from $13.8 million.(1)(2)

G&W’s provision for income taxes for the year ended December 31, 2018
was $64.5 million compared with a benefit from income taxes of $261.3
million for the year ended December 31, 2017. The income tax provision
for the year ended December 31, 2018 included an income tax benefit of
$31.6 million associated with the retroactive extension of the United
States Short Line Tax Credit for fiscal year 2017, which was enacted in
February 2018, income tax expense adjustments of $5.1 million related
primarily to deferred income taxes recorded in prior periods and a $1.6
million measurement period adjustment to the one-time transition (toll)
tax on earnings of certain foreign subsidiaries. The benefit from income
taxes for year ended December 31, 2017 included an income tax benefit of
approximately $394 million resulting from reducing the value of our net
deferred tax liabilities from a 35% United States federal income tax
rate to the newly enacted rate of 21%, partially offset by an estimated
transitional (toll) tax of approximately $22 million, both associated
with the TCJA.

Reported net income attributable to G&W for the year ended December 31,
2018 was $244.4 million, compared with $549.1 million for the year ended
December 31, 2017. Excluding the impact of certain items affecting
comparability listed below, adjusted net income attributable to G&W for
the year ended December 31, 2018 was $233.6 million, compared with
$182.0 million for the year ended December 31, 2017.(1)

G&W’s diluted EPS for the year ended December 31, 2018 were $4.03 with
60.6 million weighted average shares outstanding, compared with diluted
EPS of $8.79 with 62.5 million weighted average shares outstanding for
the year ended December 31, 2017. Excluding certain items affecting
comparability listed below, G&W’s adjusted diluted EPS for the year
ended December 31, 2018 were $3.85 with 60.6 million weighted average
shares outstanding, compared with adjusted diluted EPS of $2.91 with
62.5 million weighted average shares outstanding for the year ended
December 31, 2017.(1)

G&W’s 2018 and 2017 annual results included certain items affecting
comparability between the periods that are set forth in the following
table (in millions, except per share amounts).

           
 

Income/(Loss)
Before Income
Taxes Impact

After-Tax Net
Income/(Loss)
Attributable
to
G&W

Impact

Diluted EPS
Impact

Year Ended December 31, 2018

Corporate development and related costs $ (0.8 ) $ (0.6 ) $ (0.01 )
Restructuring and related costs $ (15.1 ) $ (12.2 ) $ (0.20 )
Credit facility refinancing-related costs $ (2.7 ) $ (2.0 ) $ (0.03 )
Gain on settlement $ 7.3 $ 2.6 $ 0.04
Loss on sale of business $ (1.4 ) $ (1.4 ) $ (0.02 )
Canadian railroad lease return costs $ (2.1 ) $ (1.5 ) $ (0.02 )
Gain on sale of investment $ 1.4 $ 1.0 $ 0.02
2017 Short Line Tax Credit $ $ 31.6 $ 0.52
Prior period tax adjustment $ $ (5.1 ) $ (0.08 )
TCJA measurement period adjustment $ $ (1.6 ) $ (0.03 )
 

Year Ended December 31, 2017

Corporate development and related costs $ (11.9 ) $ (8.1 ) $ (0.13 )
Restructuring costs $ (10.2 ) $ (9.0 ) $ (0.14 )
Australia impairment and related costs $ (4.9 ) $ (1.8 ) $ (0.03 )
Buyout of Freightliner deferred consideration agreements $ 8.9 $ 8.9 $ 0.14
Gain on sale of investment $ 1.6 $ 1.0 $ 0.02
U.K. coal restructuring and related charges $ 1.1 $ 0.9 $ 0.01
Impact of TCJA $ $ 371.9 $ 5.96
Recognition of unrecognized tax benefits $ $ 3.3 $ 0.05
 

Adjusted Free Cash Flow Measures (1)

Adjusted free cash flow measures for the years ended December 31, 2018
and 2017 were as follows (in millions):

   
Years Ended
2018     2017
Net cash provided by operating activities $ 553.1 $ 479.2
Allocation of adjusted cash flow to noncontrolling interest(a) (21.4 ) (27.6 )
Adjusted net cash provided by operating activities attributable to
G&W
531.7 451.6
Core capital expenditures(b) (205.7 ) (181.8 )
Adjusted free cash flow attributable to G&W before new business
investments and grant funded projects
326.0 269.8
New business investments (44.0 ) (8.6 )
Grant funded projects, net of proceeds received from outside parties(c) (1.4 ) (11.0 )
Adjusted free cash flow attributable to G&W $ 280.6   $ 250.2  
 
 
(a)

Allocation of adjusted cash flow to noncontrolling interest
(Macquarie Infrastructure and Real Assets’ (MIRA) 48.9% equity
ownership of G&W Australia Holdings LP (GWA) since December 1,
2016) is calculated as 48.9% of the total of (i) cash flow
provided by operating activities of G&W’s Australian Operations,
less (ii) net purchases of property and equipment of G&W’s
Australian Operations. The timing and amount of actual
distributions, if any, from GWA to G&W and MIRA made in any given
period will vary and could differ materially from the amounts
presented. During the year ended December 31, 2018, GWA made
A$65.0 million of such distributions of which A$33.2 million (or
$24.6 million at the applicable exchange rates at the time the
payments were made) and A$31.8 million (or $23.6 million at the
applicable exchange rates at the time the payments were made) was
distributed to G&W and MIRA, respectively, and no such
distributions were made for the year ended December 31, 2017. G&W
expressly disclaims any direct correlation between the allocation
of adjusted cash flow to noncontrolling interest and actual
distributions made in any given period.

(b)

Core capital expenditures represent purchases of property and
equipment, as presented on the Consolidated Statement of Cash
Flows, less grant proceeds from outside parties, insurance
proceeds for the replacement of assets and proceeds from
disposition of property and equipment, each of which as presented
on the Consolidated Statement of Cash Flows, less new business
investments and grant funded projects.

(c)

Grant funded projects represent purchases of property and
equipment for projects partially or entirely funded by outside
parties, net of grant proceeds from outside parties as presented
on the Consolidated Statement of Cash Flows.

 

Share Repurchase Program

During the fourth quarter of 2018, G&W repurchased 2.4 million shares of
Class A Common Stock for $189.6 million, which resulted in a reduction
of 0.8 million shares in our weighted average diluted shares outstanding
for the fourth quarter of 2018. During the year ended December 31, 2018,
G&W repurchased 6.0 million shares of Class A Common Stock for $460.1
million, which resulted in a reduction of 2.4 million shares in our
weighted average diluted shares outstanding for the year ended December
31, 2018.

Conference Call and Webcast Details

As previously announced, G&W’s conference call to discuss financial
results for the fourth quarter of 2018 will be held on Wednesday,
February 6, 2019, at 11 a.m. EST. The dial-in number for the
teleconference in the U.S. is (800) 230-1085; outside the U.S. is (612)
288-0329, or the call may be accessed live over the Internet (listen
only) at www.gwrr.com/investors.
Management will be referring to a slide presentation that will also be
available at gwrr.com/investors. The webcast will be archived at www.gwrr.com/investors
until the following quarter’s earnings press release. Telephone replay
is available for 30 days beginning at 1 p.m. EST on February 6, 2019 by
dialing (800) 475-6701 (or outside the U.S., dial 320-365-3844). The
access code is 458664.

About G&W

G&W owns or leases 120 freight railroads organized in nine locally
managed operating regions with 8,000 employees serving 3,000 customers.

  • G&W’s seven North American regions serve 41 U.S. states and four
    Canadian provinces and include 114 short line and regional freight
    railroads, with more than 13,000 track-miles.
  • G&W’s Australia Region serves New South Wales, the Northern Territory
    and South Australia and operates the 1,400-mile Tarcoola-to-Darwin
    rail line. The Australia Region is 51.1% owned by G&W and 48.9% owned
    by a consortium of funds and clients managed by Macquarie
    Infrastructure and Real Assets.
  • G&W’s U.K./Europe Region includes the U.K.’s largest rail maritime
    intermodal operator and second-largest freight rail provider, as well
    as regional services in Continental Europe.

G&W subsidiaries and joint ventures also provide rail service at more
than 40 major ports, rail-ferry service between the U.S. Southeast and
Mexico, transload services, contract coal loading, and industrial
railcar switching and repair.

From time to time, we may use our website as a channel of distribution
of material company information. Financial and other material
information regarding G&W is routinely posted on and accessible at www.gwrr.com/investors.
In addition, you may automatically receive email alerts and other
information about us by enrolling your email address in the “Email
Alerts” section of www.gwrr.com/investors.
The information contained on or connected to our Internet website is not
deemed to be incorporated by reference in this press release or filed
with the United States Security and Exchange Commission.

Cautionary Statement Concerning Forward-Looking Statements

This press release contains forward-looking statements regarding future
events and the future performance of Genesee & Wyoming Inc. that are
based on current expectations, estimates and projections about our
industry, management’s beliefs and assumptions made by management. Words
such as “anticipates,” “intends,” “plans,” “believes,” “could,”
“should,” “seeks,” “expects,” “will,” “estimates,” “trends,” “outlook,”
variations of these words and similar expressions are intended to
identify these forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to forecast, including
the following: risks related to the operation of our railroads; severe
weather conditions and other natural occurrences, which could result in
shutdowns, derailments, railroad network and port congestion or other
substantial disruption of operations; customer demand and changes in our
operations or loss of important customers; exposure to the credit risk
of customers and counterparties; changes in commodity prices;
consummation and integration of acquisitions; economic, political and
industry conditions, including employee strikes or work stoppages;
retention and contract continuation; legislative and regulatory
developments, including changes in environmental and other laws and
regulations to which we or our customers are subject; increased
competition in relevant markets; funding needs, funding costs and
financing sources, including our ability to obtain government funding
for capital projects; international complexities of operations, currency
fluctuations, finance, tax and decentralized management; challenges of
managing rapid growth including retention and development of senior
leadership; unpredictability of fuel costs; susceptibility to and
outcome of various legal claims, lawsuits and arbitrations; increase in,
or volatility associated with, expenses related to estimated claims,
self-insured retention amounts and insurance coverage limits;
consummation of new business opportunities; decrease in revenues and/or
increase in costs and expenses; susceptibility to the risks of doing
business in foreign countries; uncertainties arising from a referendum
in which voters in the United Kingdom (U.

Contacts

Michael Williams of G&W Corporate Communications
1-203-202-8900
mwilliams@gwrr.com

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