Genesee & Wyoming Inc Earnings Bolstered by Acquisitions

Genesee & Wyoming Inc reported first-quarter results before the market opened on Friday. The regional rail operator was able to beat analysts' consensus estimates as it was powered by several acquisitions over the past year. However, those acquisitions aside, the company's same railroad revenue did slip due to weaker currencies and weaker shipments of key commodities.

A look at the numbersFirst-quarter revenue grew 5% year-over-year to $397.0 million, which was $20 million more than analysts were expecting. This growth was solely driven by acquisitions as the company's recent Freightlineracquisition provided $15.1 million in revenue as it closed with five days left in the quarter. In addition to this, the company received $21.9 million in revenue from two other recent acquisitions -- Rapid City, Pierre & Eastern Railroad and Pinsly Arkansas -- which also helped drive the year-over-year boost in revenue.

While Genesee & Wyoming's revenue beat analysts' expectations it was a bit below its own expectations. Revenue would have actually been higher by $13.4 million if it wasn't due to a negative impact from foreign currencies. However, on a same railroad basis, excluding the impact of currencies,revenue actually declined $7.9 million, or 2.8%, due to weakness in iron ore, utility coal, and steel shipments. It was also affected by severe winter weather in the Northeast U.S. as well as weakness in Australia where revenue dropped 22.5% due to a closure of customer iron ore mines.

Adjusted earnings, which takes out the impact from acquisition related costs, grew much stronger than revenue. Adjusted net income was up 15.2% year-over-year to $86.7 million while adjusted earnings per share jumped 18.6% to $0.83 per share, which was two pennies better than analysts were expecting to see. Earnings growth was driven by acquisitions as well as effective cost management.

Genesee & Wyoming also generated $36.6 million in free cash flow, which was well above the $14.7 million it generated in the first quarter of last year. That strong cash flow generation as well as the company's $480 million in borrowing capacity on its credit facility provides it with plenty of dry powder to pursue additional acquisition opportunities that it sees.

A look aheadIn 2015 Genesee & Wyoming really sees a tale of two continents. In North America it sees stable economic activity leading to solid performance, though it is facing headwinds from utility coal, steel and shale-energy related shipments. On the other side of the world it sees continued challenges in Australia as its business will continue to weaken due to the impact of customer mine closures.

Also driving results in 2015 will be a new continent that the company has added thanks to the recent acquisition of Freightliner. The European-focused railroad is expected to drive strong financial contributions in 2015, however, Genessee & Wyoming's big focus is on successfully integrating the business.

Investor takeawayGenesee & Wyoming delivered a solid quarter overall. While its revenue was weighed down by some weakness in key commodities and overseas, it was able to drive growth due to a number of acquisitions it has made over the past year. While many of those same headwinds remain, the company does expect solid results to continue in 2015. Further, it has plenty of capacity to make additional acquisitions to drive further growth in 2015 and beyond.

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