DARIEN, Conn. — Short line operator Genesee & Wyoming is seeking an investment partner or considering the outright sale of the company, according to a published report. G&W, which operates 120 railroads in North America, Europe, and Au...
http://trn.trains.com/news/news-wire/2019/03/12-report-genesee--wyoming-seeking-partner-or-potential-sale-of-company
Brian Schmidt, Editor, Classic Trains magazine
Likely no mergers among the class 1s, but here are some good opportunities. CM&Q up for sale? That in itself is big news.. maybe this time it will go back to CP.. Mr Creel.. maybe here's your chance to make CP a true transcon once again..
UlrichMr Creel.. maybe here's your chance to make CP a true transcon once again..
Isn't this a company that has been on a buying spree in the recent past?
Thanks to Chris / CopCarSS for my avatar.
Is a bankruptcy or railroad by railroad selloff potentiality also in the cards?
If you look at their financials they are in decent shape. Their North American and Australian Operations have operating ratios of about 75, which while not “PSR” still brings a tidy percentage of revenue to net income. One has to realize that a business that brings even 10% of revenue down to net income is a healthy business. There are many industries that bring less than 10% of revenue to the bottom line.
What I find fascinating is that G&W operated just fine for many decades, just chugging along turning out profits and serving their customers. Then they went public, and now more railroads are “too expensive to acquire” and “the best use of their capital is stock buybacks“ and they might even get out of the railroad business by selling the company. That sounds like New York short term thinking has taken over.
Perhaps these properties will join the Watco constellation and we’ll see all the orange and black locomotives painted black and yellow.
Maybe their OR is good, but what is their debt and cash flow?
G&W, much like RailAmerica before it and Rail-Tex before that, has been taken over by ex-Class 1 people who don't have the shortline mentality. They are trying to show they could have stayed with the Class I and generated just as good results as the Class I, using Class I measures of success.
For 2018, G&W had revenues of $2.349 billion and moved $244.4 million or 10.4% of those revenues to the bottom line as Net Income.
Most of the Class I railroads are able to move 20% or more of revenues to the bottom line as net income. Of course, that is a different business model.
However, there are many other industries that would love to have a net margin of 10% or more, so G&W is doing OK.
Their free cash flow for 2018 was $280.6 million, or 11.9% of revenues, and a 12.2% increase in free cash flow over the $250.6 million in 2017.
https://ir.gwrr.com/press-release/financial/genesee-wyoming-reports-results-fourth-quarter-2018
kgbw49 tells only part of the story. The most important single figure in railroading is return on investment. Here things do not look as rosy.
Like most railroads GWRR needs $3 of assets to earn $1 gross. The 10% of revenues brought to net is thus 3.3% on assets, not much better than a CD.
Their assets look a bit hinky also, $1.1 billion in goodwill and $1.4 billion in 'Intangible Assets'. Goodwill is the difference between the purchase price and the value of the tangible assets purchased. It is generated in big lumps when GWRR overpays for a new property. Goodwill is written off through the income statement for many years after each purchase. I do not know where the Intangible Assets come from but it looks like water to me. These two items are over one third of their total asset base.
I would look to Net Income before taxes, not after as I think he did. This comes in at about $300 million average over the past two years excluding non-recuring items. That gives 4.2% return on assets. Still nothing to crow about.
Mac
PNWRMNM, thank you for that additional information! I actually enjoy digging in to the numbers on various industries. Yes, the amortization of those intangible assets are really a drag on earnings. They are amortizing them at a rate of about $187 million annually, which comes right off the bottom line. While it is not cash, it still is an expense that becomes a factor in Board Room decisions, of course. You are right that the overall return is low. And my gosh, the 10-K shows the European operations return virtually nothing with an operating ratio of 100% on revenues of $688 million. That is 0% contribution to ROIC on almost 30% of revenues. One has to wonder what the strategic benefit is that they see in holding on to the European operations. The other two segments - North American rail operations and Australian rail operations - are right at about 75% OR, so apparently they are contributing 100% of any ROIC and Net Income of any sort.
I wonder if they are coming up on some heavier capital investments in existing plant to keep lines at Class II 25 mph levels?
Might this be one of those situations where the sum of the parts is worth more than the sum of the whole?
It will be interesting to watch what happens at GWRR over the next 12 months!
MICHAEL KLASSThey are trying to show they could have stayed with the Class I and generated just as good results as the Class I,
So, just for discussion purposes, what parts of G&W might get the higher bid and who would be interested? The CF&E former Pennsy? The I&O former DT&I? Others?
Potential buyers? Watco? Wheeling & Lake Erie? Other regionals or short lines? Is there anything that would make sense for a Class I to reacquire?
kgbw49So, just for discussion purposes, what parts of G&W might get the higher bid and who would be interested? The CF&E former Pennsy? The I&O former DT&I? Others?
I am aware that the usual practice of corporate raiders in the 1980's was to break up the firm and sell off the parts so they could pay the exorbitant interest rates on the junk bonds used to finance the original purchase. I would think that parting out G&W might be problematic since it may be difficult to find somebody willing to buy the individual parts.
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