Genesee & Wyoming Inc Q2 2011 Earnings Conference Call Transcript - Thomson StreetEvents

Genesee & Wyoming Inc Q2 2011 Earnings Conference Call Transcript

25 pages (13209 words) — Published Aug 02, 2011
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Abstract:

Final Transcript of GWR earnings conference call or presentation 2-Aug-11 3:00pm GMT

  
Brief Excerpt:

...Matt Walsh Genesee & Wyoming Inc - SVP Corporate Development, Treasurer Jack Hellmann Genesee & Wyoming Inc - President, CEO T.J. Gallagher Genesee & Wyoming Inc - CFO...

  
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The following is excerpted from the question-and-answer section of the transcript.

(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)

Question: Jason Seidl - Dahlman Rose & Co. - Analyst: Hey Jack, hey T.J., how are you guys today?

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Jason Seidl - Dahlman Rose & Co. - Analyst: Hanging in there. Couple quick questions. Guys, on your acquisition first of all, congratulations on it. And second, now, Freeports a complete complex there? Because I know there are a couple of mines that are around that area. Or does it serve just the one mine and just the smelter?

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Jason Seidl - Dahlman Rose & Co. - Analyst: Hey, Matt.

Answer By: Matt Walsh - Genesee & Wyoming Inc - SVP Corporate Development, Treasurer


Question: Jason Seidl - Dahlman Rose & Co. - Analyst: Okay. Fantastic, that'sgreat color. Jack, I think just from a broader standpoint, you probably had the most favorable economic commentary I think out of anybody that I follow in your release in terms of business levels picking up throughout the quarter. Mind you, there's a bunch of puts and takes in that. But how does the economy feel from (inaudible) standpoint as we're going into the back half of the year? I know there's uncertainty, but I'd love your take on things.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Jason Seidl - Dahlman Rose & Co. - Analyst: Right. Jack, and while we're looking at the guidance that you've provided, you have mentioned that you got hit in Canada due to the impacts of the Japan Tsunami and also obviously there's some PRB issues I'm assuming related to the flooding conditions that's we have seen. Is that assuming some of those things pick up in the back half of the year or what's the assumptions behind that? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Jason Seidl - Dahlman Rose & Co. - Analyst: Really moves the needle, right. I appreciate the commentary as always, guys.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Justin Yagerman - Deutsche Bank - Analyst: Hey, good morning, guys, thanks for taking the call. Good morning. Just to clarify a point. You mentioned that the acquisitions immediately accretive, can we read into that the operating ratio is in line or better with current business trends you are seeing at the rest of your railroads?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Justin Yagerman - Deutsche Bank - Analyst: Great. That's really helpful. Thank you. Curious, as we look at these new business starts outside of the larger items that you outlined, the port business, the steel business, the iron ore business, what kind of revenue and CapEx should we expect these to be and how soon should they get to a full revenue run rate?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Justin Yagerman - Deutsche Bank - Analyst: Sure. And I guess the last one, that's a quick segway into it. Curious, when you guys have talked about freight link in past, there's obviously a lot of projects along the railroad, you're seeing this one come to fruition hopefully along the timetable expected. Where are any of the other projects right now and can you give us any kind of timetable for expected announcements over the next six to 18 months?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Justin Yagerman - Deutsche Bank - Analyst: Fair enough. Thanks, guys. Appreciate the time.


Question: Bill Greene - Morgan Stanley - Analyst: Hey, Jack, this time of the year we all have to start asking just about 45 G's and rail America is deemed it's a little bit less confident maybe is way to describe it. And just taking your temperature, does it even seem possible this year given all the stuff going on in Washington?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Bill Greene - Morgan Stanley - Analyst: Yes, I get it. Rail America also mentioned they're starting to keep some of their powder dry for acquisitions. Now you have done one and you obviously got a fair amount of availability of credit if you wanted to do more. So is the uncertain environment at a macro level kind of dislodging some of these transactions that may have been stuck? Does it feel like a more fertile environment now?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Bill Greene - Morgan Stanley - Analyst: Yeah. And when you think about these opportunities like we look at kind of where the guidance is on the operating ratio. It seems like unless something comes back on the economy, sort of volume kind is going to be dependent on any projects you've got. Productivity, I would guess, is getting hard to come by now, given how well you have done and pricing has been stable. So my sense is we're kind of down to just a couple levers, maybe the economy improves or acquisitions. Is that fair to think about?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Bill Greene - Morgan Stanley - Analyst: Okay. Thanks for your time. ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Chris Weatherbee - Citigroup - Analyst: Thanks, guys. Maybe just touch on the last question when you think about that opportunity set; North America relative to the rest of the world and Australia in particular, given the weakness we are seeing here domestically. Is it fair to say there's a few more domestic opportunities? I want to clarify what you're saying there in your last comment, Jack.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Chris Weatherbee - Citigroup - Analyst: All right. That certainly makes sense. And just maybe a question for you, T.J.. When you think about the fuel impact as you go forward, I think I remember that you have some of your surcharges on a quarterly basis. I just want to get a sense of how you think about that in the third quarter relative to the current run rate of the last month of pricing. Are we going to see additional head wind as we move forward into the third quarter based on fuel surcharge collection?

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Chris Weatherbee - Citigroup - Analyst: Okay. That's very helpful. I appreciate that. Finally on pricing, just wanted to touch base on that a little bit. You mentioned 3% core price. Obviously you've had the customer mix issues which seem like they lack maybe and I guess now you start to see a little bit of a benefit as you go forward here. Is that the right way to think about just the absolute pricing and on top of that core pricing at around 3%, does that feel stable as you move forward to the rest of the year? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Chris Weatherbee - Citigroup - Analyst: Okay. So no material change the way that you're thinking about it the next couple quarters? Okay, great. Thanks for your time.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Chris Weatherbee - Citigroup - Analyst: Sure. That's the largest variance when you think about that commodity mix.

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Chris Weatherbee - Citigroup - Analyst: Okay. Very helpful. Thanks for the time, guys. Appreciate it.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Scott Group - Wolfe Trahan & Co. - Analyst: Good morning, guys, how are you?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Scott Group - Wolfe Trahan & Co. - Analyst: So is there any way to think about, with the Arizona deal, what percent of the revenue is coming from Freeport?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Scott Group - Wolfe Trahan & Co. - Analyst: Okay. And obviously we don't have all the numbers but if I think about $90 million deal, $20 million of revenue, if you assume a in link rail, margins, it sort of implies that the valuations above what you have paid historically. Am I missing something there? And if not, generally, do you just have a sense that valuations are picking up with maybe it's been more competitive now with public Rail America, and (inaudible) getting bigger?Just any color there would be great.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Scott Group - Wolfe Trahan & Co. - Analyst: Generally are you seeing the acquisition market getting more competitive with rail America or other people?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Scott Group - Wolfe Trahan & Co. - Analyst: That makes sense. And just a few questions just on Australia. Any early signs on the Australian grain for next year and then when we think about seven new locomotives in Australia for the intermodal business, is there any way to think about how many you have today? Just so we can think about what the growth potential is? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Scott Group - Wolfe Trahan & Co. - Analyst: That's very helpful. Then any color on the locomotives?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Scott Group - Wolfe Trahan & Co. - Analyst: So these are replacements, they're not net new additions?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Scott Group - Wolfe Trahan & Co. - Analyst: That makes a lot of sense. Last thing real quick, Jack, with the Australian business I'm guessing you're very close to demand in China. Are you seeing any pickup or slowdown or any changes in demand out of China, particularly commodity demand?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Scott Group - Wolfe Trahan & Co. - Analyst: Great. Thanks, guys.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Tom Wadewitz - JPMorgan - Analyst: Good morning and congratulations on the new deal that you announced this morning. I had a couple of questions on that. The number I believe, Jack, you mentioned something like $20 million in revenue. Did I hear that correctly? Is that a trailing revenue or a next 12 months revenue?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Tom Wadewitz - JPMorgan - Analyst: Okay, so that's a look forward. Is that assuming that there's substantial growth in the revenue versus what the trailing was? I guess the reason I asked.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Tom Wadewitz - JPMorgan - Analyst: Okay. I mean, it appears that the customer's expanding some facilities so there would be some growth potential.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Tom Wadewitz - JPMorgan - Analyst: Okay. You're not already assuming all of that expansion in your 20 million comment? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Tom Wadewitz - JPMorgan - Analyst: Okay. And then your comments about normal valuation and the fairly low revenue implies that this must be a pretty high margin business that you have. It seems straightforward to that conclusion, but is that correct?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Tom Wadewitz - JPMorgan - Analyst: Okay. It seems straightforward, but, there's a chance I can miss something. You have been asked a fair bit about the acquisition market. You've got this $300 million in capacity that you highlighted in the revolver. And yet at the same time, if you do too many things at once, there's some risk on the execution side. So is it likely that you may pause for a little bit or should we assume that you're not kind of tapped out in terms of management ability to do more deals and to execute well on more deals in the next couple quarters? I know you guys can do a lot at once, so I'm not questioning that. But you already have a lot going on. So any thoughts on that?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Tom Wadewitz - JPMorgan - Analyst: Okay. So you've got plenty of practice there. I guess the last one on this topic, the $300 million, could you fully utilize the 300 or I guess historically you have said you've got a certain capacity but you don't necessarily tap it out 100%. What's the level , the size of additional acquisition that you would consider

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Tom Wadewitz - JPMorgan - Analyst: Right.

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Tom Wadewitz - JPMorgan - Analyst: Okay. Great. Thank you for the time.

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Baskin Major - Susquehanna Financial Group - Analyst: Hi, guys. [Baskin Major] in for Matt Troy this morning. Good morning. I know someone has already asked about the tax credit, but I wanted to look at regulatory from a different angle. There were some bills earlier this year about allowing states to increase truck weights and I know that's probably on hold with what's happened to the highway bill. But I wanted to hear your guys' take on how and whether that would affect your business domestically if that did start to gain some momentum?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Baskin Major - Susquehanna Financial Group - Analyst: Okay. And with regards to what's going on with the STB now and the recent hearings, what are their fears where there might be collateral damage to your business in something that's targeted at your larger rail partners? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Baskin Major - Susquehanna Financial Group - Analyst: All right. Fair enough. Thanks for the time.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Anthony Gallo - Wells Fargo - Analyst: Thank you. Can you hear me okay?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Anthony Gallo - Wells Fargo - Analyst: Great, thank you. You mentioned some of your organic growth opportunities that seem to be underpinning your confidence here. You touched on the frack drilling, export grains, Australia ores, et cetera. Are there any other segments where you're being attracted to what I'll call secular growth opportunities and then on the other side of that any areas where you're seeing more sustained contraction? I know you don't have a lot of consumer exposure but any color on either of those two would be helpful.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Anthony Gallo - Wells Fargo - Analyst: I'll take that as nothing new, if it doesn't jump off at the page at me.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Anthony Gallo - Wells Fargo - Analyst: Then one quick question. You have a pretty long history with the number of these mines. If you look at the mines that you have served over the years, excluding let's say the energy-related mines. What has been the cyclical ups and downs that you have seen? Our sense is that they're a bit more stable than the casual observer would believe, but just a little bit of color on the mines that you've served over time, how cyclical the mines have really been.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Anthony Gallo - Wells Fargo - Analyst: Thank you. ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43


Question: Brad Delco - Stephens - Analyst: Good morning, Jack and T.J.. Jack, the first question maybe for you. Trying to think about when you guys originally gave guidance for the year, I would imagine things necessarily hadn't played out as you originally thought and maybe just give me some color as to what the puts and takes have been and I think just particularly impressive that your expectations have continued to go up when we have been dealt kind of the cards we have thus far this year.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Brad Delco - Stephens - Analyst: So I guess it's fair to say that you guys seem to be fairly in control of these new business opportunities and that's what's provided the bridge from the takes more so to the put side?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Brad Delco - Stephens - Analyst: fuel and some of the foreign currency. ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Brad Delco - Stephens - Analyst: I'm showing 26% or so in my model, but I was wondering what that number was on an apples to apples basis the way you have been reporting it the last two quarters.

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Brad Delco - Stephens - Analyst: And then maybe my last one, I think it's interesting the way you guys look at the locomotive purchase as a multiple of EBITDA, but is it right to say you're spending $45 million of Australian dollars on loco's, and you're saying it's at 4.2 times, does that imply come Q2 of next year there's about $10 million in savings from fuel on lease? Is that the way to think about it or is there a revenue component I'm missing?

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Brad Delco - Stephens - Analyst: Thanks for the time. Congratulations again on the accomplishments.

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Allison Landry - Credit Suisse - Analyst: Thanks. Good morning. I had a question on the coal yields. You mentioned that there was some negative customer mix that impacted the year over year comps, but looks like the revenue per unit was up more than 20% on a sequential basis. I was wondering if you can talk about what drove the strength relative to the first quarter?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Allison Landry - Credit Suisse - Analyst: Okay. So just more on the mix side.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Allison Landry - Credit Suisse - Analyst: And then a quick question on the Arizona acquisition. Assuming this business falls on the metals group, how do we think about the length of haul on that compared to the existing metals business or whatever category it's going to fall in?

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Allison Landry - Credit Suisse - Analyst: Okay. Thank you very much.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Mike Baudendistel - Stifel, Nicolaus & Co., Inc - Analyst: Thank you. A question on the commodity mix shift that happens within the commodity group. Seems like that's been with you for at least one quarter. Is that something you think is going to persist for the next few quarters? How should we think about that? ¬2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by Client Id: 43

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO


Question: Mike Baudendistel - Stifel, Nicolaus & Co., Inc - Analyst: That makes sense. One other question, I'm some what intrigued by the increase in the switching revenue. I'm wondering what's driving that? Sounds like it's North America and Europe as the port of Antwerp. Any detail there would be great.

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO


Question: Mike Baudendistel - Stifel, Nicolaus & Co., Inc - Analyst: Great. Thanks for the time.

Answer By: Jack Hellmann - Genesee & Wyoming Inc - President, CEO

Answer By: T.J. Gallagher - Genesee & Wyoming Inc - CFO

Table Of Contents

Genesee & Wyoming at JPMorgan Aviation, Transportation and Defense Conference Transcript – 2012-03-15 – $54.00 – Edited Transcript of GWR presentation 15-Mar-12 5:10pm GMT

Genesee & Wyoming Q4 2011 Earnings Conference Call Transcript – 2012-02-08 – $54.00 – Edited Transcript of GWR earnings conference call or presentation 8-Feb-12 4:00pm GMT

Genesee & Wyoming Inc at Stephens Fall Investment Conference Transcript – 2011-11-16 – $54.00 – Final Transcript of GWR presentation 16-Nov-11 2:00pm GMT

Genesee & Wyoming Inc Q3 2011 Earnings Conference Call Transcript – 2011-11-01 – $54.00 – Final Transcript of GWR earnings conference call or presentation 1-Nov-11 3:00pm GMT

Genesee & Wyoming Inc at Citi Global Industrials Conference Transcript – 2011-09-21 – $54.00 – Final Transcript of GWR presentation 21-Sep-11 1:40pm GMT

Genesee & Wyoming Inc Q1 2011 Earnings Conference Call Transcript – 2011-04-28 – $54.00 – Final Transcript of GWR earnings conference call or presentation, 28-Apr-11 11:00am ET

Genesee&Wyoming Q4 2010 Earnings Conference Call Transcript – 2011-02-08 – $54.00 – Final Transcript of GWR earnings conference call or presentation, 8-Feb-11 11:00am ET

Genesee&Wyoming Q3 2010 Earnings Conference Call Transcript – 2010-11-02 – $54.00 – Final Transcript of GWR earnings conference call or presentation, 2-Nov-10 11:00am ET

Genesee&Wyoming Q2 2010 Earnings Conference Call Transcript – 2010-08-03 – $54.00 – Final Transcript of GWR earnings conference call or presentation, 3-Aug-10 10:00am ET

Genesee&Wyoming Q1 2010 Earnings Conference Call Transcript – 2010-04-29 – $54.00 – Final Transcript of GWR earnings conference call or presentation, 29-Apr-10 11:00am ET

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