Genesee & Wyoming (
) isn't on the same scale as major U.S. railroad companies such
),Union Pacific (
) andNorfolk Southern (
But since it gained control of peer RailAmerica in January,
G&W runs the largest network of short-line railroads in the
The rail company is a big deal in Australia, too. From a 2010
acquisition, G&W gained the 1,400-mile Tarcoola to Darwin
rail line, the only one that bisects the country north to south,
through the central region's natural resources-rich interior.
It's a good time for railroads, especially in North America,
where they are increasingly moving crude oil from shale
In addition, the U.S. housing recovery means more shipments of
building materials and related products.
"The vast majority of rails touch the (housing) supply chain
at some point," said transportation analyst Kevin Kirkeby of
S&P Equity Research.
The U.S., which is in the midst of a housing recovery,
accounts for 70% of G&W's revenue, Australia 20% and Canada
A tiny fraction of the total comes from Europe, where G&W
serves the Port of Rotterdam in the Netherlands and the Port of
Antwerp in Belgium.
The recent RailAmerica acquisition was "transformational,"
says Wells Fargo analyst Anthony Gallo.
G&W gained 45 railroads in the deal. It had equity
financing backing fromCarlyle Group (
), the private equity firm, which owned 11% of the company's
shares as of the first quarter.
RailAmerica was taken public in 2009 by majority ownerFortress
Investment Group (FIG).
"Before the RailAmerica acquisition, we thought the most
upside opportunity was based in Australia," Gallo said. "But then
a light went on for many of us and we said this (RailAmerica
deal) could be interesting."
First of all, he says, it would reduce G&W's exposure to
Australia at a time when growth in demand for its natural
resources from China seems to be slowing.
"Some of that natural resource demand may wane a bit," Gallo
said. "That doesn't matter as much as it used to because it has
And not only does RailAmerica double the company's North
America revenue base, it also boosts earnings power. Management
is cutting duplicate expenses, such as back-office functions, for
Greater scale also might mean better deals with suppliers,
operating synergies and pricing power.
The company wants to spread its good safety record to the
newly acquired railroads.
And since its footprint is bigger, it has more opportunities
to buy contiguous rail lines, analysts say.
At a recent transportation conference, CEO Jack Hellmann said
the firm expects to benefit from at least $36 million in cost
Analysts expect earnings to go up 70% this year over last year
to $4.63 a share, according to a poll by Thomson Reuters.
In the first quarter, which was the first to include
RailAmerica, earnings jumped 71% to 89 cents a share. Total
operating revenue grew 81% to $375.2 million.
Combined same-railroad operating revenue was up 7.6%.
G&W dates back to the 19th century. But for decades it was
barely known outside western New York state, where it ran one
14-mile railroad serving a salt mine.
Its name stems from two counties in that region: Genesee and
It wasn't until 1985 that expansion began in earnest, with
some 36 deals made since then.
G&W now operates 111 railroads worldwide in 11 regions. In
the U.S.' southern region alone, it runs 18 railroads, including
the Columbus & Greenville Railway and Eastern Alabama
In the Northeast, there are six, among them the Buffalo &
Pittsburgh Railroad, Rochester & Southern Railroad and the
Connecticut Southern Railway. The California Northern and San
Joaquin Valley railroads are among a handful in the Pacific
What G&W carries is widely diverse: coal, petroleum,
steel, iron ore, lumber and forest products, pulp and paper,
autos and agricultural products.
G&W's traffic in April grew 103% over the earlier year to
157,695 carloads. The biggest spikes were in petroleum products,
up almost 70%, followed by metallic ores at 29.5% (mostly iron
ore in Australia), lumber and forest products at 17.7%, and autos
and auto parts at 15.6%.
"They're seeing growth in petroleum from shale plays,
especially in the Bakken," said Gallo.
Railroads are increasingly moving crude oil from shale plays
in Canada and North Dakota's Bakken Shale to the East. G&W
hauls crude in both the West and Gulf Coasts.
Coal, which was off about 20% last year, usurped by the pull
of low prices for natural gas, was up 2% this year through April.
Since natural gas prices have recently risen, management expects
coal to be up about 4% for the year as the cheaper fuel gains
some favor again.
Growth in autos is especially good for profits, Kirkeby says.
"They are high-value shipments that require special carrier cars.
It's a good margin business for the rails."
Despite China's slowing industrial demand, Australia still has
plenty of steam for G&W as new and expanding mines along its
rail line ramp up.
And intermodal rail shipments of stacked containers of
consumer goods from Adelaide in the south of Australia to Darwin
in the north are also doing well.
"The northern territory of Australia is growing very
strongly," Hellmann said during the recent conference, sponsored
by Bank of America-Merrill Lynch.
He pointed to a growing economy and population due to offshore
gas deposits in the north, as well the U.S. Marines'
G&W's intermodal traffic, which stems from Australia, rose
19% through April. Some of the gain was due to easy comparisons
from last year, when floods caused a bridge to wash out.
Hellmann said a big operating priority is related to the
iron-ore ramp-up in Australia from new and expanding mines.
And while RailAmerica's integration is its "No. 1 priority,"
Hellmann said the firm remains on the prowl for more
acquisitions. It has more than $400 million available to do
"There are still hundreds of independent railroads in North
America out there," Gallo said.