It has been about a month since the last earnings report for Genesee & Wyoming (GWR - Free Report) . Shares have added about 4.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Genesee & Wyoming due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Genesee & Wyoming Outperforms in Q3
Genesee & Wyoming''s third-quarter earnings (excluding 7 cents from non-recurring items) of $1.23 per share surpassed the Zacks Consensus Estimate by 8 cents. The bottom line also increased 51.9% on a year-over-year basis. Results were aided by higher revenues and lower effective tax rate.
Operating revenues increased 4.6% year over year to $603.3 million, which outpaced the Zacks Consensus Estimate of $594.5 million. Freight revenues accounted for bulk of the top line (70.2%) and improved 5.6% to $418.2 million. Meanwhile, freight-related revenues contributed 24.1% to the top line and increased 3.2% to $142.4 million. The balance came from ‘other revenues’. Effective tax rate decreased to 30% in the reported quarter from 36.2% a year ago due to the new tax law (Tax Cuts and Jobs Act). Following the outperformance, the stock gained 5.3% on Oct 30 to $80.55.
Total operating expenses (on a reported basis) rose 1.8% to $475.5 million, mainly driven by higher labor-related costs. Operating income (on a reported basis) was up 16.4% to $127.8 million in the quarter. The metric, on an adjusted basis, increased 14.3% to $130.5 million.
Traffic at Genesee & Wyoming increased 3% year over year to 838,919 carloads. Average revenues per carload during the reported quarter came in at $505 compared with $492 a year ago.
Genesee & Wyoming, which is very active on the buyback front, recently completed its previously authorized share repurchase plan valued at $300 million. The board has cleared a new buyback plan worth $500 million.
Geographically, operating revenues from North American operations increased 11.5% in the quarter. However, revenues from the company’s Australian (51.1% owned) and U.K./European operations decreased 5.6% and 3.3%, respectively. Notably, North American, Australian and U.K./European operations accounted for a respective 59%, 12.7% and 28.3% of the total operating revenues in the quarter under review.
At the North American unit, adjusted operating ratio (operating expenses as a percentage of revenues) improved 270 basis points to 71.2% in the third quarter. At its Australian operations, the same deteriorated 100 basis points to 74.2%. Adjusted operating ratio at its U.K./European operations also decreased 70 basis points to 95.2%. On a consolidated basis, the metric stood at 78.4% compared with 80.2% a year ago.
For the fourth quarter of 2018, operating revenues (consolidated) are envisioned between $555 million and $575 million. At the North American segment, the same is anticipated between $325 million and $330 million. Operating revenues is expected to be in the $70-$75 million range in Australia and $160-$170 million at the company’s U.K./European operations.
Earnings per share are expected to be approximately 90 cents per share in the fourth quarter of 2018. The Zacks Consensus Estimate for earnings and revenues is pegged at $1.10 and $596.32 million, respectively. Operating ratio (excluding U.K. restructuring costs) is projected to lie between 82% and 83%. Effective tax rate is anticipated to be approximately 28%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -18.28% due to these changes.
Currently, Genesee & Wyoming has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Genesee & Wyoming has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.