The Railroad Week in Review:
Week Ending February 20, 1999

Genesee & Wyoming (Nasdaq: GNWR) reported record results for the fourth quarter and year ending December 31, 1998. The quarter's operating revenues were $38.0 mm, up 16.2 % from 4Q97. Operating income was $5.8 mm in 4Q98, up a commendable 33.4 % vs. 4Q97. And - get this - 4Q98 net income nearly tripled to $5.6 mm form $1.6 mm. The fully diluted eps came to a buck-nineteen vs. 30 cents a year ago. For the full year operating revenues hit $147.5 mm, up 42.3 %, and operating income was up 19% to $19.6 mm. Net income for 1998 was $11.4 mm compared to $8.0 mm in 1997, an increase of 42.9 %. Each share earned $2.20 against $1.52 a year ago fully diluted. Nice going!

Elsewhere, sellers of Australia'sV/Line freight operation told GNWR it will not be the successful bidder, never mind GNWR invested $1.6 mm in preparing its offer, a third of which will go against 1Q99 earnings. In Canada, joint venture Genesee Rail-One (GRO) saw declines in paper, steel and grain resulting in a $532,000 net loss to GNWR. The construction of a new salt mine by American Rock Salt, Inc. continues in the same western New York area where Genesee and Wyoming Railroad Company began hauling salt in 1899. Salt mining in the area stopped in 1995 when the old mine was closed after a 1994 collapse.

Regarding traffic growth on the Wisconsin Central (WIR 2/13/99), a friend who ought to know had this to say: "The reason WC North America had carloads down and revenues up is that conventional traffic was off, but haulage traffic was up significantly. Traffic handled under WC haulage agreements does not count as a carload or intermodal unit for [certain reporting] purposes and consequently is not counted in the in our financial statements.

"Excluding the Geneva traffic and the haulage conversion, WC actually managed a modest increase in our non-haulage traffic, overcoming the mine closures and a weak paper market featuring significant downtime by many of our major producers." This bit of clarification is crucial lest the less informed amongst us get the idea that WC is winning big price increases in this distinctly non-inflationary era. If anything, teh opposite is all too true as any price increases are quite difficult to obtain right now.

"Rest assured, however, that with the haulage traffic the railroad is busier than ever. The mainline between Neenah and Chicago now rivals some class I mainlines for train density, although not quite up to the level of the old SP Sunset Route that you mentioned in your piece. During the summer, though, WC will average over 30 trains daily in the middle of that line where it operates several aggregate shuttle trains between Wisconsin quarries and Illinois receivers.

"In fact the busiest part of the line, between Antioch (the start of commuter territory) and Grays Lake (the northernmost aggregate terminal) will see better than forty trains on a typical weekday. It's only a twelve mile stretch, though." Yes, and it begins to look a lot like the EWS short-haul rapid turn business. Ain't it great how it all fits?

Pioneer Railcorp (Nasdaq: PRRR) anticipates a significant increase in FY99 revenues because of an agreement with NS related to the PRRR purchase of the Michigan Southern Railroad. The agreement provides that Pioneer cars will be hauled by Norfolk Southern for a set price to Fort Wayne, IN where they will interchange with CSX to move to further destinations. This will enable Pioneer to offer customers additional routing and more competitive pricing across two major railroad systems. The Industry Agreement inked by the ASLRRA and AAR (see appears to be doing its work.

A shipper friend writes, "The buzz around here is that there will be a significant Y2K failure of the embedded chips in the remote switches and the roads will have to shut down. Are your sources able to scotch this rumor with data? Have the roads live tested the switches? Are the roads you talk to developing action plans to mitigate any failure occurrence and manually override their systems?" As a complete techno-phobe, I am in no position to comment. However, there must be somebody out there who can allay my friend's fears. Please drop me an e-mail I can publish here next week.

Any established company - regardless of industry - worth holding as a long term investment has one thing going for it: a steady and identifiable record of increasing shareholder value. The trick lies in finding these companies. One successful measure has been the so-called "Dogs of the Dow." Perhaps the best on-line discussion of the concept can be found at The Motley Fool,, and called, logically, "The Foolish Four." Springing from this comes an interesting and instructive railroad stock-picking thread developing at the Motley Fool Railroads Board, where the questions center on how to pick among the various railroad companies. For the numbers themselves, see

One of the Industry Spotlight measures used to evaluate a railroad as a potential addition to one's portfolio is equity growth. A reader who is an institutional investor in the most literal sense of the word has offered up a rather striking commentary on railroad equity growth. He writes, "A major merger cost neglected by the railroads in their analyses is the change in the relative size of railroad equity versus the size of equity of the customers. While customers had their equity increase substantially with the bull run of the stock market, railroads actually lost ground.

"This becomes material in the upcoming de- or re-regulation process. Economic power translates into political power. The shippers' clout has increased dramatically and they will dictate the terms. The railroads are relegating themselves to becoming utilities and their economic clout has faded relatively. And [the fact remains that] managing utilities is less risky and easier" than running a railroad.

The argument will be continued right here next week as we look at railroad shareholder value created over the past five years. The yardstick will be - you guessed it - the S&P 500. The results are enlightening, to say the least, especially in view of our correspondent's remarks, above.

MotivePower Industries (NYSE: MPO) subsidiary MPI de Mexico S.A. de C.V. has signed a five-year contract with Ferrocarril Mexicano S.A. de C.V. (Ferromex) valued at $48.6 million. The contract replaces a previous contract of the same length and revenues with the Mexican National Railroad to overhaul and maintain 59 locomotives at its San Luis Potosi facility in the Northeast region of Mexico. A joint venture of Grupo Mexico and Union Pacific, Ferromex was awarded a 50-year concession to operate Mexico's largest railroad with 5,000 miles of track, five border-crossings with the United States and service to six major seaports.

In addition to the 59 locomotives covered under the new Ferromex contract, MPI de Mexico provides fleet maintenance on 260 other units under separate multi- year contracts with other customers in Mexico, for a total of 319 locomotives. MPI de Mexico also repairs freight cars and produces locomotive and freight car components. In January 1999, MPI de Mexico received the American Association of Railroads' certification for its wheel and axle operation.

Meanwhile MPO directors approved a three-for-two common stock split effective on April 2, 1999, for shareholders of record at the close of business on March 17, 1999. And subsidiary Boise Locomotive has signed $3 mm worth of expanded contracts with Amtrak and Utah Railway Company. The Amtrak job covers the fleet of F40PHM-2C commuter locomotives and bi-level coaches operating between Oceanside and San Diego. Utah has signed on for the maintenance and servicing of 14 locomotives. This agreement expands a previous 13-unit, 10-year contract under which Boise has consistently achieved at least a 99 percent fleet availability rate. The new units include 10 GP-type locomotives operating in Provo, Utah and four SD-type locomotives operating in Helper, Utah.

That's all, folks. Go forth and do great deeds.

--Roy Blanchard

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