The Railroad Week in Review:
Week Ending November 13, 1999

Emons Transportation (Nasdaq: EMON), reports significant increases in financial results for its 1Q00 ending 9/30/1999. Operating revenues were up 20% to $6.2 mm. Net income increased 13% YTY, though pre-tax income was up 23%. The spread was due to a higher tax rate. "Same railroad" results were off slightly due to the effects of the Conrail transaction, not surprising since all EMON traffic outside New England and Canada interchanges with either CSX or NSC. Excluding acquired operations, freight revenues declined 1.8% for the quarter.

An article in CBS MarketWatch had this to say about the planned Kansas City Southern (NYSE: KSU) Janus spin-off into Stilwell Financial: "Perhaps the egos of the KSU railroaders are getting in the way of their business judgment. It's gotta be tough to admit that the Janus brand is more valuable than the railroad's brand."

You must admit CBS has a point. Janus, with 3 mm shareholders is a lot better known than Stilwell, which to my mind is the style of commuter coaches the old Erie ran till they fell apart. KSU itself has only 5,500 shareholders, so in effect the five thousand are holding the three million hostage. You have to wonder how this will affect the value of the RR going forward. Trouble is, the company can't say much in its own behalf due to the spin-off process and its timing. We'll have to wait and see how it all works out.

RailAmerica (Nasdaq: RAIL) is selling its Kalyn/Siebert truck trailer manufacturing subsidiary. RailTex (Nasdaq: RTEX) is selling its Brazilian investments. What are these transactions worth? One way to value K/S would be to apply multiples from similar firms listed on the major exchanges. I chose Navistar (NYSE: NAV), Wabash National (NYSE: WNC), PACCAR (Nasdaq: PCAR), and Oshkosh Truck (Nasdaq: OTKRB).

The press release on the K/S transaction cites FY 1998 sales of $39.9 mm, EBITDA of $8.0 mm, and a gross operating margin of 28 percent. The average price-sales ratio of the comparable firms was 0.30, yielding a possible value of K/S in the $12 mm range. Recall the question of a possible K/S sale was asked during the conference call announcing the RailTex transaction. Gary Marino said maybe 2Q00, though I don't recall a number being floated.

RTEX hopes to realize $9 mm from the sale of its entire interest in Ferrovia Centro-Atlantica, S.A. ("FCA") to existing FCA shareholders. The purpose of the sale, according to Ron Rittenmeyer, is to reduce Brazilian exposure and to reduce RTEX debt. Not a bad idea. RAIL has ample overseas exposure in Chile and Australia and $5mm off the RTEX debt load saves RAIL another few bucks in its $300+ mm acquisition price.

Genesee & Wyoming (Nasdaq: GNWR) reported revenues of $45.1 mm in 3Q99, up 29.8% YTY. Operating income of $6.4 mm was up 53.5% from $4.1 mm YTY. The Company's 1999 results include those of the Company's Mexican subsidiary, Compania de Ferrocarriles de Chiapas Mayab, which commenced operations on September 1st. The 1999 results also include those of the Company's Canadian subsidiary, Genesee Rail-One Corp. (GRO). The Company purchased the 47.5% ownership interest of its former joint venture partner and assumed operational control of GRO on April 15, 1999.

GNWR recognized $4.2 mm of income tax benefit as a result of legislation passed in Australia during the third quarter of 1999. The Company's Australian subsidiary may now deduct, for income tax purposes, a larger amount of depreciation than is reported for financial statement purposes. Setting that aside, and zeroing in on how they did before adjustments, we have (pretax) net for the quarter at $4.4 mm vs. $2.5 mm a year ago, an increase of 76%. After tax and benefit, this year saw the net rise to $6.7 mm from $1.4 mm a year ago.

Elsewhere in the financials, the operating ratio dropped another two points to a respectable 86, the net margin broke into double digits at 10%, the number of shares outstanding dropped 16% to 4.4 mm, and interest coverage rose a point to three times. All good things to see. The bad news is that debt doubled to $125 mm, bumping the debt load past the equity base by nearly $50 mm, yielding a debt-equity ratio of 160%. Compare that to Wisconsin Central (Nasdaq: WCLX) where D/E is a respectable 68%, operating income covers interest five times, and the net margin is north of 17%. GNWR stock ended the week at $13.50, unchanged.

Providence & Worcester (AMEX: PWX) net income for the third quarter of 1999 increased 1.3% to $1.69 mm from $1.66 mm (before a $22,000 extraordinary credit) a year ago. Operating revenues were off nearly 7% and operating expenses were up 18% thanks primarily to traffic lost and operational irregularities as a result of the CR follies. Not surprisingly, most of the traffic diversions went to the trucks though there was a little offset from increased traffic in some lower revenue commodities and increased intermodal container movements.

The Power Parts subsidiary of MotivePower Industries (NYSE: MPO) has received a letter of intent from The Belt Railway Company of Chicago to enter into a five-year, material supply partnership worth an estimated $3 mm. Under the agreement, Power Parts will supply and manage inventory stores of all scheduled and unscheduled material for a fleet of 32 locomotives.

Material includes quarterly, annual and tri-annual inspection parts kits, including traction motor combos produced by another MotivePower Industries subsidiary, and various unscheduled, high- consumption components specified by the Belt. Given the proximity of Power Parts' Elk Grove Village, Ill. warehouse to the Belt's operation in Bedford Park, Ill., Power Parts has committed to just-in-time delivery of the kits and unscheduled material within four hours of a request.

What is significant about this piece of news is that a railroad is outsourcing a major supply activity and demanding the same kind of performance its own customers demand of their transportation services suppliers. It is also instructive that the Belt decided that single-sourcing parts was cheaper than trying to save a few bucks by spending hours on the phone calling all the vendors of a particular part.

It's coming in purchasing transportation, too. Canadian National (NYSE: CNI) customers can get rates including origin-destination pairs and commodities at And not only on CN, either. All the provinces and states are covered as well as countries from Afghanistan to Zimbabwe. There's nothing in the rate request form about the shipment having to originate or terminate on CN, either. Talk about single-sourcing!

--Roy Blanchard

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