G&W 2016 capex down nearly 30 percent

Written by Mischa Wanek-Libman, editor
G&W
G&W

Genesee & Wyoming Inc. (G&W) will target a $225 million capital program in 2016, which is down approximately 28 percent when compared to its 2015 spend of $315 million.

 

The majority of the program, $112 million, will go toward track and structure renewals. That number is down $48 million over 2015. G&W will spend $63 million on equipment and other expenditures, which is down $10 million from last year. New business and investments are targeted at $35 million and grant matching capital is budgeted at $15 million in 2016.

G&W notes that its new engineering department, Railroad Engineering Services, yields approximately $10 million savings in core track capital. Additionally, the railroad holding company was able to procure a large amount of materials at the tail end of 2015 for use in 2016 projects.

Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl said the capital program reduction is positioning G&W to increase its free cash flow by about 10 percent year-to-year to $285 million. Seidl believes the free cash could allow G&W to acquire additional shortlines specifically from Class 1 spin offs.

Jack Hellman, president and chief executive officer, pointed to three trends that have driven weak rail shipments: 1) the collapse in the prices of global commodities such as iron ore, copper, manganese and crude oil; 2) the rapid shift of U.S. and U.K. power generation away from coal to cheaper natural gas and 3) a strong U.S. dollar, which has been making G&W industrial customers, such as steel manufacturers, as well as its agricultural customers less competitive in global markets.

Hellman said the trends that made 2015 difficult show few signs of abating in 2016, adding, “In response to this environment, we have been intensely focused on enhancing our free cash flow and positioning the business for improving trends in the future.”

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