RailAmerica Reports Results, Growth Plans

Short line operator RailAmerica, Inc. reported what it termed "solid" financial results in the third quarter and outlined plans to grow revenues through acquisitions and rail-related service offerings.

In its first earnings conference call with analysts since going public last month, company executives confirmed that they are fully engaged in scouting potential acquisitions of railroads and rail-affiliated companies. "We are encouraged by the [acquisition] opportunities we are seeing," said John Giles, RailAmerica's president and CEO.

He added that RA is well positioned to grow through acquisitions and said the company could complete a deal within the next four or five months. "We have the expertise to improve railroad operations and transform financials," he said.

RailAmerica operates a portfolio of 40 individual railroads with approximately 7,500 miles of track in 27 U.S. states and three Canadian provinces.

In pre-IPO filings with the government, RailAmerica said it would pursue "opportunistic acquisitions" in the rail sector. "We believe that the opportunity to acquire assets at attractive valuations is increasing due to the tighter credit environment combined with lower volumes, which results in more willing sellers of assets and a limited number of buyers that possess both the financial flexibility and the expertise to capitalize on these opportunities," the company said.

RA reported third-quarter earnings from continuing operations of $3.5 million, compared to $2.0 million for the third quarter of 2008. Net income, which includes discontinued operations, for the third quarter of 2009 was $3.5 million, compared to $2.9 million for the third quarter of 2008. Net income for the third quarter of 2009 included a tax benefit of $5.4 million.

"In the third quarter, we posted solid financial results generating adjusted EBITDA of $37.6 million, down 4 percent compared to the record third quarter of 2008 and up 7 percent compared to the second quarter of 2009," Giles said. "Also, for the third quarter our operating ratio improved to 76.7 percent compared to 81.5 percent in the third quarter of 2008 as we continued to strengthen operating efficiencies."

"With the completion of the initial public offering in October, RailAmerica has a strong balance sheet with approximately $130 million of cash and are well-positioned to make strategic investments that will complement the opportunities we have to grow organically through freight and non-freight revenue growth and further productivity gains," Giles added.

Third-quarter 2009 revenue decreased $23.3 million to $110.1 million from $133.4 million in the third quarter of 2008. Freight revenue declined $27.9 million, primarily due to a 23-percent decline in carloads. Non-freight revenue increased $4.6 million to $22.1 million from $17.5 million in the third quarter of 2008. The 2009 total included $2.6 million for a restructured contract. It posted $4.5 million in revenues from car storage, $3.1 million from demurrage, $2.4 million from real estate and $1.9 million from switching services.

For the month of October, total carloads were 70,159, down nearly 20 percent from 87,610 in October 2008. Those numbers were impacted by the company's restructuring of a customer contract, which resulted in RA recording the revenue from that contract as non-freight revenue instead of freight revenue and carloads. Excluding the effect of this contract, carloads were down approximately 15 percent year over year.

The railroad reported decreased shipments in October 2009 in nine out of 12 commodity groups compared to October 2008. Three commodity segments that showed year-over-year growth were motor vehicles, coal and petroleum. Motor vehicle volumes were up over 100 percent because of a  new production facility and increased shipments in the Midwest. Coal movements were relatively flat when compared to last year, but reflect a small increase of Powder River Basin coal shipments and petroleum volumes reflect increased LPG shipments.

Like all railroads, RailAmerica has been experiencing a drop in demand for freight hauling services because of the economy. Executives said they believe that the bottom feels firm for railroad demand but didn't expect a swift return to significantly higher volumes.