GWR
#I think our full year expectations when we discussed our guidance, the 2% to 3% range.
We came in at 3.5% for the first quarter.
Mix was probably a good half a point of that.
And in that 3% to 4%, there's definitely some mix which is pushing up a little bit, but I think it's modest.
I still think our pricing around 3% is inline with expectations.
Mike, do you have any more color.
I can comment on the fact that we don't have pricing freedom on all our properties, so it will be minimized in some degree.
But we do view that the guidance we gave earlier we should be able to participate in.
And if there's opportunity to take price, we certainly will.
That's certainly something we look at everyday, and look at the value we bring to the market.
Do you really think I'm going to answer that question.
We're a very small dog.
We watch with interest how others might go about their business.
And to the extent that anything happens and there's opportunity, we'd look at it at that time.
Developing deep philosophical views from where as relatively small as we are, we're not going to do right now.
It's an interesting question.
In terms of ---+ if you look at the investments we've made there.
So we'll take FreightLink, which made back in about 2010.
In terms of how we value assets, what we typically would do is we'd look at the useful life of mines at the time that we make the acquisition, and that was about 50% of the value.
And then we valued the intermodal business, which is north to south and far more stable than the mining side of the business, and that at the time was about 50% of the value.
And that was it.
And so we didn't actually pay for any of the optionality in some of the projects that have ensued since then.
So if you actually intrinsically look at the economics of the initial investment, it still looks very good.
In terms of, do we have to reevaluate our view on Australia.
We still see a lot of opportunity in parts of the mining sector for us to continue to play an important long-term role.
There continue to be interesting projects that we're working on.
It's unfolded far more slowly than we ever expected.
Quite to the contrary, right.
It went from being an engine of growth to going the other direction.
Do I think that the price of iron ore is going to stay at $50 in perpetuity.
I doubt it.
So there's embedded optionality in things we serve today and there's also other new projects in other commodity groups that have interesting long-term profiles.
So the latent optionality of owning the track and the geographies that we own it, I think time will prove that value will get unlocked over time.
And in the meantime, you've got a very good free cash flow, strong free cash flow generating entity that we've just combined with another Australian business.
So we've got to weather the storm.
And as you can see from the results in the first quarter, we've cut an awful lot of cost and our team's has done a pretty good job of being as lean as we can be, and then we've got to strike opportunities amidst the economic dislocation that exists there.
Well, we're doing ---+ we're sitting down with each of the management teams of the subsidiaries, which really are discrete business units.
And we're looking at their business plans that they presented to us previously, in the context of acquisition.
And we're looking at based on our own business assessment and our own ability to allocate capital to good opportunities as to where the highest and best use of investment for growth could be.
We continue to see it as ---+ there are a lot of different places where we could grow, and so we're actually updating strategic plans for each of those regions and evaluating various investment opportunities to underpin further growth, whether it be in Poland, the UK itself, or in the continental European business.
That's a great point.
So in some cases, we're talking to customers in one geography who now see us in ---+ we're working with customers in two geographies that see us in a third, and it's opening the doors to specific conversations that we otherwise would not have had.
Yes.
Think of it holistically as global commodity guys have a global view of the world, and there aren't any global rail operators.
We're pretty much the only guys you can talk to on certain projects, because we can touch them in three continents, four continents at once.
We'll turn that ---+ <UNK> <UNK> will answer that for you.
He is the voice of our disclaimer, but he is also our head of business development and M&A, and he can speak to that.
And running trains.
Yes.
We don't talk to specific contracts, but when you reflect upon our earlier statement about generally speaking what remains of our Canadian and Australian business has a very high freight component.
The timelines to when you know can vary from one week to six months, depending on what's going on with the underlying commodities.
There's a whole bunch of ways, but I mean some of them can go away very quickly.
In terms of laying up equipment, when you make commitments under long-term contracts, you typically have to be ready to serve, whether the mine's shipping or not.
So we have that.
So you can assume that is often the case.
Even with the mine going away, you still have to have equipment available, in case the thing opens up within a couple weeks.
Hey, <UNK>.
<UNK>, you want to answer that.
<UNK>, this is T.
J.
I think the answer is it varies.
And it can vary across commodities and it can also vary within certain commodity groups.
For example with coal.
Not every coal customer has the same margin, so it's not all 50% evenly across.
Sometimes it's greater, sometimes it's lower.
It depends on any number of factors.
You're seeing that within every commodity.
So it does vary.
50% has always been sort of good, big picture company-wide average.
But again, is it a few cars off the back of the train, or is it [unit] trains coming and going or whatever, so ---+ .
If you do the math on the numbers we just gave you, you'll see that there's a slightly higher margin of some of the business that we've lost.
You'll be able to do that math.
Good morning.
How are you.
Another way of saying that is, we're not worried about the impact to us directly, because we don't own the equipment and we'll take the equipment as it comes.
However, you need to ---+ what <UNK>'s saying, you need to broadly think through what the implications are for the rest of the rail network overall and what it can do to hamper efficiency in that regard.
Obviously our first priority is always to get an acquisition integrated and get it right.
In this particular instance, where as we said before, the management team that's been running the business for the past couple decades is intact.
It's not that it's not a lot of work, but it's a much lower risk integration process.
And therefore our ability to continue to contemplate other opportunities at the same time is greater than if you are doing the typical transaction of this size.
So the answer is we are looking.
We are both focused on the integration and we are also actively looking at a variety of investment opportunities, in various parts of the world.
All of those buckets still exists.
You're thinking of industrial railroads, which are typically spun out when times are tough for industrial companies that have railroads embedded in them.
That's clearly the case right now in the mining sector.
So that bucket sits.
The bucket that had declined over time, there were very few short lines spinouts of Class Is, and then of course the Rapid City, Pierre & Eastern sort of contradicted that trend when we did that about a year ago.
So I would call that a less active, much less active bucket, but that's not to say interesting things can't happen.
The existing short line operators, and I'll call it the aging entrepreneurs, who may not have an [oar] in the business, but to ---+ and therefore at some point in time may wish to exit their rail ownership and given our footprint nationally, many of those are either nearby or contiguous with existing G&W operations.
So that bucket is still alive and well.
Equipment investment internationally is, still remains an interesting group, but now that is not just possible new equipment investments in Australia.
It's also within the context of our new European operations.
And I would just say that overall the size of the potential international opportunity has increased just by virtue of having a new geographic footprint.
So the number ---+ if you saw the number of items on the whiteboard in our head of M&A's office, you would realize that the scope of what we're looking at is a pretty ---+ there's a lot of opportunities in every geography where we currently have operations.
The criteria ---+ we have to have good management in order to do a transaction, so it's always going to be easier for us to do things where we currently have a footprint and by adding.
And that's the importance of the Freightliner transaction, that we did have a deep management team that has bandwidth and the ability to integrate into new geographies as well.
So I would say that part, the international piece of that pie ---+ I'll have to dust that off from investor presentations from a couple years ago, and maybe put some checks in the ones that are most active, but that's more active than it used to be.
Actually asked him to type it up, so I could see it.
Number one, what's unusual about it this year is the speed with which from having an extension done in September the co-sponsorship has materialized.
So, I can't remember the numbers precisely, but you've already got probably 140 members of the house and probably roughly 20 senators that have already signed on, and we're early in the year.
So I think beyond ---+ people realize that this is good public policy, and if they're going to do it ---+ we had it in place for ten consecutive years and it probably doesn't make sense to keep doing it on a retroactive basis.
It makes sense to be doing in the context of when people actually make investment decisions.
And so I think there's good bipartisan, this isn't controversial.
I think there's good bipartisan support for it.
Having said that, it is not big enough in my estimation, although I will not pretend to be a legislative expert.
But my advice to me is that there's no ---+ it's just not big enough to garner a stand-alone vote.
It's always going to be part of something else.
Hey, <UNK>.
It's T.
J.
We haven't provided any 2016 views.
But again just to reiterate, generally speaking absent any other business trends like we're seeing in energy or coal, a significant portion of our North American carloads are industrial-based.
We said that GDP is growing, you would expect us to be growing alongside of that, plus or minus.
Plus new business, minus any customer churn or minus any macro trends, like what we see with the rising steel imports, which is affecting our metal shipments.
So you've got the framework right.
It's exactly serving the [trains].
We grow industry GDP.
And again, typically we look at 50% incremental margins and pricing that's sort of inflation plus.
And as we always say, look to what the Class Is are talking about or getting, and we're going to be achieving similar levels of price increases.
I don't think that the near-term softness that's sort of unfolded is affecting the psychology much at all.
They are very personal decisions and I wouldn't say the current economic environment is affecting the sale process.
Well, I mean there's obviously been in a very rapid, in a very ---+ you have to be pretty humble when in a very short period of time you do a bottoms-up analysis of the business, where it turns on a dime in short order.
So you have to be humble that anything can happen.
And obviously the US economy, even in the eyes of the Federal Reserve, is going a little slower than people had expected.
And so we worry about the trajectory of the US economy overall.
And of course we still serve a lot of iron ore and keep an eye on that as well.
So those are probably the two.
Now having said that, the core business, regardless of what happens with those two variables, generates a very high level of free cash flow.
And so the business is very solid and very diverse and able to absorb whatever might happen, but those are probably the two you'd think about.
Yes, absolutely.
I mean times of economic adversity and economic dislocation is when you make your best investment.
So, you have to simultaneously be as efficient as you can be in those businesses that are being buffeted by the real world and the real economy, and then opportunistic in terms of taking on long-term views on assets that may have been beaten up to where you could have an investment opportunity.
So you have to ---+ a Company like us has to do both of those things at once.
Sure.
This concludes our Q1 earnings call.
Thank you very much for joining us.
Operator, you can read the replay instructions.
