Genesee & Wyoming Q1 2009 Earnings Call Transcript

| About: Genesee & (GWR)

Genesee & Wyoming, Inc., (NYSE:GWR)

Q1 2009 Earnings Call

April 29, 2009 11:00 AM ET

Executives

Matthew O. Walsh - Senior Vice President, Corporate Development and Treasurer

John C. Hellmann - President and Chief Executive Officer

Timothy J. Gallagher - Chief Financial Officer

Analysts

Jason Seidl - Dahlman Rose & Co.

Christian Wetherbee - Merrill Lynch

Edward Wolfe - Wolfe Research LLC

Thomas Albrecht - Stephens, Inc.

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Genesee & Wyoming First Quarter 2009 Earnings Conference Call. At this time all phone lines are in a listen-only mode. Later there will be opportunities for your questions. Instructions will be given to you at that time. (Operator Instructions). And as a reminder, today's call is being recorded.

And with that I would now like to turn the conference over to your opening speaker for today, Matt Walsh. Please go ahead sir.

Matthew O. Walsh

Thank you for joining us today on Genesee & Wyoming's first quarter 2009 earnings call. Please note that we will be referring to a slide presentation during today's call. These slides are posted under the Investors tab of our website www.gwrr.com in the supporting materials for today's conference call webcast.

Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are likewise posted in the supporting materials for today's call. We will start with the Safe Harbor statement, and then proceed with the call.

Some of the statements we will make during this call, which represent our expectations or beliefs, concerning future events are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which provides a Safe Harbor for such statements. Our use of words such as estimate, anticipate, plan, believe, could, expect, targeting, budgeting or similar expressions are intended to identify these statements and are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from our current expectations, including but not limited to factors we will discuss later, and the factors set forth in our filings with the Securities and Exchange Commission.

Please refer to our filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. We cannot assure you that the forward-looking statements we make will be realized. We do not undertake any obligation to update this information and you should recognize that this information is only accurate as of today's date.

On the call today we have two speakers, our President and CEO, Jack Hellmann, and our CFO, T.J. Gallagher. I will now turn the call over to our President and CEO, Jack Hellmann.

John C. Hellmann

Thank you, Matt and good morning. Welcome to G&W's first quarter call. Before I start, I'd just like to repeat that we have a slide presentation posted on our website under the Investors tab and the slides provide additional financial information that may be helpful to your understanding of the CFO's presentation. So I'd encourage you to take a look.

As always I would like to start our call this morning with safety. We completed the first quarter of 2009 with an FRA reportable index of 1.18 entries per 200,000 man hours, a 19% improvement over last year. I would also like to note that G&W Railroads just received a total of 38 safety awards from the American Short Line and Regional Railroad Association for our 2008 safety performance. 26 of those railroads had zero reportable injuries and zero reportable derailments in 2008.

Now turning to our financial results and slide two of the presentation. Our diluted earnings per share for the first quarter of 2009 increased 23% to $0.38. Excluding the positive impact of short line tax credit, our earnings per share increased approximately 6%.

Our revenues, excluding fuel sales were around $6 million or 4% lower than we expected back in February. Half of which was a short fall from same railroad operations and half from acquisitions. As you can see we have made significant progress on cost reductions and reported an operating ratio of 81.1% in the first quarter, which was 3.8 percentage points better than last year. The bottom line is that we've been protecting our earnings quite well despite weak revenues. And we expect you will continue to see the benefits of our cost reduction measures over the remainder of 2009.

Commodity groups, where we saw the most significant declines in same railroad volume; were metals and steel, pulp and paper and lumber and forest products, which were down 34%, 24% and 20% respectively. Commodities that held up reasonably well on the same railroad basis, included grain in Australia and Canada, which was up 35% overall; coal in the U.S., which was flat and our non-freight revenues, excluding fuel sales, which increased slightly.

Meanwhile, our price increases in the U.S. and Canada have been consistent with our expectations, up around 5%.

Now I'd like to take a moment and state the obvious. We are operating in a period of unprecedented economic weakness and uncertainty. At the ground level, this business environment manifests itself in many different ways for our customers. For example, in the pulp and paper industry and the ethanol industry, we're seeing customers file for Chapter 11 bankruptcy protection, remain open and continue to ship by rail. Meanwhile, we have seen other customers go bankrupt, stop shipping altogether and then initiate plans to reopen after reorganization.

Another example is in the steel industry. We have one steel customer that we serve in multiple geographies, that has reduced rail shipments by nearly 75% at two facilities, but has shifted production to another facility served by us that is actually shipping ahead of our budget.

Meanwhile, other steel facilities are shutting down entirely and dismantling their mills, such as the Arcelor Mittal plant in Buffalo that we discussed last quarter. The purpose of these examples are simply to illustrate the fluid business environment in which we are making the necessary cost adjustments on a real time basis.

We continue to cut costs and reduce service frequency where possible. We've now per load a 164 employees and we've parked 47 locomotives. The impacts of these reductions were fully realized in the month of March. To the extent that there's anything positive that can be concluded from these dismal numbers, it is that our operations are getting leaner and tighter and we expect to emerge from the recession as efficient as we have ever been.

In analyzing our labor costs, keep in mind a couple of facts. First, we are actually adding positions in regions like Australia, where our business is growing for grain, iron ore and crewing services. Second, our contract switching coal loading revenues where labor is more than 75% of our cost structure have remained stable. TJ will discuss our cost structure in greater detail in a moment.

But now I would like to take a moment and discuss our business in a slightly different way by focusing on our eight major operating regions. Four of our eight major regions have been relatively less affected by the economic downturn. Illinois, which is dominated by utility coal; Rocky Mountain, which ships utility coal in Utah and loads coal trains in the Powder River basin; Australia, which is handling a better grain harvest than last year, and has a growing export iron ore business and Rail Link, which includes our contract industrial switching business.

One of our major regions has experienced mixed results in the economic downturn, New York, Ohio, Pennsylvania. Utility coal in Ohio, salt, solid waste and a portion of our steel business in Pennsylvania has been relatively stable. However, steel in Ohio, other parts of New York and a portion of our coal business has been negatively affected. Pennsylvania coal has suffered from reduced consumption at certain power plants and overhead coal traffic in Ohio, a portion of which is for export has also slowed.

Three of major regions have been uniformly hurt by the economic contraction: Southern, Canada and Oregon. The volume declines in these regions have been the most severe for pulp and paper and lumber and forest products. And these regions have also had the most significant cost reductions.

As we look ahead to the remainder of 2009, we have not yet seen any signs of improvement in our more economically sensitive commodities. We're managing the business as if current trends will continue or worsen and we hope to be pleasantly surprised at some point in the future.

Now I am turning to acquisitions. Given a deep uncertainty in the economy, we continue to be very patient in our approach. We're still reviewing targets and believe that the passage of time will create several good opportunities. In the mean time, we are intently focused on generating strong free cash flow to pay down debt and further strengthen our balance sheet.

Thank you and with that I would like turn our call over to our CFO, T. J. Gallagher.

Timothy J. Gallagher

Thanks, Jack and good morning to everyone. Moving to slide three, which shows a comparison of our results versus the guidance we gave in February. Revenues were clearly weaker than expected and as Jack mentioned, the revenue shortfall was split roughly 50-50 between new operations in St. Lawrence.

Despite the lower revenues, we were able to maintain our targeted operating ratio with good expense control and favorable fuel prices. I'll speak in greater detail about our costs in a few minutes.

Our tax paid was lower than expected and this is primarily the result of internal mix across our major tax jurisdictions, the U.S, Canada and Australia, rather than the impact of one-time items. Note that we now expect our full year tax rate to be 27%.

Finally, increases in same railroad average revenues per car load in the U.S. and Canada were consistent with our expectations.

Turning to slide four, first quarter revenue decreased 2.2 million or 1.6% to a 138.5 million. Revenues from new operations of 21.2 million were offset by a 23.4 million or 16.6% decrease in same railroad revenues.

As you can see on the chart, the decrease in the same railroad revenues includes an $8.4 million decline due to the depreciation of the Canadian and Australian dollars versus the U.S. dollar and a $5.5 million decline due to lower third party fuel sales in Australia. Excluding these items, same railroad revenues declined by 9.5 million or 6.8%.

On slide five, you'll see that freight revenues increased to 1.4 million or 1.6%. Excluding currency and acquisitions, same railroad freight revenues were down 9.9 million or 11.3%. The decrease was primarily due to lower carloads, which declined 8.3% in the first quarter compared to the prior year.

On slide six, we have a breakdown of changes in same railroad carloads. In the first quarter, increases in our steam coal traffic in Illinois and Utah were offset by weaker coal traffic in Pennsylvania. Pulp and paper carloads were down 24%. We experienced weakness across the board. Pulp, newsprint, scrap and fine paper. Farm and Food was up 35% primarily due to the Australian grain harvest. While the current harvest is still below normal, it is better than the severe drought harvest we had last year.

One another key point to note on Australian grain is that the contract is structured in such way that we receive a significant fixed payment and a separate variable payment that is driven by volume.

As a result of the increasing volume year-over-year, this contract structure had the effect of reducing average revenues per carload for farm and food products, which explains some of the change in the next further quarter. Our metals traffic fell sharply reflecting weakness across the major segments of our metal business, steel, scrap and pipe. The decrease in minerals and stone traffic was driven largely by a planned maintenance at our cement customer in the first quarter of 2009.

Looking at chemical, our traffic is primarily feedstocks for the industry such as automobile and paper industries and a downturn in those industries has reduced our chemicals traffic. Similarly lumber and forest products were down 20% year-over-year and 10% sequentially from the fourth quarter. Petroleum products were up slightly in the quarter benefiting from a new propane customer in the Northeast.

Last is auto and auto parts, which on a percentage basis was by far the worse performing commodity in the quarter. We serve primarily Toyota in Canada and Ford in the U.S. While the traffic for Ford was down significantly, our traffic with Toyota was actually flat year-over-year.

The next slide shows a breakdown of the changes in our average fleet revenue per carload. Same railroad average revenues per carload declined 9.1%. Excluding currency, changes in fuel surcharges and mix, same railroad average revenues per carload increased 4.6% in the first quarter of 2009.

If you exclude Australia, where average revenues per carload was skewed by the higher grain shipments, same railroad average revenues per carload increased 5%.

Now turn to slide eight. Non-freight revenues decreased 3.7 million. However, excluding currency and third-party fuel sales, same railroad non-freight revenues increased 400,000. The increase was primarily due to 1.2 million in higher switching and crewing revenues in Australia, partially offset by decline in U.S. associated with the impact of Hurricane Ike and the Dallas and Port Terminal railroad operations.

On slide nine, you'll see that our operating income increased 22.5% to 26.1 million in the first quarter of 2009, versus the first quarter of 2008. Normalizing for gains on asset sales, which will vary period-to-period, operating income increased 25.1% from 20.7 million in the first quarter of 2008 to 25.9 million in the first quarter of 2009. Our operating ratio adjusted for these items improved to 81.3%.

Now turning to slide ten, I'd like to make a few comments on our cost structure. If you look at the natural classification of our expenses, we actually reduced costs in six out of nine categories, even with the addition of the four acquisitions from 2008 and two of the three categories that did increase were related to the acquisitions.

For example, the increase in depreciation was primarily due to purchase accounting and the variance for other expense was entirely driven by the new railroads. So that leaves us with labor expense as the focus of our discussion. Labor increased 3.8 million. This increase was largely driven by labor expense at new operations which added 5.7 million, partially offset by declines in the same railroad labor expense of 1.9 million.

On a percentage basis, labor and benefits increased from 32.8% to 36.1%, which is somewhat misleading in a period where we have actually been reducing stock. The simple answer is that this increase is a result of a change in the mix for non-freight revenues. In Australia, fuel sales and income from equipment rental, both of which have no labor component are down, while our crewing and switching businesses, both of which had a high labor expense component have increased.

The bottom-line is that our total same railroad expenses, excluding currency and fuel sales decreased 10.7 million. Of this decline, 8.1 million was due to fuel used in operations, a $4.7 million decline in the U.S. and Canada, partially offset by a $2.1 million increase in Australia.

The increase in Australia was driven by the larger grain harvest, expanded iron ore services and higher levels of crew services versus last year.

Moving to free cash flow on slide eleven. Our continuing operations generated free cash flow of 12.2 million in the first quarter of 2009. In the first quarter of 2008 our continuing operations generated 4.7 in free cash flow. Purchases of PPE in the first quarter was 20.7 million, but about half of this total related to cash payments that occurred in 2009 for 2008 capital projects, in other words a timing impact. We remain on track to meet our 2009 CapEx target of $58 million.

Slide twelve is a snap-shot of our balance sheet as of March 31, 2009. Note that our nearest debt maturity is $75 million and due November 2011, approximately two 2.5 years from now. Because we are able to maintain capacity on our revolver to pay down this debt and we generate annual free cash flow in a similar amount, we anticipate that our first significant refinancing event to be October 2013 or nearly five years away when our revolver matures.

Guidance for the second quarter and updated guidance for the full year 2009 is shown on slide thirteen. Let me refer you to our earlier Safe Harbor statement that noted that these statements are subject to a variety of factors that could cause actual results to differ materially from our current expectations.

These statements represent management's expectations regarding future results as of today, April 29, 2009 and we do not undertake any obligation to update this information.

We expect second quarter revenues in the range of 140 to 145 million. We are assuming same railroad car loads decline in the range of 11 to 12%. And sequentially, we expect total car loads to decline by 1 to 2%. April car loads, however, are tracking below this. Offsetting the declines in car loads, we expect to benefit from a full quarter impact of the cost cuts made during the first quarter. And therefore we expect an operating ratio around 79 to 80%.

Net interest expense should be approximately 6.5 to 7 million and D&A in the area of 12 million. Our effective tax rate should be around 27% and diluted shares are at 36.4 million.

Note also, that we expect to receive a $500,000 dividend payment from Bolivia in the second quarter. So the bottom-line is that we're expecting Q2 EPS around $0.45 and for the full year 2009, we're revising our guidance to approximately $1.75 to a $1.80 per diluted share and a free cash flow of 75 to 80 million. The big picture is this, freight revenues are weaker than expected. Our operating ratio is bit better than expected due to cost reductions and our tax rate is now expected to be lower.

And with that I'll open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question then comes from line Jason Seidl with Dahlman Rose. Please go ahead.

Jason Seidl - Dahlman Rose & Co.

Hey, guys.

John Hellmann

Good morning

Timothy Gallagher

Good morning, Jason.

Jason Seidl - Dahlman Rose & Co.

Couple of quick questions. TJ, could you go over the expectations for car loading growth, what they are for the quarter, when you said they are tracking in April, I kind of missed that you were a little faster.

Timothy Gallagher

We're expecting same level of carloads in the quarter to decline in the area of 11 to 12%. And total carloads to decline 1 to 2%. I mentioned in April carloads are tracking a bit below this. We haven't really say for carload, we don't have our final numbers in yet.

Jason Seidl - Dahlman Rose & Co.

Okay. And the reason why you think you're going to pick up from April is that some of your customers are coming on board, easier comparisons?

Timothy Gallagher

Well, if you think about our first quarter. January, the first quarter or the first month was I think 9.4% down on the same railroad basis, versus 8.2 for the quarter. February is better, March put to bed and so it's not a uniform trend. It can vary quarter-to-quarter or vary month-to-month within the quarter.

So I'm just highlighting the fact that the first the first few weeks of April have been weaker than that, though we have a full quarter to go.

Jason Seidl - Dahlman Rose & Co.

Okay, that's fair enough.

John Hellmann

It was the same; Jason. It was the same thing that happened in the first quarter. We roll up our expectations from the ground up at a regional level to provide our outlook when we gave guidance in the first quarter. You'll recall that January was tracking behind our expectations and in the similar fashion that's happening in April of this year. And as TJ said, January is weak; February was actually pretty good and then March fell off again and April is looking like March.

Jason Seidl - Dahlman Rose & Co.

Okay, that's fair enough, Jack. On -- if we stick on the car loading outlook, there's been a lot of production cuts in coal, both in the East and at the Powder River Basin. Can you talk a little bit how that may impact either some of your regions and also some of your switching business going forward?

John Hellmann

Yeah. We've -- consistent with the pattern of the first quarter there are places where we're not feeling much impact at all. So for example, in Illinois, there's some plant maintenance that's taking place this quarter. But that's normal and but generally speaking those volumes are as expected.

Utah, which is more base load utility, coal is -- continues -- the outlook continues to be fine. It's very stable. Powder River basin loading revenues captured in the numbers that we gave you would be some reduction from where it's been. But we're actually, we're doing fine and it's reasonably given our contracts structure it's a reasonably stable business.

So then that leaves you with the two points that I made earlier about Pennsylvania, where we've been weaker and our overhead coal trains in Ohio, where we've been weaker. And those overhead coal trains go through other by the way. That doesn't go through the coal line.

And we've seen reduced demand at some local utilities and some offline utilities in Pennsylvania, which is why our outlook for Pennsylvania coal is lower. And similarly, we're running there are fewer overhead trains running and that's captured, that's captured as well.

We have one event taking place in the second quarter that we didn't talk about. And that is there is a scrubber being added to a major coal-fired power plant in Ohio and over time that will be beneficial to us, because we'll shipping the limestone for the scrubbers and that coal will be coming back on line, but in second quarter that customer will be down.

So in all of that information, I think you can understand how we sort of roll up all our numbers to give you the outlook that we do. But, yeah, I would, to your point, I would say the one surprising thing is that certainly in Pennsylvania and the Northeast, there has been some coal base load facilities where you've seen some reductions in output.

Jason Seidl - Dahlman Rose & Co.

That's fantastic color Jack. I appreciate that. Can you also give us a little bit of update on the situation in APM's terminal? I know you guys were linked up and doing business with the Norflex Southern and you were in talks with CSX. Are you connected with CSX or running freight with them or it that still in discussions?

John Hellmann

There isn't a lot of volume going through that terminal right now. There is some you may have seen you probably saw one of the trains. But there aren't a lot of containers shipping. Either there or with the other place in the world where we have our containers which is Rotterdam where our container shipments are way-off. And so, as we speak, there has been some contribution there from things like military traffic, but there hasn't been a tremendous volume moving by rail out of there. So that's something we look forward to someday there being consumption again in the World and that will be moving containers there.

Jason Seidl - Dahlman Rose & Co.

Okay, one more question as always, I appreciate for time Jack. A lot of the short line traffic guys that I speak to, they obviously bemoan the fact that the economy is down but, one of the things they say that's really been surprising and extremely profitable for them is car storage because they have this space anyway. So now it's just like somebody paying them rent. Could you talk a little bit about that, I know it's not large portion of your business, but how much is that sort of up year-over-year for you guys?

John Hellmann

Yeah. That's just only a positive and that's one of the -- as a short line, that's one of the things you can do to hustle when your carloads drop like that. There are segments of our track which are now a parking lot. And TJ is going to get the number up, top of my top I have about just 1 million,

Timothy Gallagher

We probably are incrementally up $1.5 million of income from that in the quarter.

John Hellmann

TJ is telling me it's 2 million.

Jason Seidl - Dahlman Rose & Co.

2 million, but then that's operating profit?

John Hellmann

That's revenue. And there's...

Timothy Gallagher

That's about 2 million and about 1 million of that was new operation on a same railroad basis, about a million bucks?

John Hellmann

Yes. There you go.

Jason Seidl - Dahlman Rose & Co.

All right. Gentlemen I appreciate the time as always.

Operator

And thank you. Our next question from Chris Wetherbee, Merrill Lynch. Please go ahead.

Christian Wetherbee - Merrill Lynch

Hey thanks. Good morning guys.

John Hellmann

Good morning

Timothy Gallagher

Good morning Chris.

Christian Wetherbee - Merrill Lynch

I guess, just want to talk a little bit about the volume outlook and understand a little bit and maybe I missed some things. I just want to make sure I understand and if you think about the same rail volumes being down 11 to 12% range. Just want to see if I can be clear on the moving parts that are kind of going to accelerate the year-over-year declines as we go forward as a comparisons versus last year, coal moderating a little bit. I just kind of wanted to understand that a little bit, if you could break that down?

Timothy Gallagher

Chris, this is TJ. I think the, it's probably a mix against a strong second quarter. So it's a though call. And it's also non-improvement, non-sequential improvement quarter-to-quarter. So we just will remain weak. One other comment I'll make on the same railroad, I am sorry and total carloads declined about 1 to 2%, I'll point out that. We had some customers that, for example steel customers that were shipping and buying in the first month or so of February that then just basically shut down production as the orders that they were working on through the first quarter, just went down.

Also, that coal utility that Jack mentioned was actually taking shipments in the first part of the first quarter, shut down for the inflation of the scrubber. And so, factors like that lead to the sequential total carload declines.

Christian Wetherbee - Merrill Lynch

And when is that scrubber coming back on, I just wanted to when's that...

John Hellmann

July.

Christian Wetherbee - Merrill Lynch

July, okay?

John Hellmann

Yeah.

John Hellmann

It's been down from -- it's pretty much March to July.

Christian Wetherbee - Merrill Lynch

Okay, so I guess partial lack of traditional seasonality as well a few other factors that you guys talked about.

Timothy Gallagher

Yeah. I think Jack mentioned in his comments. We are not, I mean the economy really is weak.

Christian Wetherbee - Merrill Lynch

Yeah.

Timothy Gallagher

I think Chris we don't. All of our time is spend focused at a micro level and understanding specifically, what's happening customer-by-customer. And we're not that big a company, we're not that big a statistical sample. So for us to drive any macro trends by commodity group is a little tough. We're just rolling it up with the best information we get.

Christian Wetherbee - Merrill Lynch

Yeah. I know it's very helpful. I appreciate it. I guess just switching over to the expense side for a minute. I think you mentioned a 164 employees per load. I am assuming those are mostly all U.S. and just I want to get a sense of kind of it sounds like you'll be getting full benefit of some your cost savings in the second quarter as they will complete for first full month in March.

Timothy Gallagher

That's right:

Christian Wetherbee - Merrill Lynch

I just wanted a sense of how much additional capacity you have to flex there relative to these weak volumes.

Timothy Gallagher

In the U.S., those numbers are for the U.S. and Canada. We've actually increased hiring in Australia, because the business is increasing. And so the vast majority was in the U.S., some is in Canada. In addition to those 164, we actually had budgeted hiring 50 individuals who we have not hired.

And there will probably, if things continue to be weak, there are prices where, we will have to continue to make reductions. This represents something like 6% of work force and so that's our first cut.

Christian Wetherbee - Merrill Lynch

Okay. And then just finally one last question on that debt side. It looks like debt was down about 10 million from quarter-to-quarter than the last year to the first quarter this year. Interest expense were down nicely, I guess is that a fair run rate to use as we go forward with this level of debt? And then I guess, just further to that, what would be your kind of sense of paying down that and how aggressive do you think you can get throughout 2009 on that number?

Timothy Gallagher

Well we, I think we've said probably before that that our current cash flow capabilities can de-lever the business at 0.6 to 0.8 turns per year. Obviously, we're in a weaker economy now, than we were last fall. If you look on our balance sheet side, you'll see that funded debt-to-EBITDA which we've included this time, just that because it's difficult for you to understand that the credit we get for the acquisitions we made.

But we're about 3.1 at the end of the first quarter, and we're targeting to be around 3.05 to 3.0 by the end of the year, so.

John Hellmann

You can assume that the free cash flow guidance on slide 14, the vast majority of that's going to pay down debt. Some of that may stay in cash for tax reasons. Some of that may stay in Australia where we have -- in the bank there. But generally speaking, you can assume for modeling perspective, to sweep that cash to de-lever the debt and keep cash. And generally speaking, you can keep cash constant. Although, the reality is you'll probably see cash go up a bit, because we're strong in Australia. And the debt I think will go down by not quite as much.

Christian Wetherbee - Merrill Lynch

Okay. That's very helpful. Thanks for your time.

John Hellmann

Thanks for appreciating.

Operator

And thank you. Our next question from Ed Wolfe with Wolfe Research. Please go ahead.

Edward Wolfe - Wolfe Research LLC

Hey, good morning, Jack. Good morning, TJ.

John Hellmann

Good morning.

Edward Wolfe - Wolfe Research LLC

Can you just give a little bit more detail on the coal? It just feels like the coal feels better for you then most. How much of the reported car loadings of 27%, how much of that is acquisition and how much is that is same-store?

Timothy Gallagher

The growth in the quarter was 13.2%, I believe, down 8.3 same railroad.

Edward Wolfe - Wolfe Research LLC

That's for coal.

John Hellmann

I am just talking about for -- I am sorry. That was --

Edward Wolfe - Wolfe Research LLC

You gave me total I think.

John Hellmann

Right. I'll call you back and then I'll get that broken down. Because I do have same railroad, coal and total coal.

Edward Wolfe - Wolfe Research LLC

Okay. But, I mean generally, you talked about strength in Utah and Illinois.

John Hellmann

If you turn to slide six.

Edward Wolfe - Wolfe Research LLC

I can't find your slides. So I have to give up.

Matthew Walsh

I'm sorry. They are under a recent presentation. And you'll see two for April 29th. One the slide and the other the --

We'll fix that. That's not you Ed, I don't think we made it easy enough for you to get to it.

Edward Wolfe - Wolfe Research LLC

I am sure.

John Hellmann

There's a slide there that shows same railroad carload and the coal changes, it's 200. So it's basically flat at zero percent. We say generally stable.

Edward Wolfe - Wolfe Research LLC

Right.

John Hellmann

And so, I mean just to elaborate we serve base load plants that are, they don't have capacity to switchover to natural gas. And they're continuing to ship as they always have. One of them is actually ahead of plan so far. Another one's down for maintenance. But we're stable in Utah, we're stable in Illinois and we've got maintenance outage in Ohio, but generally the coal there has been fine.

And then the overhead coal trains are down and that's what you can think of as being linked to the Eastern Class One, what you are seeing with their coal, you're seeing run through our other line, the overhead coal trains. And as I said before, the supply has been -- our direct experience with what you're seeing at a macro level has been isolated, principally to Pennsylvania and the Northeast, where they are associated with broad industry of production or switching to natural gas or for whatever the reason, there has been some diminished base for coal demand in the Northeast.

Edward Wolfe - Wolfe Research LLC

Okay, thanks Jack and I was able to finally find the slides on that site. Can you talk a little bit about the pricing side. You talked about when you get through FX and fuel about 5% U.S. and Canada. What's the direction of that as you're seeing new business come up now, is it three-four? I mean what's the current range and how much of that's locked in for '09 right now?

Timothy Gallagher

Hey, Ed. This is TJ. If you think about fourth quarter, I think you use that same number or same metric, that is I think 5.6 or so. 5.8, it is up, a little higher. So there is a deceleration to that trend. But for the full year 2009, we expect that same number to be around 5%. So, nothing has been changed.

Edward Wolfe - Wolfe Research LLC

How much is locked in, how much is locked in for the year?

Timothy Gallagher

Yeah.

Edward Wolfe - Wolfe Research LLC

I would assume a lot based on that comment.

Timothy Gallagher

Yeah. And again, our contracts renew throughout the year and so they begin any given month. And to begin the year, we have half of it locked in, one quarter late through, we probably have two-thirds of it locked in.

Edward Wolfe - Wolfe Research LLC

Okay. How do I think about farm and food yields, that are down 33%? What's the mix of FX that's going on with that?

Timothy Gallagher

Well there's two things, there's FX and then there Australian grain harvest. I looked that at U.S. for any given color, and I think they were down like 150 bucks or something. That purely is the structure of the grain contract. As I mentioned, we got a fixed monthly and available volume related charge income, volumes are well up and therefore the ag revenue is sharply down. But it's simply driven by the contract structure than anything else.

Edward Wolfe - Wolfe Research LLC

Okay.

John Hellmann

And if you want another layer of complexity, in a severe drought here, we're moving a lot of interstate Australian grain, which is much longer haul and has a higher yield to it. And we're moving much less by export. That's grain that's being consumed by large stock consumption in the east. And so you've got a change in mix sitting on top of the contract structure and sitting on top of the currency change and that's why it's difficult to model from the outside. I mean it's -- there are several major moving parts.

Edward Wolfe - Wolfe Research LLC

That makes sense. That's good color. Thank you. Any visibility or expectation on the short line tax credit being extended to 2010 at this point?

John Hellmann

The legislation to extend the credit was introduced to both the House and the Senate in the first quarter. The number of current sponsors is growing. I think there is 64 in the House right now and 10 in the Senate.

The current legislation as drafted, which is subject to the vagaries of the protocol processes, a three year extension and then the increase in the size of the credit, from 3,500 to 4,500 in terms of the limitation. And it's generally viewed as being a shovel ready already stimulus for the U.S economy and so, I think we've got good support. But it's a protocol process that as we've seen in past years, there is a limit of course over the coming months.

Edward Wolfe - Wolfe Research LLC

That expansion of credit from 3,500 to 4,500. Is that something that you would effectively be able to use all?

John Hellmann

Yes.

Edward Wolfe - Wolfe Research LLC

Okay, Rail America; a lot of talk, a lot of noise out there. Is that a property or pieces of that property? Something that you will be interested in?

John Hellmann

Well, we never comment on any acquisition until there is actually a transaction there. You can assume that we've taken a look at any railroad asset in the country and carefully studied it and there will be some terms on which we'd be interested in but I that wouldn't comment specifically on that.

Edward Wolfe - Wolfe Research LLC

Okay, your comments in the release about being patient and that kind of stuff, we should take that as more general or not related to anything specific?

John Hellmann

It's both. It's general and specific. I mean, it's not a philosophical comment per se. I mean, there are several distressed rail assets around the world. I wouldn't isolate to one specific one. And there is a lot more than one and but expectations and distress need to be at a certain point before things happen.

Edward Wolfe - Wolfe Research LLC

What is that point directionally? Is it a trough multiple of some kind or a -- what is it they are looking for?

John Hellmann

That's a great question. I couldn't answer that perfectly but it certainly makes it difficult to value assets, when rail assets fluctuate 50% in one month, the conversation on valuation is a pretty tough one when the public markets aren't quite sure of value assets. You could imagine the conversations you have in the private market.

Edward Wolfe - Wolfe Research LLC

That's a very fair answer. Hey, thanks so much for the time guys. Appreciate it.

John Hellmann

Sure.

Operator

(Operator Instructions) Our next question comes from line of Tom Albrecht with Stephens Incorporated. Please go ahead

Thomas Albrecht - Stephens, Inc.

Hey Jack and TJ really my questions have been answered. Similar to Ed though the presentation was not up, it is up now though but my other questions were answered. Thanks.

John Hellmann

Good day tom if you have any follow-up on this. There is a lot of detail in that presentation. So if you'll and if any one else listening needs to review those slides again we're happy to do it. They are pretty self explanatory.

Thomas Albrecht - Stephens, Inc.

Yes.

John Hellmann

But having said that if you want to take a look and give us a call either TJ or I are happy to go through them with you.

Thomas Albrecht - Stephens, Inc.

Okay.

John Hellmann

we know there is a lot of moving parts in the period which is why we took the time to put the slides together to help the pieces come together.

Thomas Albrecht - Stephens, Inc.

I'm sure they'll be very helpful.

Operator

And very good. We'll go to the line of Jason Seidl for a follow-up question again with Dahlman Rose. Please go ahead.

Jason Seidl - Dahlman Rose & Co.

Hey guys. Quick question here. There is a lot obviously in the regulatory realm in Washington, some of which has to do with removing paper barriers out there. How could that impact your business as the short line of the paper barriers were removed?

John Hellmann

You know, I...

Jason Seidl - Dahlman Rose & Co.

We're not saying you are for or against it just how would that impact you.

John Hellmann

Yeah, I mean our perspective on paper barriers is that these are contracts that were entered into by consenting adults, we are in our contracts. And I would just leave it at that.

Jason Seidl - Dahlman Rose & Co.

Okay, its fair enough guys I appreciate it as always.

John Hellmann

Yeah thanks.

Operator

And another follow up question from the line of Chris Wetherbee with Merrill Lynch. Please go ahead.

Christian Wetherbee - Merrill Lynch

Great, thanks, just one good follow up. I know it's a very small portion of what you guys do. But just taking a look at intermodal for a second, specifically the yield there. I'm just trying to get an understanding, I think the last time you had a two handle on your intermodal yield that was 2003 or so. I want to get to understand why that was down so much? Again I understand a very small portion of what you guys do.

John Hellmann

I don't know the answer to it because it's so small and I think we need to put it in other. Do you know the answer TJ.

Timothy Gallagher

No.

John Hellmann

I don't think that either of us know the answer.

Christian Wetherbee - Merrill Lynch

TJ it might just be a cross perspective but I am just curious because it was a significant decline and a very low number.

Timothy Gallagher

Yeah, all of the since 2003.

Christian Wetherbee - Merrill Lynch

Yeah, okay. That's all I had thank you.

Operator

and thank you. Another follow up question from Ed Wolfe, with Wolfe Research. Please go ahead. Mr. Wolfe your line is open

Edward Wolfe - Wolfe Research LLC

I was testing your site and cut this call off. Just a follow up on paper barriers. Roughly what percentage of your contracts have paper barriers.

John Hellmann

Oh boy. It's not a huge number. I couldn't tell you off the top of my head. I know where they are, but I couldn't tell you what it is.

Edward Wolfe - Wolfe Research LLC

So it's a lot less than half?

John Hellmann

Yeah, oh yeah, way less than half.

Edward Wolfe - Wolfe Research LLC

Okay.

John Hellmann

I'm reluctant to actually give you a number when I don't know for certain, but it's much, much less than half.

Edward Wolfe - Wolfe Research LLC

Okay, perfect. Thank you.

John Hellmann

Actually, another way to it, if you look at the handling on percentages on the rates, it's probably less than 10%, probably 10%.

Edward Wolfe - Wolfe Research LLC

Perfect. Thank you.

Operator

And speakers at this time we have no further questions in our queue. Please continue.

John Hellmann

Well, thank you for joining us this morning. And we'll look forward to speaking with you on our second quarter earnings call. Have a good day.

Operator

And ladies and gentlemen today's conference call is being made available for replay available for replay starting today at 1:00 PM Eastern Time and running for one month until Friday May 29th. You can access our service by dialing 800-475-6701 and entering today's conference access code of 974247. Internationally, you may dial 320-365-3844. And again with that access code of 974247.

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