Genesee & Wyoming Inc. Q4 2007 Earnings Call Transcript

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Genesee & Wyoming Inc. (NYSE:GWR)

Q4 2007 Earnings Call

February 13, 2008 11:00 am ET

Executives

Michael Williams - Director of Corporate Communications

John Hellmann - President and Chief Executive Officer

Timothy J. Gallagher - Chief Financial Officer

Analysts

Edward Wolfe - Bear Stearns

Chris Weatherby - Merrill Lynch

Arthur Hatfield - Morgan Keegan

Neal Deaton - Stephens Inc.

Operator

Ladies and gentlemen, we would like to thank you for standing by and welcome to the Q4 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today’s conference call will be recorded.

I would now like to turn the conference over to your host Mr. Mike Williams. Please go ahead sir.

Michael Williams - Director of Corporate Communications

Thank you for joining us today on Genesee & Wyoming’s Q4 2007 earnings 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.

Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are posted under the “Investors” tab of our website www.gwrr.com, with the event details for today’s earnings conference call. We will also be referring to some slides during this call that are posted in the Investor section of our website with the event details for today's call.

On the call today, we have two speakers: Our President and CEO, Jack Hellmann; and our CFO, T.J. Gallagher. I’ll now turn the call over to our President and CEO, Jack Hellmann.

John Hellmann - President and Chief Executive Officer

Thank you Mike and good morning to all of you. Welcome to our fourth quarter earnings call. Before I start, I would like to repeat what Mike just said that we do have seven slide posted on our website under the investor stab if you would like to follow along. We will speak everything that’s on those slides, but you may wish to have the visual presentation as well.

As I always I would like to start our call this morning with safety. I am pleased to report that we completed 2007 with an FRA reportable index of 1.67 entries per 200,000 man hours which is the 14% improvement over 2006. While these results are positive and well ahead of our peer group, one of our core goals is to be injury free, so we still had a lot of work to do.

To that end, we continue to hold safety training seminars throughout GWI led by depart in order to bring new ideas and perspectives to our safety programs.

Now turning to the financials. Our results for the fourth quarter of 2007 were good, our revenues increased 14% and our operating income increased 20% compared to the fourth quarter of last year. Excluding gains on asset sales from both 2006 and 2007, our fourth quarter operating income increased 36% over last year.

Looking at our fourth quarter revenue, you will see that’s freight revenue which is 61% of our total increase 9%. The significant dynamic to note is at a 6% decline in volume was more than offset by 16% increase in price per carload.

In this regard, I would note that despite the weak housing and paper markets, we’ve continued to maintain our forest products, pulp and paper revenues due to strong pricing. This in turn implies that we have growing leverage to any volume upturned in these markets.

One other item of note in our fourth quarter freight revenue with car are Illinois Co-shipments from the Powder River Basin were strong in the fourth quarter and more than offset weak haul traffic in Utah due to the closure of two mines, following the tragic mine collapsed last year.

Now, turning to the fourth quarter non-freight revenue which is 39% of our total, you will see an increase of 23%. Particularly important, were strong shipments at our port railroad and Galveston Texas, Corpus Christi Texas, Savannah Georgia, as well as strong iron ore exports to Whyalla, South Australia. Meanwhile our diluted earnings per share from continuing operations increased 8% to $0.40 per share in the fourth quarter 2007. As T. J will explain in further detail, after normalizing for certain tax effects and gains from that sale of assets our core EPS growth was over 23%.

Now, the trends of the fourth quarter combined with new business coming on line in 2008 make us optimistic for the coming year despite the US economic landscape. So I would now like to take a step back and look at the big picture for the G&W and discuss our outlook for 2008. With Mexico now a discontinued operation and Australia fully consolidated, we are finally able to give a clear presentation of our core business

If you turn to slide 1, you will see our core revenue has grown at a compound annual growth rate of 24.7% over the past five years. In 2008, which TJ will discuss in detail. We’re budgeting revenue of approximately $560 million, an increase of around 8%. About 80% of this expected revenue growth is same railroad, driven by an anticipated 1% increase in carloads and a 7% increase in rate per carload or revenue per carload.

In slide 2, you will see that our operating income has grown at a compound annual growth rate of 31.6% over the past five years. In 2008, we are expecting operating income growth of around 14% to around $110 million dollars. Excluding the impact of asset sales in 2007, which is shown as the green cap on the bottom of the slide, we expect our core operating income to grow more than 20% in 2008.

Overall, our target operating ratio for 2008 is approximately 80%, which should be 2 percentage points better than 2007 excluding the impact of asset sales. This margin improvement is largely driven by our mix of new business. In 2008, several of the projects that we have been investing in over the past 12 months are coming online including a new ethanol plant in Oregon and new wooden pellet plant on the Bay line, increasing ores and mineral shipments in South Australia and a ramp up of intermodal traffic on Commonwealth Railway from Maesrk new terminal in Portsmouth, Virginia

Turning to areas of weakness, which are captured in this 2008 outlooks, we are primarily concerned with paper enforced product volumes in our Oregon and Canada region. In particular, Canada regions has been adversely affected by combination of the weak US housing market, a weak paper market, and a strong Canadian dollar, which makes Canadian exports less competitive. Meanwhile, we are facing another Australian drought with revenues in 2008 expected to be similar to last year due to the structure of our contract.

Now turning to our earnings per share outlook. Because the short line tax credit has not yet been extended. We expect our growth and operating income to be largely offset by book tax rate that increases from 24% in 2007 to 37% in 2008. Consequently, we expect 2008 earnings per share to increase in low single digits instead of the much stronger growth employed by our core business. Please note that the short line tax credit extension has strong bipartisan support with 199 co-sponsors in a house and 39 co-sponsors in the Senate, and we are waiting for to find its way into the appropriate legislation.

Now turning to the acquisition market. On December 31st we completed the acquisition of an 87% stake in Maryland Midland. The railroad has been fully integrated. January results were good and we look forward to its contribution for many years to come. Meanwhile, we remain focussed on select international markets as well as natural resource development projects in the United States and Australia. The acquisition market remains active for us right now as illustrated by the fact that we spent more than a million dollars on acquisition related expense in the fourth quarter 2007, which caused our operating at 70 basis points. On one hand, we seemed to be in advantage of the corporate acquirer with a strong balance sheet, while other acquirers may be more dependent on the debt market, which are currently in disarray. On the other hand, we are still determining the precise degree of competition from the other bidders. And with that, I would like to turn the call over to our Chief Financial Officer, T.J. Gallagher.

Timothy J. Gallagher – Chief Financial Officer

Thanks Jack and good morning to everyone. Turning to the next slide, fourth quarters revenue increased $16.9 million or 14.3% to a $134.5 million. Trade revenues increased $7 million or 9.3%, as an increase in average revenue per carload of 15.8% was partially offset by a 5.6% decline in carloads. Note that, approximately 3.7% of the increase in the average revenue per car was due to the appreciation of the Canadian dollar, an Australian dollar versus the US dollar. However, even adjusting for the foreign currency benefit, average revenue per carload increased 12.1%

Non-freight revenues increased 9.8 million or 23.2%, of this increase 4 million was related to increased iron-ore services and accruing contracts in South Australia, 3.4 million was due to higher third-party fuel sales, and as Jack mentioned, the reminder of the increase in non-freight revenues was due to broadly higher revenues at our US ports and industrial switching locations.

Let me offer a few other observations on fourth quarter carload results. First, the 2006 drought impact on the South Australia Green harvest produced farm and food product carloads in 2007. The fourth quarter impacted, which was approximately 4800 carloads.

Second, the discontinuance of the M&B haulage traffic reduced fourth quarter carloads by 11,500. Excluding these items carloads increased by about 5000 carloads or 2.6%, primarily due to stronger coal shipments in our Illinois region and stronger salt shipments in our New York, Pennsylvania region. These increases offset an 1800 carload decrease in pulp and paper traffic, which continues to be negatively impacted by a weak Newsprint market.

During the fourth quarter of 2007, we had operating income of 22.5 million compared with operating income of 18.7 million in 2006. Normalizing for gains on asset sales totaling 0.8 million in the fourth quarter of 2007, and 2.8 million in the fourth quarter of 2006, operating income increased 36.5% from 15.9 million in 2006 to 21.7 million in 2007. Our operating ratio adjusted for these items improved from 86.5% in the fourth quarter of 2006 to 83.9% in the fourth quarter of 2007, an improvement of about 250 basis points.

Now turning to slide 5. Normalizing for the gains on the asset sales and the net tax benefits in the fourth quarters of 2007 and 2006, earnings per share increased 23.3% from $0.30 per share in the fourth quarter of 2006 to $0.37 per share in the fourth quarter of 2007. Also, when comparing earnings per share in the fourth quarter of 2007 versus the fourth quarter of 2006, please note that in the fourth quarter of 2006 we had approximately 95 million in cash on our balance sheet associated with the Australian taxes due on the ARG sales that were paid in June of 2007. Fourth quarter 2006 result include roughly $1 million aftertax and interest income from that cash balance

Moving to discontinued operations. We reported a net loss of 0.6 million or $0.02 per share in the fourth quarter of 2007 primarily associated with the cost of liquidation. Moving forward, we expect the cost of liquidation to be around 400,000 in the first quarter as we completed statutory audits, and then the minimis expense there after.

Moving to free cash flow. At the beginning of the year, we estimated 2007 free cash flow from continuing operations of approximately 66 to 67 million. We finished the year with 79.5 million or about $13 million better than guidance. You will note that our networking capital improved by approximately $24 million. The big picture is that 13 million of this increase was due to an increase in our interlined freight payable associated with higher freight revenue. The remaining $8 million increases timing related, the benefit of which was offset by the delayed receipt of $11 million in government grants for capital projects completed in 2007.

Note also that if you look at our cash flow statement you will see that deferred taxes were about $8 million lower than our expectations a year ago. The difference here is split about 50-50 between effects of the Mexico liquidation and a tax payment on the ARG sale on our consolidated US tax provisions. You will note in our guidance for 2008 that the impact of deferred taxes on our free cash flow is at a more normalized level of 17 million.

Moving to slide 6 and the guidance for 2008 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 our views regarding future results as of today, February 13, 2008, and we do not under take any obligation to update this information. We are expecting diluted earnings per share of approximately $1.65 to a $1.75. Please note that this guidance does not assume a renewal of the short line tax credit.

Our underlying assumptions are as follows. We expect revenues to be around 560 million with an operating ratio of around 80%. Net interest expense is around 12 million and our tax rate increase is to 37%. G&A will be around 37 million and diluted shares are 36 million. Please note that we would expect an extension of the short line tax credit, should that occur to increase earnings by about $0.20 to $0.22 per share. With respect to discontinued operations we area expecting the ongoing cause and liquidation to be about a penny per share in the first quarter, and then diminimis thereafter.

Turning to slide 7 for CapEx. Capital expenditures in 2008 are expected to be around $60 million. This total is composite of the following; 42 million of core maintenance capital, plus $1 million for our locomotive lease buyout, $12 million in capital expenditures associated with new business development and $6 million of long-term infrastructure projects with matching governments spend. These projects are typically infrastructure upgrade projects, and in 2008 these projects include upgrades on the Eyre Peninsula in South Australia and upgrade to bridges in Oregon and Canada.

You’ll note that our core maintenance capital spending has increased from 36 million in 2007 to 42 million in 2008. This increase is primarily a function of currency movement in Australia and Canada $2 million, the MMID acquisition $1 million and increases in track and bridge spending in the US which has been impacted by higher material cost. While there is an absolute increase in dollar terms, the level of maintenance spending remans relatively constant at 28% of EBITDA.

Now let’s turn to slide 8 for free cash flow guidance. We’ll start with our net income, add back DNA non-cash compensation expenses and deferred taxes. We expect operating cash flows are around a $119 million to $124 million in 2008. Subtracting our quarter maintenance capital spending yields core free cash flow from the business between $77 million and $82 million. This is the amount of cash flow the business would generate in a steady state.

In terms of what we report in 2008, we need to add $19 million of non-maintenance Capex, adjust for the out of period $11 million in third party funds for 2007 projects and assume that our 2008 grand funding will be received in 2008. While it is difficult to predict the timing of the recede of government grant funding, if we are neutral, 2008 free cash flow would be around $69 million to $74 million as shown on the chart.

Turning to the specifics for the first quarter of 2008 we expect revenues around a 138 million and an operating ratio around 81%. Net interest expense should be approximately 3.4 million and our effective tax rate should be around 37%, diluted shares are 36 million shares. Our bottom line is that we are expecting Q1 EPS around $0.40. And with that, I will open up the call for questions.

Question-and-Answer Session

Operator

(Operator instructions). Our first question comes from the line of Ed Wolfe of Bear Stearns. Please go ahead sir.

Edward Wolfe

Hi Jack hi T.J.

John Hellmann

Good morning.

Timothy Gallagher

Good morning.

Edward Wolfe

Hi, it’s Ed and Scott together. Just for understanding the big spike in yields, we look at 15.8%, can you break that down between fuel price mix currencies and there is a lot of going on here?

Timothy Gallagher

The first thing you should probably do is take the 15.8 and subtract the 3.7% from the currency, and then you end up with the 12.1% on a lowest fixed normalized Australian dollar and Canadian dollar. This rate benefits from the loss of the haulage traffic you know, there is 11,000 cars and carload prices are in low 200s. So we are benefited from that. We also benefited from higher farm and food product carloads due to the contract in Australia. As we discussed in the last call we have both of fix and variable components to that contract. So when volumes went down with revenues remaining fixed our average cost, our average carload price went up. With respect to the fuel surcharge, because of the change in the fuel surcharge framework mandated by the STB in April this year, it’s really difficult to compare year-over-year changes in fuel surcharge and so, we let them together. In fact, our fuel surcharge went down in the fourth quarter versus the fourth quarter last year by about a million bucks, even though our field prices went up by almost a dollar a gallon. So, you really got to look at those two net together.

John Hellmann

Ed, if you strip it down to the core U.S. and Canada which would be a relevant -- you are comparing it to the U.S. and Canadian Class 1 railroads, you can think about us just being around 7% overall in 2007 just a big picture. Our U.S. and Canada core pricing increases around 7%, as I mentioned, we are budgeting about 7% in’08 as well. So there are lot of moving parts as you mentioned, but if you strip it all away, kind of look at the core, you will see that 7%. The reason we are little bit better than others is just pearly due to the mix of our business which is weighted towards some of the paper and forest products which are getting higher pricing.

Edward Wolfe

That’s very helpful. And again, it sounds though like, if you have -- how good is that visibility in ’08 to say we are getting 7, we should get 7 at this point?

John Hellmann

Well, that’s funny. The numbers you are seeing, but the way you get there is different. The visibility is pretty good because it principally relates to revenue per carload on all, the new business that we’re adding. And so, there are – so it’s principally related to the mix and inclusion of that new business whereas we are assuming some continued volume contraction in some of the other commodity goods. So that new business is offsetting other volume.

Edward Wolfe

Okay. And then, for the guidance for 5 to 6% revenue growth for the year verus, 550, 560 versus the 14% you grow in the quarter, plus you have the acquisition coming in. How do we think about that, why should we except revenue decelerate the acquisition, how much of the acquisition that are contributed and how do we think about that?

Timothy Gallagher

As I said about, 80% of the growth is going to be same railroad, which applies 20%, is going to be from the acquisition. And, I think that’s answers the question.

Edward Wolfe

If I take 555 in the middle of your range and subtract to 528 or whatever 529 million and take 20% of that, then its 5 million of revenue that’s how I should I think about?

John Hellmann

The 2007 was 516.

Operator

Our next question comes from the line of Chris Weatherby of Merrill Lynch. Please go ahead Mr. Weatherby.

Chris Weatherby

Hi, good morning, thanks very much. If I could hit on your target for the OR in ‘08, I think you mentioned in a neighborhood of 80%, is it a solid improvement from what we saw fiscal year of 2007, is there anything specific we should be thinking about here, the acquisition how much of that can help and what else are you guys doing to get really ship away that much in one year?

John Hellmann

Yeah, I mean you can think about, I will think about in three ways. One is, yes, the acquisition OR is good. Secondly, when you are adding new business on a railroad, the incremental OR is good, so that’s the second component. And the third thing which give you the most comfort is that management team’s bonus is like to hitting that number and so, we better get to it.

Chris Weatherby

Fairly well incensed to get there

Timothy Gallagher

No that’s our, in all seriousness that’s -- our budgeting process yields set out coming down at a regional level and we know we’ve got a good call, the statistical sample at regional railroads and we budget to a reasonable target and we call it sort of a reasonable stretch target and that’s a basis for our guidance, and the number that spits out is 80% without asset and 80% without any asset sales so. It’s really as simple as that.

Chris Weatherby

Okay. Now I think that’s fair, that’s helpful. And then, just on non-freight revenues, of course a slightly solid number there. I just want to get an idea kind of, how we should think about that for ‘08, I don’t know if you have given specific items on that I may have missed it but – I am assuming including you all end number, have you broken out, where do you think that should be growing next year?

Timothy Gallagher

Yeah, you know, we haven’t done it, its kind of tough to do it because of the pieces of better in it because some of the -- you have to count for the fuel sales through that number and that’s just going to be fine up and down depending on where the price of fuel is and we are getting pretty much the same margin on it, that’s our fuel sales in Australia. There is a piece of that revenue, which is just is directly link to a crewing contract for which we receive a fixed fee and then we pass through cost pass through costs, so there is actually no incremental margin on that portion of it. And then there is the piece of the business which is doing extremely well which is related to the port railroads, as well as some of our major switching contracts which do have a terrific margin on them and they are growing well. So I just completely avoided your answer, but I will use your fourth quarter split between, these are fourth quarter split between freight, non-freight and apply the growth rates, we’ve got into both components and you will end up getting to answer that we are thinking about

Chris Weatherby

No that's actually, that’s very helpful actually. And just switching gears on to the acquisition market, I think you have mentioned that things are looking okay there, you know, anything, we are seeing small size anything off size it seems interesting at this point, I know the credit markets are somewhat constrained, you guys have some flexibility, just curious what your thoughts are there?

John Hellmann

Yeah. It’s a same as it's always been, I realized we have done acquisition for a while. We have been seeing the same thing for quite some time until we get that Maryland Midland acquisition, but we are seeing things of all sizes big and small that are still out there. And as I mentioned in my remarks, as one would think would be a logical acquired given the disarray in the credit market right now and the quality of our credit, our availability of capital, but we’ll see, we’ll see, there is a lot going on out there and we'll see what happens, and its happening in multiple geographies as I mentioned, its not just the United States.

Chris Weatherby

Great. And then just one followup if I could and one quick additional on Mexico, just confirming as it basically done after the first quarter of ‘08 there should be nothing going forward or very small going forward from there?

Timothy Gallagher

That's the plan, yes.

Chris Weatherby

Okay Great. Thanks for your time.

John Hellmann

Thank you.

Operator

(Operator Instruction). Our next question as a follow up from the line of Edward Wolfe, please go ahead Mr. Wolfe

Edward Wolfe

I think that's two quarters in a row, I got cut mid second. What I was trying to get, I was just trying to understand the revenue, and one of the thing that T. J. said just was, I got cut was that '07 revenue is 516, I guess, we don't have all of the details on Mexico and was discontinued, 529, so that's part of it, so it's 7 to 8% growth you are projecting if you take the middle of 555 versus the 516, but still with the acquisition adding a little bit and we are at 14, are you being conservative or is there some piece of business that I am missing, that's going to go away in addition to that?

Timothy Gallagher

The haulage is one part of it. One other thing, we had say roughly six months of the haulage revenue, haulage traffic and then it would be in `07 and we don't have any budget grow 08, so there is 5 million bucks as well. So we have continued weakness in pulp and paper and lumber which is not growing and then it's being offset by the new business that Jack has talked about.

John Hellmann

Yes, you can assume roughly $10 million associated with the acquisition with the good margin on it, and then the balance of it, the other 80% of the growth is coming from 7% yield and 1% volume. There are lot of moving parts in that volume number including some weakness in the forest product site of things and then some strength in the new business coming on line. But in terms of being conservative or not conservative, the product of the same budgeting process that we do every year and we think it's a reasonable place to start.

Timothy Gallagher

I think you mentioned the 14% fourth quarter ‘07 over ‘06 in terms of the revenue growth and why that's not continued in the full year. In the fourth quarter of '07, we had strong car shipments in Illinois, fourth quarter of 06 we had you know much lower shipments of car. So in that one quarter, the turnaround from that business helped create a larger revenue growth than we would expect for a full year.

Edward Wolfe

So you don't see that sustaining in the first quarter, so far the call from the PRB?

Timothy Gallagher

No it is relative to a weaker well below normal fourth quarter of '06 compared to solid '07. So year-over-year that kind of normalizes, we just caught by a comparison which is one was down one was up which distorts it if you look at a full year

Scott

Hey guys its Scott now .Just a couple more quick follow-ups. Just on the 1% volume growth for '08 is that including the acquisition?

Timothy Gallagher

No.

John Hellmann

No. That’s just same railroad.

Scott

Okay. And, but it does include some of the new business that you are talking about?

John Hellmann

Yeah, which is netting against some other areas including the haulage traffic and weakness in other areas which are going the other way.

Scott

Sure. Jack, can you give some clarity on that new business, in terms of the ethanol and I think you said that pallets business. What's online now and or when is the stuff coming online?

John Hellmann

Well, most of its coming. The ethanol is expected in the second quarter. The wooden pallets are starting to ramp up later in the first. The ores and minerals in Australia have been strong and one would expect them to continue to strengthen.

In the timetable on the Maesrk the probably most ambiguous number is the timetable on how the Maersk shipments in the heartland corridor ramp, so. And so, we’d probably, if you wanted to say we’ve been conservative anywhere, its probably there because we are not certain of the timing on how that’s going to ramp up and we’d make comments on that as that progresses.

Scott

The Maersk stuff, did that, did you do anything with that in the fourth quarter?

Johan Hellmann

Tiny bit, tiny bit.

Scott

That’s all on non-freight?

John Hellmann

Just empties. Yeah, and it’s gone through non-freight.

Scott

Okay. And then, when you talk about export coal, is that also in non-freight or is that actually in coal?

Jack Hellmann

Non-export coal, export iron ore. I don’t think I said export coal. Export iron ore is a non-freight.

Scott

And, is there any export coal that you are moving in?

Timothy Gallagher

We move some in Pennsylvania that is shipped out through Baltimore.

John Hellmann

Yeah, but the place where we would logically move export coal. We are not moving any of it because the terminal at Long Beach got closed down some of years ago. You know, 5, 6, 7 years ago coal from Utah use to be exported to Japan through Los Angeles. And now the only terminals up in BC, and the economics of that coal moving by export to west aren’t there right now. Some most of the coal terminal opens up in the West Coasts.

Scott

Do you see any signs that something might start to open up on the west coast?

John Hellmann

I don’t know. I mean there's always talk of ideas and places and I wouldn’t, I'd be non-committal on that.

It would be logic, economically logic if there would be something. I mean the US dollar is not exactly the Primo currency right now and our car looks pretty good.

Scott

Two more just real quick ones. In terms I just want to clarify on the OR guidance 50% didn’t include any gains on sales?

John Hellmann

That’s correct. Actually, I think it concludes $300,000 of gains that we know are coming and nothing more.

Scott

One last one.

John Hellmann

Of course, over the course of ‘08 we will try and, we always are looking to see if there prudent ways to rationalize that. So to the extent we're able to be more successful we'll, that will come, but we don’t budget it without certainty?

Scott

Alright, thanks. And then just last one on the tax credits. What're you hearing in terms of any potential timing? And are you hearing that it's going to get retroactive to the beginning of the year if it does happen?

John Hellmann

There will probably be a proposal put forth that seeks retroactivity. Whether that happens or not we wouldn’t have this slightest idea how the legislation evolves. It leaves our hands. There's tremendous support for it. The issues will involve how many years is it, is it one, is it two, is it three, is the retroactive is it not. What bill does it get attach to and how does that unfold in a pre or called an active political environment today.

Scott

Okay, that’s fair. And then is there any impact from the bonus depreciation from the stimulus for you guys?

John Hellmann

Haven't identified anything material, but we will get back to you if we see anything material.

Scott

Alright, thanks for the time guys

Timothy Gallagher

Thanks guys.

Scott

Sure.

John Hellmann

Thank you.

Operator

Our next question comes from the line of Arthur Hatfield of Morgan Keegan. Please go ahead.

Arthur Hatfield

Good morning guys.

Timothy Gallagher

Good morning.

Arthur Hatfield

Hey, just kind of follow-up on somebody else's questions regarding revenue. When you guys look at an analyze same railroad, let’s just focus on volume growth. Is it more of a customer approach or can we think of that as having, I know this year is unique because you’ve got some new customers are coming on, but certain level of correlation to the US GDP and if so how should we think about that and I closely tighter you to from your outlook standpoint, how sensitive is it to any changes in the US economic outlook?

John Hellmann

Yeah, you should – the short answer is that this is a micro approach at the plant level where our people who are closest to the customers getting the most current expectations for shipments going forward. So, I think, micro approach we don’t impose a top down approach to this. It’s coming from the bottom up. So you can draw correlations I suppose based on the outputs that we have given you. Obviously, every commodity group finds it's own correlation, obviously lumber is correlated with housing starts as plywood of what the -- offsetting that when visible on the force products is the fact that with the US dollar so weak that log exports from the Specific Northwest or up significantly. There is a perfect correlation by commodities like that, particularly pulp and logs in terms of a weak exchange rate, rating the higher exports. You would really have to go through every commodity group and draw your conclusions as to what is correlated to what. Salt is correlated with the weather.

Arthur Hatfield

Right.

John Hellmann

Based on what happened in New York City last night, I'm very pleased that salt should be pretty good. Going forward it had been a mild winter so that was helpful.

Arthur Hatfield

As we look at, as things transpire that we really going to have to rely on your guidance somewhat how any changes in the economy are impacting your business at the micro level?

John Hellmann

Yeah in terms of indicators, it would be in the, if you were to watch things indicators that effect the lumber and Newsprint and you should have a reasonable sense of weather, if you saw an uptick in those areas we should theoretically be benefiting as well.

Arthur Hatfield

Okay. And then just secondly, I don’t think, I don’t recall TJ, when you gave your guidance for ’08, should we look at the share count as being flat 36 million throughout the year?

Timothy Gallagher

Yes.

Arthur Hatfield

Okay. That’s all I have. Thank you guys.

Unidentified Company Representative

Thanks Hat.

Operator

Next question comes from the line of Neal Deaton of Stephens Inc. Please go ahead.

Neal Deaton

Hey guys, good morning. Nice quarter.

Timothy Gallagher

Good morning Neal.

Neal Deaton

One quick question, you guys have had solid performance in the non-freight revenue category particularly with the ports. Any thoughts of expanding that area, I mean, when you mentioned acquisitions, does that include not only short line rail opportunities but also opportunities, in other ports sale on the East Coast where volumes could be picking up similar to, maybe like, what's going out Maesrk in Portsmouth, Virginia.

Timothy Gallagher

Sure. Well, keep in mind when we say port, we are typically just operating the port railroad; we are not the port operator itself. So we are touching principally the rail component, we do a little bit related services; we have a tiny drainage business for example on the Port of Savanna. But generally speaking, its just port railroads.

In terms of that being a place that we look to expand the business out, absolutely there are port railroads all over this country and all over the world and if we can find a good one to operate, under good long-term contracts we'll certainly, those are certainly things that are of interest to us and somethings that's on the radar screen. It depends on the country what type of terminals they might be; whether you typically might have more bulk related that we touch in Australia and might they might be intermodal in other places.

Neal Deaton

Okay, that’s helpful. And, on that same note, you guys said, I believe, it was a while back that non-freight revenues would probably still continue to grow at a pretty very clear maybe north of 10% or something like that, but obviously this quarter it was way up. Lot of that was due to the fuel sale and things like that. But going back to what someone asked a few minutes ago; is there a way to kind get a better feel for what non-freight revenues could be going forward?

Timothy Gallagher

I think we will have to come back to you on that, because we haven’t split it up with that degree of detail. I mean, what we would have to do is split apart non-freight and to the bit that you are interested in and for competitive reasons we may or may not do that. We'll take that on notice that we should take a look.

Neal Deaton

I can follow up with you. Okay, that’s all I have at the moment. Thanks.

John Hellmann

Yeah. Thank you.

Operator

Gentlemen of the panel there are no further questions in queue. Please continue.

John Hellmann

Okay. Well thank you all very much for joining us this morning and we will look forward to speaking with you on our first quarter call. Have a good day.

Operator

Ladies and gentlemen this does conclude our conference call, which will be available for replay from today at 1 o’clock pm until March 13th, 2008 midnight of that day. You may access today's conference by dialing 1800-475-6701 and entering the access code of 904271. If you happen to be dialing from an international location, please dial 320-365-3844 and the access code would be 904271. Those dial-in numbers once again are 1800-475-6701, the international number is 320-365-3844 and the access code for both numbers is 904271. That does conclude our conference call. I would like to thank you all on behalf of today’s panel and thank you for using AT&T. Have a good day. You may now disconnect.

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