Executives
Matthew Walsh – Senior VP, Corporate Development and Treasurer
John Hellmann – President and CEO
Timothy J.Gallagher – CFO
Analysts
[Jason Fidel]
Edward Wolfe – Wolfe Research
Ken for Christian Weatherby – Merrill Lynch
Genesee & Wyoming Inc.(GWR) Q1 2008 Earnings Call April 29, 2008 11:00 AM ET
Operator
Ladies and gentlemen, thank you for standing, and welcome to the Genesee & Wyoming Q1 Earnings Conference Call. (Operator Instructions) I would now like to turn the conference over to Mr. Walsh.
Matthew Walsh
Thank you for joining us today on Genesee & Wyoming’s Q1 2008 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 and 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 identity 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 expectation, 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.
I assure 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 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 measure are posted under the Investor’s tab of our website, www.gwrr.com with the event details for today’s earnings conference call.
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 Hellmann
Thank you, Matt, and good morning. Welcome to G&W’s First Quarter Earnings Call. As always, I’d like to start our call this morning with safety. As you may recall, our safety goal for 2007 was an index of 1.75 injuries for 2,000 man hours, and we completed the year at 1.67. For 2008, we set the goal of 1.50 and we came in at 1.61 for the first quarter of 2008.
Now turning to our first quarter financial results. The first quarter of 2008 was an unusual one and our earnings per share from continuing operations were $0.31, which was well below our guidance of $0.40. These weaker than expected results did not change the positive outlook for our business for the remainder of 2008; however, the main components of the quarterly shortfall require explanation. First: Severe winter weather in Canada and Illinois cost us approximately $0.05 per share. Second: Acquisition due diligence activity cost us approximately $0.02 per share. Third: A legal settlement related to a claim from the late 1990’s cost us a $0.01 a share. Presented another way, we were approximately $5 million short of our expected operating income of which roughly $3 million was due to severe winter weather, $1 million was due to M&A activity and $750,000 was due to a legal settlement.
Now first, the severe winter weather in Canada, which persisted through the month of March, created extremely difficult operating conditions. The result was higher operating costs and lower shipments, particularly on our Quebec-Gastineau Railway, which runs from Hull through Montreal to Quebec City. For perspective, in Quebec City, winter snowfall this year was a record 17.5-feet versus a historical average of 10-feet. Our entire Canada region, which generates approximately U.S. $20 million of revenue per quarter, had a roughly 90% operating ratio instead of an expected 80%.
The other unusual weather event in the first quarter was the freezing and subsequent flooding of the Illinois River. As a result of river conditions, a coal fire power plant for which we trans load coal to barge for transport up the Illinois River had significant shipment reductions and into the month of March. We expect to make up a portion of this coal volume in the second quarter.
Turning to acquisition related expense, these costs were high for the second consecutive quarter due to acquisition due diligence in multiple countries. These expenses include financial, legal, tax, and customer due diligence that we believe is critical to insure good long-term investments.
Finally, the settlement of an unusual lawsuit associated with the case from the late 1990s that we assumed in an acquisition cost us approximately $750,000.
Now turning to revenues: Our revenue of $140 million in the first quarter was consistent with our expectations despite the negative impact of weather. A few trends are worth noting. On the positive side, our revenue in the New York Pennsylvania region benefited from strong salt shipments due to the icy winter, as well as good coal shipments that are headed for export markets by the port of Baltimore due to the weak U.S. dollar. In addition, grain shipments continue to flow well through the ports of Corpus Christi and Galveston, Texas, while iron/ore exports were strong in South Australia.
On the negative side, a coal mine served by our Utah railway that was closed in mid 2007 following a tragic accident at a nearby coal mine was started and then abruptly re-closed in March of this year. As a result of what appears to be a permanent mine closure, we’ve assumed this business has gone for good 2008 and expect to lose approximately 4,000 carloads of coal per year.
Now turning to acquisitions: In early April, we acquired Rotterdam Rail Feeding in the Netherlands for a U.S. $21.4 million with contingent consideration of up to U.S. $2.4 million. The RRF acquisition nicely compliments are U.S. Port Railroad’s franchise and puts us at the center of economic activity at one of the world’s largest bulk and container boards. RRF is an excellent short line platform for expanding our business within the port of Rotterdam, throughout the Netherlands and to adjacent European countries.
For competitive reasons, we are limited our discussion of our RRF’s financial, however, it’s profitably will be reflected in our guidance. Overall, you should view our RRF as an investment in locomotives and customer contracts in an open access European Rail environment where we plan to focus on short haul service. The growth profile of RRF is expected to be greater than our U.S. railroads, although in more a competitive environment. Having evaluated several European acquisition targets over the years, we believe this is a logical first step into market that has substantial opportunity.
This morning we also announced the acquisition of CAGY Industries for $78.4 million with additional contingent consideration of up to U.S. $18.6 million. CAGY is a straightforward U.S. acquisition of three short line railroads in the heart of our southern region with operations in Mississippi, Alabama, Georgia, and Tennessee. CAGY has a well diversified customer base which ranges from the world’s largest catfish feed producer to a new biodiesel plan.
In addition, an important new customer is the $850 million SeverCorr Electric Furnace Steel facility in Columbus, Mississippi, which is 100% owned by Russia-based Severstal. SeverCorr has announced plans to double its current capacity to 3 million tons in 2010. CAGY has approximately 50 employees, 20 locomotives and it’s track infrastructure is in excellent condition. We are very pleased that CAGY’s president and CEO Roger Bell has agreed to stay on and lead the operations for GWI. For competitive reasons, we are limiting our discussion of CAGY’s financials; however, it’s profitability will be reflected in our guidance.
Finally, I should also note that our December 2007 acquisition of the Maryland Midland tracked nicely with our acquisition plan for its first quarter under GWI ownership. In addition, to the CAGY, Rotterdam, and Maryland Midland acquisitions, we remain active in the acquisition market both in the United States and aboard.
Despite a difficult first quarter, we continue to have a positive outlook for 2008 for three reasons. First: We expect to make up a portion of the lost winter traffic. Second: We expect significant new business to start coming online in the second quarter, including the (inaudible) in Virginia, a new ethanol plant in Oregon for which we had a ribbon cutting ceremony yesterday and a new wooden pellet plant in the southern region. Third: We expect our recent two acquisitions to be immediately accretive to our earnings per share. As T.J. will discuss in detail, we are expecting between $0.45 and $0.50 of earnings per share in the second quarter of 2008 and we believe that we are well positioned for the remainder of 2008 and beyond.
With that, I would now like to turn the call over to our CFO T. J. Gallagher.
Timothy J. Gallagher
Thanks, Jack, and good morning to everyone. As Jack discussed, the first quarter was challenging for us, particularly with the record winter weather experienced in Canada. However despite the weather, back-to-back draughts in Australia and weak paper and lumber markets, we were still able to grow the top line in the first quarter by $15.6 million or 12.5% to $140.7 million.
Adjusting for the appreciation of the Canadian and Australian currencies, revenues increased by $9.5 million or 7.6%. Freight revenues increased $4 million or 4.7% as an increase in average revenue per carload of 15.3% was partially offset by a 9.1% decline in carloads. On a currency adjusted basis, average revenue per carload increased 11.3%. Non-freight revenues increased 11.6 million or 28.1%. Of this increase, $4 million was related to increased iron ore shipments, new crewing services, and higher levels of equipment rental in South Australia where we also had $3.5 million increase in third party fuel sales. In addition, we also experienced a significant increase in grain exports at two of our U.S. port terminal railroads and started four new industrial switching contracts.
Let me offer a few observations on first quarter carloads. Carloads in the first quarter were down about 19,000 carloads versus last year. About 11,000 or 60% of this decrease is the result of a discontinuation of (inaudible) traffic on the Meridian and Bigbee Railroad. Farm and food product carloads decreased 4,200 primarily for weather related reasons, mainly the severe winter weather in Canada and the back to back draughts in South Australia. Coal carloads were down 3,600 primarily due to the shutdown of the tower mine in Utah. As Jack mentioned, this mine was shutdown in August of ’07, reopened in late February, and then shut again in March. Lumber and forest products remain weak, declining 2,600 carloads due to the continued weakness in the U.S. housing market. Last of all, pulp and paper decreased 6.5% or 2,100 carloads and volumes were sequentially flat. You’ll also note that our minerals and stone traffic is up 4,400 or 16%, roughly one-half of this is due to the Maryland Midland acquisition and the remainder due to the increase salt traffic in our New York/Pennsylvania region.
During the first quarter of 2008, we had operating income of $21.3 million compared with operating income of $23.4 million in 2007. Our operating ratio increased approximately 3.6% year-over-year. Of this increase, approximately one-half was due to the impact of the severe winter weather, the remainder was primarily due to higher acquisitions cost, the legal settlement, and the increase in third party fuel sales which have relatively low margins.
Earnings per share from continuing operations were $0.31 in the first quarter of 2008 with earnings per share of $0.38 in the first quarter of 2007. In addition to the $0.08 impact from the three items listed in the press release that Jack has already discussed, you should also note that we had approximately $95 million in cash on our balance sheet last year associated with the Australian taxes due on the ARG sale, taxes that were paid in June of 2007. Therefore, first quarter 2007 results include roughly $1 million after tax in interest income from the cash balance or about $0.02 per share.
Moving to discontinued operations: We report a net loss of $800,000 or $0.02 per diluted share in the first quarter of 2008. In addition to the $0.01 we expected associated with the cost of liquidation, we had an additional $0.01 of expense associated with the true-up of prior period insurance accrual and equipment writedowns. We are currently seeking a solution in Mexico that would include a legal settlement with the government of Mexico and a sale of the equipment and concession to a third party buyer. If successful, we expect this solution to yield a positive net cash flow for GWI. If we are unsuccessful, our primary focus will shift to pursuing legal remedies to cover the equipment that we have written off of which we believe has been illegally seized.
Moving to free cash flow: Our continuing operations generated free cash flow of 4.7 million in the first quarter of 2008. For the first quarter of 2007, our continuing operations generated $30.7 million free cash flow. Net cash provided by operating activities included a use of $15.1 million in working capital in the first quarter of 2008. The largest factor here was a decrease in our payables by $13 million, driven by a $6 million net decrease in our inner line payable and another $7 million due to timing. We expect to recover much of this swing over the reminder of the year.
Now moving to guidance: Let me refer you to our earlier safe harbor statement and 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, 2008, and we do not undertake any obligation to update this information. The guidance for the second quarter of 2008 includes the impact of the Rotterdam Rail Feeding acquisition and assumes a June 1st closing of the CAGY Industries transaction.
We expect revenues between $147 and $152 million and an operating ratio between 80% and 81%. We anticipate interest expense to be approximately $3.5 million and other income of approximately $500,000 due to our expected annual dividend payment from Bolivia*. We expect our effective tax rate to be around 37%, diluted shares are 36 million. The bottom line is that we’re expecting earnings from continuing operations between $0.45 and $0.50 per share.
The relatively wide range for the quarter is due to a number of factors, including the timing of the CAGY acquisition, the startup of the Rotterdam Rail Feeding acquisition, and the expected startup of three significant new customers in the quarter. We expect a loss from the discontinued operations to be around 400,000 in the second quarter. While the ongoing cost of liquidations have been reduced, we will have additional legal and fire due diligence related to expenses in the quarter.
Our updated guidance for continuing operations for the full year 2008 is as follows: We are expecting revenues between $590 and $600 million and an operating ratio in the range of 81% to 82%. We anticipate net interest expense is $14 million and that includes the second quarter dividend payment from Bolivia. We expect our effective tax rate to remain at 37% and DNA to be around $40 million for the full year. Diluted shares are 36 million.
At this time we now expect diluted earnings per share between $1.60 and $1.70. This includes the first quarter at $0.31 per share. The big picture is that we lost $0.09 in the first quarter versus our original guidance and the loss of the Tower mine in Utah will cost another $0.02 per share this year. Offsetting these negatives is the expected accretion from the acquisitions.
So with that, I’ll open up the call for questions.
Question-and-Answer Session
Operator
Thank you. (Operator Instructions) First, we’ll go to the line of Jason Fidel, please go ahead.
Jason Fidel
Morning, guys. A couple quick questions. T.J., just so I understand what you’re calling $0.31, you’re not, you’re including the legal settlement costs and you’re including the acquisition (inaudible) costs?
Timothy J. Gallagher
Yes, and just going with our reported continuing operations earnings.
Jason Fidel
I just wanted to get that quickly settled. Also, when we’re looking at the Netherlands Feeder Railroad, is that going to be included in other or are you going to put that in the carloadings?
Timothy J. Gallagher
The income from Rotterdam Rail will be in our non-freighted revenues, switching.
Jason Fidel
Non-freight?
Timothy J. Gallagher
Right.
Jason Fidel
Obviously without getting any competitive discussions, could you break out the CAGY a little bit for us in terms of where the carloadings come from on a percentage basis?
John Hellmann
Jason, we’re in this… We’re not going to be giving that detail. We’ve embedded it in the guidance, but it’s a diversified base, but we’re not going to give the detail on the split. You can assume that over time that the business will grow in the area of steel since there’s a very important new steel facility coming on line there and that’s both in the near-term and then the long-term as the expansion as the facility takes place. But for a variety of reasons we’re not going to be giving the split.
Jason Fidel
I understand, Jack, that’s fine. If I look at the average revenue per carload for your farm and food products, that really took a big spike, is that just a mix issue going on in the quarter?
John Hellmann
That’s right. I mean the biggest driver of that actually is Australia when you’ll recall that we have a contract there where there’s applied fixed payment regardless of what the shipment level is and then a lower variable payment and so when carloadings are down, as they are in these back-to-back draught years, we’re preserving the high fixed piece and so the yield per care goes up.
Jason Fidel
So when we’re modeling, we should expect that to stay the same because of the draught conditions.
John Hellmann
You would expect that to stay the same through… Oh by the way, there’s another small element of that always to the fact that there’s interstate grain shipments taking place due to the draught, so we’re shipping a much longer haul to the Eastern State of Australia. That’s the other element of it. Yes, you should expect both of those elements to continue generally speaking into November of 2008, which is the point in time where the new harvest starts to move and you see whatever the impact of that volume might be.
Jason Fidel
Fantastic. Two more quick questions: One involves fuel, I mean you guys have a pretty healthy roughly three-month lag if I remember correctly. In your guidance, what does that embed for diesel costs?
Timothy J. Gallagher
The guidance for the rest of the year includes first quarter fuel prices, which are $0.20 higher than what we included in our original annual guidance.
Jason Fidel
So you’re assuming, T.J., that they remain at these levels for the remainder of the year?
Timothy J. Gallagher
Fair enough. I guess the other question is: You were talking about the new (inaudible) terminal to come online, I know it’s been open for a while, but the volumes have been really coming right away. I mean have you started to see them recently, and what was the cause of the delay?
John Hellmann
Our expectation is for those shipments to begin in the second quarter, but we will continue to defer it to (inaudible) on the precise timing. We’re going to defer to the customer wishes, and they will announce when the first trains will move.
Jason Fidel
Fair enough. Thanks for the time as always, guys.
Operator
Our next question will come from the line of Ed Wolfe from Wolfe Research; please go ahead.
Edward Wolfe – Wolfe Research
When is the Rotterdam acquisition closing, if it hasn’t closed?
John Hellmann
It’s closed. You’ll get the full impact of it in the second quarter.
Edward Wolfe – Wolfe Research
When did it close?
John Hellmann
April 7th, so one week into the second quarter. We announced the acquisition and closing simultaneously.
Edward Wolfe – Wolfe Research
Are we going to see the carloads reflected in your carloads going forward?
John Hellmann
It’s going to through non-freight revenue where our other port railroads are.
Edward Wolfe – Wolfe Research
What is your physical capacity when you start looking at three acquisitions that you’ve made in the last three or four months, one of them large in the U.S., one of them in Europe? Are you at a point now where management is stretched for making further acquisitions? Shall we think this is it for now, or is it going to be further bolt-ons in Europe? How we do think about that going forward?
John Hellmann
That’s a great question. The answer is no, we’re not stretched at all right now. The CAGY acquisition folds right into our Southern region and we are the management, we’ve got a very talented management team there today, and they’re going to continue there. So that’s a very seamless transition. The Maryland Midland’s already been acquired and integrated and, again, we kept key people to actually managing not just the Maryland Midland but an adjacent railroad as well. So those two are not to say we aren’t going to spend plenty of time making sure we get it exactly right, but those don’t concern me from a manpower standpoint.
You’re right, with respect to the Netherlands, the minute you go overseas and you’re making what’s deemed to be a platform acquisition, that one will require more management time from our business development team and the growth of that business could be through further equipment investment, potentially other acquisition. So that’s the only place where you think about draws on management time. But from an acquisitions, there’s nothing right now that’s holding us back from, we’ve got the resources and the manpower in the organization. We’re deep enough today that we can easily look at several more. I couldn’t have said that to you a couple years ago, but we’re much deeper in our management bench.
Edward Wolfe – Wolfe Research
What was the integration drag on the Maryland Midland in the first quarter?
John Hellmann
Zero, there was no… It hit… It was within a rounding error of the acquisition plan.
Edward Wolfe – Wolfe Research
It sounds like CAGY there’s going to be some synergies, some cost potential here when you merge it in with what you got down there?
John Hellmann
CAGY’s unusual in that it’s not a tradition tuck-in acquisition in that it’s a, normally with fold-in acquisitions, there’s some cost takeouts and the economics are very straightforward and you’ve got the railroad up and running. In the case of CAGY, this is a growth franchise that’s got a core diversified business and then a very large steel mill that’s expending as we speak; it’s expanding output as we speak and it’s investing and it’s further expansion into 2009/2010. So that acquisition is more of a forward-looking growth story that gives us a lot of confidence in our long-term growth because of that business rather than one where it’s our traditional reduced overhead. In this case, you’ve got a growth business.
Edward Wolfe – Wolfe Research
Did I hear you right, you’ve not giving trailing EBITDA revenue on either of these?
John Hellmann
No, we’re not for different reasons in each cash, but we’re for competitive reasons we’re holding those.
Edward Wolfe – Wolfe Research
I apologize…
John Hellmann
You can assume that the hurdle rates that we’ve used for the past eight years are being effectively upheld by these acquisitions though. When I say that, you can make that assumption.
Edward Wolfe – Wolfe Research
On a trailing EBITDA basis?
John Hellmann
Yes.
Edward Wolfe – Wolfe Research
That’s helpful, Thank you. Just looking at some of the startup business, when is Maesrk business going to start flowing to you?
John Hellmann
We expect it to start flowing in the second quarter, but we are differing to Maesrk to make the public announcement as to when it precisely will be. We have agreed to that.
Edward Wolfe – Wolfe Research
The Oregon plant.
John Hellmann
The first train moved two weeks ago, so they’re just getting… There was a ribbon cutting ceremony. It’s about 113 million gallon ethanol plant. The ribbon cutting ceremony was yesterday out in Oregon. That was the railroad part of the ceremony with ourselves the Burlington Northern Santa Fe who’s carrying the long haul piece of that route. So that’ll ramp up over Q2. I think our expectation is you get a full impact of it in the third quarter.
Edward Wolfe – Wolfe Research
Will we see the impact of Maesrk in the second quarter do you think or not?
John Hellmann
Whenever they announce it, we’re already into the second quarter and so… That’s going to be a gradual, right, that’s another gradual ramp-up that’s going to, you’re going to be looking at it growing from ’08 to ’09 to 2010.
Edward Wolfe – Wolfe Research
The [Bido] plants in Florida, when those are going to go up?
John Hellmann
That is going to be expected to start on May 1st, the first week of May. They had some slight delays on getting some structural steel technology into a shed there that just delayed them a little bit. Put it this way, I have press wood and pellets on my desk downstairs, so I know what the product looks like and it should be moving here.
Edward Wolfe – Wolfe Research
Sure, and just to close this loop then, any update on the tax credits, a lot of things that are coming your way, it feels like, any news on that?
Timothy J. Gallagher
The Senate Finance Committee and I have introduced as part of a tax extended bill a two-year extension to the short line tax credit. It could morph in any different directions as the legislation professes. It’s got 200… We’ve got 240-something, maybe 242 cosponsors in the House. We’ve got 41 cosponsors in the Senate, so there’s good bipartisan support for it. The issue will be a political one was to whether or not the appropriate offsets to any of these tax extenders prevent from making it through because they’re (inaudible)… A fiscal environment, if you’re making a tax reduction, you also have to give something to show that you’re balancing and so that would be the impediment to making it through in this particular (inaudible).
Edward Wolfe – Wolfe Research
As you understand it, are the two years ’08 and ’09 or ’09 or ’10?
Timothy J. Gallagher
I believe they’ll be ‘08/’09, and I believe at this time the alternative tax fix is not included, but that may change as… This legislation marches its way along and morphs as it progresses, so what you see now may not be what you get at the end. We’ll certainly be pushing for a three-year extension and retroactive and the alternate minimum tax so that the industry can benefit to the fullest from the credit.
Edward Wolfe – Wolfe Research
One last question on the Rotterdam acquisition, and I apologize a couple things have slipped through the cracks, I’ve been a little busy the last couple weeks, but what your equity stake in that?
John Hellmann
We own the whole thing and so it’s a wholly owned subsidiary based at headquarter right down in the Port. When you think of the port, it’s a little bigger than… It’s 40 kilometers long right along the Maas River connecting out to the North Sea. It’s got… It’s like Bulk Australian Port meets, Houston meets, a container port in Los Angeles. It’s very, very large port it’s got. Headquarters is right at the furthest point deepest into the port down there.
Edward Wolfe – Wolfe Research
Where do you see building out from there, which directions?
John Hellmann
The initial… I mean there’s several ways you can go. There’s so much business activity within the port itself that one scenario is just to take advantage of the existing position we have and the fact that there have been some entrepreneurs building a business and now they’ve got a partner that brings capital and management to help support their growth within the port itself. There’s also opportunities within the Netherlands overall. They do some switching work just like our rail switching business; it’s several sites throughout the Netherlands, so the service component of G&W’s business. Then of course, it’s a franchise that we can replicate in adjacent countries where they’re also maybe available port opportunities. It’s a native market and we think this is the right way to enter it.
Edward Wolfe – Wolfe Research
Well thanks for the time, and I look forward to the analyst meeting in Amsterdam.
Operator
(Operator Instructions) We’ll go to the line of Christian Weatherby from Merrill Lynch; please go ahead.
Ken for Christian Weatherby – Merrill Lynch
Good morning, it’s Ken Hexter in for Chris. On the coal plan that you noted that had shutdown again in March, are you looking for that to reopen soon or is that permanently shut?
Timothy J. Gallagher
When it was announced in March, the owners that it would close indefinitely. We’re assuming that means permanently, but we have no other information.
John Hellmann
Yeah, there’s all sorts of rumors about what its ultimate faith be. This is related, Ken, to the… If you’ll remember that this is Carbon County, Utah, where that horrible mine collapse was where the rescuers were subsequently killed.
Timothy J. Gallagher
Crandall Canyon.
John Hellmann
Crandall Canyon mine and this is the mine, it’s actually adjacent to the railroad. We serve it through a trans load facility onto our rail line and it would shutdown for half of last year. It reopened in February into early March and then for reasons related to some MSHA fines and safety violations that it’s been shut, we’re assuming for good. Who knows how it plays out going forward. Our guidance assumes it stays shut.
Ken for Christian Weatherby – Merrill Lynch
Then on volumes overall, I don’t think you mentioned this, but do you expect a return to positive volumes in the near-term, excluding the acquisitions?
Timothy J. Gallagher
Volumes should turn positive in this quarter, second quarter assuming the timely start up of these three new customers.
Ken for Christian Weatherby – Merrill Lynch
What’s your outlook on the operating ratio given where fuel expenses are?
Timothy J. Gallagher
I gave guidance to be in the 81% to 82% range for the full year. Part of that is impacted by fuel. But as we said in the past with respect to fuel, we get around 90% recovery of increased fuel prices; although like every other railroad, we have lags at least two months and sometimes longer given our handling line relationships.
Ken for Christian Weatherby – Merrill Lynch
Then lastly, just obviously been pretty inquisitive as of late, what’s the environment out there for some of the other discussions you’re having?
John Hellmann
I mean it’s really, over the last I’ll say eight years, we’ve had the steady stream of acquisition opportunities that come from many different sources. Periods in which we haven’t done acquisitions, it doesn’t necessarily mean that we’re not just as buys as the periods in which we do do the acquisition. What’s a little different about the current environment is that in the acquisitions we’re looking at, we’re competing against bidders who generally aren’t, or are more dependent on the current credit markets and that puts us at an advantage in terms of our capacity to move quickly and close quickly and not have contingencies associated with our bids. So I would say there’s at the acquisition market is active, we’re looking at opportunities in the U.S. and abroad, various sizes, big and small, and we’ll see how it unfolds. It’s generally a good market to be looking in.
Ken for Christian Weatherby – Merrill Lynch
Great. Thanks.
John Hellmann
That’s quite a change perhaps the preceding 18-month interval when the credit markets were red hot and we were not successful as the acquirers.
Ken for Christian Weatherby – Merrill Lynch
Makes sense. Thanks for the time.
Operator
Gentlemen, at this time, I’m showing no further questions. Please close with any statement.
John Hellmann
Thank you all for joining us on the first quarter call, and we’ll look forward to speaking with you on our second quarter call. Have a good day.
Operator
Thank you. Ladies and gentlemen, today’s conference call will be available for replay after 1:00 p.m. today until midnight May 29th. You may access the AT&T Teleconference replay system by dialing 800-475-6701 and entering the access code of 904273. International participants dial 320-365-3844. Those numbers once again, 800-475-6701 or 320-365-3844 and enter the access code of 904273. That does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.
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