UPDATE 2-Genesee & Wyoming sees weak Q3, shares fall

* Q2 EPS $0.20 vs $0.42 last year

* Rev falls 15 pct

* Sees Q3 below Street

* Shares fall 7 pct (Recasts; Adds details, updates share movement)

July 30 (Reuters) - Railroad operator Genesee & Wyoming Inc (GWR.N), which has been hit by a weak freight market, forecast third-quarter results below market estimates, and said it was uncertain when business will improve. Shares of the Greenwich, Connecticut-based company fell as much as 7 percent, but pared some losses to trade down $1.05 at $27.94 Thursday afternoon on the New York Stock Exchange.

The severe contraction of North American industrial production reduced shipments of economically sensitive commodities such as steel, paper and lumber on a same railroad basis in the second quarter, Chief Executive John Hellmann said. The prolonged U.S. downturn has severely hit the transportation industry, from truckers to railroad operators and carriers.

The company sees third-quarter earnings of 38 cents to 42 cents a share, on revenue of $130 million to $140 million. Analysts on average were expecting earnings of 43 cents a share, before special items, on revenue of $142.8 million, according to Reuters Estimates.

The company, which took cost-cutting measures in the first and second quarters, said it will be increasingly hard to extract additional cost savings if the economy takes another major step down from current levels.

It now has 13 percent of its locomotive fleet parked and 10 percent of its employees furloughed.

The company also forecast 2009 revenue below Wall Street expectations.

For 2009, Genesee & Wyoming expects revenue of $530 million to $540 million, while analysts were looking for $581.3 million.

The company owns and operates short line and regional freight railroads in the United States, Canada and Australia.

Freight revenue in the second quarter fell by 13 percent to $79.3 million. Non-freight revenue -- which constitutes about 40 percent of the company's total revenue -- was down 17 percent.

Freight traffic across North America fell 17.6 percent in the week ended July 25 from the same 2008 week, including a 17.6 percent drop in U.S. rail freight, a trade group said on Thursday. [ID:nN30356263]

For the second quarter, the company's net income fell to $7.5 million, or 20 cents a share, from $15.5 million, or 42 cents a share, a year ago. The company earned 22 cents a share from continuing operations.

Revenue fell 15 percent to $130.1 million. Same railroad revenue was down 25 percent.

The pending closure of the Huron Central Railway, which mainly hauls steel, resulted in a one-time charge of 15 cents a share in the second quarter.

Analysts on average were expecting earnings of 35 cents a share, before special items, on revenue of $130.4 million. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Anil D'Silva and Deepak Kannan)