BNSF after the bell Thursday reported first-quarter earnings of 86 cents per share, down from $1.30 per diluted share in the first quarter of 2008, as freight revenue fell 20% in the comparable period, from $4.14 billion to $3.31 billion. BNSF’s operating ratio rose to 79.8% in the first quarter from 78.9% in the comparable 2008 quarter.
Wall Street analyst estimates exclusive of any one-time charges were for earnings of 96 cents per share on revenue of $3.68 billion.
The company attributed much of the revenue decline to a decrease in fuel surcharges of approximately $325 million and a $96 million charge in excess of amounts previously accrued related to the unfavorable coal rate decision.
The remaining variance, it said, was due to lower unit volumes as a result of the economic downturn, partially offset by improved yields.
“During the first quarter of 2009, BNSF’s focus on cost control and a variable cost structure enabled us to weather a difficult economic environment,” said BNSF Chairman, President, and Chief Executive Officer Matthew K. Rose. “BNSF continues to manage through the recession and is well positioned to take advantage of the eventual economic recovery."
Morgan Stanley analysts William Greene and Adam Longson agreed with Rose's assesment: "After years of lackluster productivity gains, BNSF's first-quarter 2009 was a breakout. We underestimated the labor cost opportunity and how successful BNSF had been in building a more variable-cost rail model (customers are more likely to own railcars). We've noted for some time that Western rails should outperform Eastern rails. BNSF's quarterly results were impressive no matter how we slice it. We are increasing our 2009 estimate of $4.60 to $4.90 as well as our 2010 EPS forecast from $5.15 to $5.35. Accordingly we are also increasing our price target by $5 to $70 while maintaining our Hold rating. We believe the company is taking the right steps to control costs during a weak freight environment while simultaneously improving service levels."
U.S. freight carload traffic for the week ended April 18 plummeted 24.3% from the comparable week one year ago, the Association of American Railroads reported. Traffic declined 20.6% in the West and 28.6% in the East ,and fell in all 19 carload commodity groups charted by the AAR.
U.S. intermodal volume fell even more sharply, down 28.3%. Total volume of 27.2 billion ton-miles was down 23.2% from the comparable week in 2008.
Canadian freight carload traffic declined 25.2% for the week compared with one year ago, while intermodal fell less precipitously, down 17.0%. Mexico’s two major railroads saw freight carload traffic decline 9.8%, while intermodal dropped 21.9%.
Combined North American rail volume for the first 15 weeks of 2009 on U.S., Canadian, and Mexican railroads was down 18.1% from the first 15 weeks of 2008; intermodal was off 15.7% for the same comparable period.
Union Pacific reported its first-quarter net income fell 18% to $362 million, or 72 cents per share, down from first-quarter 2008’s $443 million, or 85 cents a share. But the railroad still beat Wall Street analyst consensus estimates of 66 cents per share.
UP Chairman and Chief Executive Jim Young said the economic environment continued to hurt volumes. Revenue dropped 20% to $3.42 billion, mirroring a decline in volume of 21% during the quarter.
"In the first quarter, we experienced one of the most challenging business environments we've ever seen," Young said during a conference call with analysts.
Shares of UP were up 3.21% in Thursday morning trading on the New York Stock Exchange.
Dahlman Rose & Co. said that, based on first-quarter performance, it's raising its 2009 EPS estimate for UP from $3.50 to $3.70 as well as its 2010 EPS forecast from $4.00 to $4.30. "Accordingly we are increasing our price target for Union Pacific by $4 to $60," said Director Equity Research Jason Seidl, a Railway Age contributing editor. "Although the economy will undoubtedly provide near term challenges for UP, the railroad has clearly showed us its ability to truly weather the storm. Indeed, once freight levels eventually return, UP has ample capacity to take them on without spending significant excess capital. We continue to believe that the company’s true operating ratio lies somewhere south of 70%. Accordingly, we reiterate our Buy rating on the company’s shares."
Said Morgan Stanley analysts William Greene and Adam Longson: "We've noted that UP will report the best 2009 EPS trend among rails or parcel given company-specific growth opportunities and fewer headwinds than peers. 1Q results give us even greater conviction. Despite the worst volume decline (down 21%), UP's EPS fell only 15%—the best performance after BNSF, where volume fell only 14%. Nearly as important, we believe that the first half of 2009 will mark the trough in both rail volumes and earnings, which we can't say for parcel. Rails are trading below mid-cycle multiples while other transports trade near peak. With volumes declines likely to improve soon, and reasonable valuation with opportunity for multiple expansion, rails should be the best "early-cycle" play in freight at this point. UP remains our top pick. UP's productivity gains are likely more sustainable than other rails."
Lower freight volume depressed Canadian Pacific’s first-quarter net earnings of C$62.5 million (US$51 million), or 39 Canadian cents per share, falling short of Wall Street analyst expectations of 48 Canadian cents per share and also down from C$90.8 million, or 59 Canadian cents per share, logged during the first quarter of 2008.
Revenue of C$1.07 billion (US$872 million) was down 6.6% for the quarter compared with one year ago. CP’s operating ratio rose to 87.0% from 82.4% in the year-ago quarter.
Chief Executive Fred Green pointed to an "unprecedented decline" in some business lines, such as potash, which is off 70%, Canadian coal, off 30%, and automotive shipments, down 43%.
CP officials said the company will cut back on its 2009 capital program; CP now plans to invest between C$720 million and C$740 million, instead of its original target of C$800 million to C$820 million.
Shares of CP were up 1.27% in morning trading Thursday on the New York Stock Exchange.
While Atlanta, Georgia’s state capital, struggles to identify and agree on passenger rail expansion—Atlanta is wrestling with MARTA, regional rail, and Amtrak access issues—Augusta, Ga, appears to be moving ahead more successfully, if more modestly, selecting a specific, 2.5-mile route for an initial “light rail” (or streetcar) line serving downtown.
URS Corp., hired by the Downtown Development Authority of Augusta, estimates the system would cost about $25 million. DDAA seeks to use the project as a tool to spur economic development in the city. If implemented, the system would be Georgia's first streetcar or light rail system since U.S. cities began adding or restoring such systems, beginning with San Diego in 1981 (though Savannah, Ga., also is pondering a streetcar operation, with cars possibly powered by batteries instead of overhead catenary).
Among several routes studied, URS found the most feasible (shown at left, courtesy of URS and the Augusta Chronicle) would be street running on Broad and Reynolds streets, between 13th and Seventh streets, then proceeding to the city’s medical district and possibly crossing the Savannah River into North Augusta. Another leg would travel down Seventh Street to James Brown Arena.
DDAA Executive Director Margaret Woodard said planners wanted a design that served downtown attractions, had room for developmentalong the line, and served downtown workers. The chosen route “hit all three criteria,” including access to the Medical College of Georgia. City transit planner Uriah Lewis said he would be able to use the streetcar system as part of the public transit system, moving three bus routes to other parts of thecity.
URS planner Brian Piascik justified the streetcar system basednot on Augusta's overall population but for its value as a development tool.URS hopes to establish ridership estimates for the system within the next month.
At his Senate confirmation hearing Tuesday, Joseph Z. Szabo, President Obama's choice to head the Federal Railroad Administration, pledged to make "implementation of new safety provisions" a priority if he is approved for the post.
He was speaking of the 41 rail safety rule makings, studies, and model state laws mandated by the Rail Safety Improvement Act of 2008.
He said other priorities would include implementing provisions of the Passenger Rail Investment and Improvement Act of 2008, plus two major rail grant programs established by the American Recovery and Reinvestment Act: one providing $1.3 billion for capital grants for Amtrak, including $450 million for security improvements; and another providing $8 billion for high speed passenger corridors.
Szabo said he would also advocate that rail be considered an integral part of a larger solution for reducing highway and airway traffic congestion.
Wilmerding, Pa.-based Wabtec Corp. reported first-quarter net income of $32.7 million, or 68 cents per share, in the three months ended March 31, compared with $32.5 million, or 66 cents, during the first quarter of 2008. That beat Wall Street analyst estimates averaging 58 cents per share, and helped send Wabtec shares higher in Wednesday trade.
First-quarter sales slipped to $378 million compared with $383 million in last year’s first quarter, and Wabtec’s earnings guidance said the company expected full-year sales to be slightly below 2008 levels.
The company nonetheless affirmed its earnings forecast for the year of between $2.45 and $2.75 per share, noting that rail transit demand is healthy.
“Our transit backlog gives us solid visibility in that segment through 2009, while the outlook in freight remains uncertain due to the weak global economy," said Wabtec President and CEO Albert J. Neupaver in a statement.
American Short Line and Regional Railroad Association President Richard F. Timmons addressed Congress Wednesday, urging improvements to the Railroad Rehabilitation and Improvement Financing (RRIF) Program that would affect local communities and businesses reliant on short line rail service.
“Short lines have grown from 8,000 miles of track in 1980 to nearly 50,000 miles today. There are over 500 short lines operating in 49 states,” said Timmons, addressing the House Committee on Transportation and Infrastructure’s Subcommittee on Railroads, Pipelines and Hazardous Materials. “Short lines are the ‘first mile-last mile’ for over 14 million carloads of goods annually–nearly one out of every four carloads moving on the national rail network.
RRIF loans fund track maintenance and rehabilitationprojects that aid rail access to local businesses nationwide. The projects are labor intensive, requiring short lines to hire contractors and additional laborers, as well as purchase track ties and other U.S.-made materials, Timmons noted, adding, “Railroading is the single most capital intensive industry in the country.”
He continued, “Based on comprehensive data surveys ASLRRA has conducted since 2004, short lines invest nearly 30% of their annual grossrevenues in track rehabilitation and maintenance.”
RRIF at present leverages substantial private investment in the short line infrastructure but the program is not being fully utilized, ASLRRA says. ASLRRA wants Congress to subsidize an interest rate reduction to 1% on all RRIF loans, as well as defer payments for up to five years after substantial completion of a project.
A third improvement to the RRIF program to extend the loan term from 25 to 35 years was proposed by ASLRRA and adopted by the Transportation & Infrastructure Committee last year. “I am proud to say, in the 10 years the RRIF loan program has been on the books, not a single short line railroad has missed a single quarterly payment on its debt,” said Timmons.
CSX Transportation says that 100 new industrial projects developed along its lines in 2008 will eventually bring nearly 150,000 new carloads of traffic annually to the railroad. Those projects included 60 new and 42 expanded industrial plants.
Among the new projects were 19 ethanol and bio-diesel facilities and eight facilities for recycling or environmental remediation. Some of the resulting traffic will originate or terminate on the 230 smaller railroads that connect with CSXT.
"Our efforts are directed at supporting economic development in the states and communities we serve," said Derrick Smith, CSXT's vice president-emerging markets. "The connectivity we provide to ports, natural resources, and manufacturing facilities enables companies to leverage the efficiency and environmental benefits of rail."
In a transaction approved Wednesday by the SurfaceTransportation Board, Wisconsin & Southern (WSOR) will add 11 miles to itscurrent 700-mile regional rail system, restoring service to a plant site at Kohler, Wis., formerly occupied by Cargill Malt. STB made its approvaleffective May 8, so that WSOR may begin of rehabilitate the track this spring.
The transaction was initiated by a petition filed Feb. 13, in which WSOR sought approval "to acquire and operate a permanent exclusive freight rail operating easement over approximately 10.95 miles of railroad known as the Kohler Industrial Lead that is currently owned by the Union Pacific and operate approximately 1,000 feet of UP industrial spur track. The State of Wisconsin Department of Transportation has agreed to purchase the railroad and right-of-way assets comprising the line from UP and will contract with the East Wisconsin Railroads consortium to provide service on the line." WSOR will operate the line under contract.
In its decision, STB said WSOR will market the line to both new and former customers.
Railway Age has honored Wisconsin Southern as its 2009 Regional Railroad of the Year, citing its success in attracting new customers to rail. Railway Age will present Wisconsin Central with its award April 27 at the American Short Line and Regional Railroad Association's annual meeting in Las Vegas.