Analysts from two firms, Dahlman Rose & Co. and Morgan Stanley, signaled satisfaction with the long-term outlook for the rail freight industry’s economic prospects following Norfolk Southern’s Investor Day conference June 3. The two firms differed slightly on NS’s own short-term outlook, but both said the Norfolk, Va.-based Class I railroad would share the excellent long-term prospects of the overall industry.
At Dahlman Rose & Co., Director Jason H. Seidl (photo at left) noted, “We came away from the meeting with a renewed sense of confidence in the direction that NS is headed as a company. Although near-term economic conditions remain uncertain, we believe that NS will be well positioned to reap the benefits of a more robust freight market once conditions improve.”
Seidl added, “We continue torate the company a 'Buy' and recommend the shares for long-term-oriented investors who wish to have exposure to the railroad group.”
Morgan Stanley research analyst William Greene says his firm “heard nothing that would cause us to question our favorable long-term view on the industry. Though [NS] management did not offer guidance, the company reaffirmed our conviction in a number of themes which are likely to drive rail outperformance vs. other freight transports over the coming years.”
From both companies’ point of view, the specter of rail reregulation may in fact be overstated. “Consistent with our view that compromise legislation is the most likely outcome, management views shipper-backed rail legislation moving through Congress as having limited rail risk,” Morgan Stanley’s Greene said. Seidl, at Dahlman Rose, noted, “It appears that a compromise is being struck between the industry and those that wish to increase governmental oversight. More specifically, CEO Wick Moorman stated that rail industry has been engaged in discussions with the Senate Commerce Committee and that these discussions have been positive.”
Commenting on NS specifically, Seidl at Dahlman Rose said, “We believe management is taking the proper approach as railroading is a long-cycle business where maintaining the proper balance is critical. Management at NS believes that it can return to historic margin levels even if the economy continues in a prolonged economic malaise. While this will not be done quickly, they expressed confidence in their ability to implement structural changes that should be able to hold even when the economy does pick up.
Seidl (who also is Contributing Editor to Railway Age) cited NS’s ongoing capital investment plans as key to long-range productivity and earnings gains. “In taking the long view NSC is still focused on developing some of its key projects, namely the Heartland Corridor, the Meridian Speedway, the Crescent Corridor, and the CN-NS MidAmerica Initiative. The Heartland Corridor project is 75% completed and should be finished by mid-2010.
In slight contrast, Morgan Stanley’s Greene was less enthusiastic about NS’s short-term prospects, pointing out that “recent trends have only vaguely shown signs of stabilization,” and emphasizing that NS “continues to suffer relative to peers due to its outsized export coal exposure, greater natural gas competition in the East, and heavy industrial portfolio.”
Still, Green also signaled the green light for NS’s long-term prospects, saying, “We believe after posting the worst EPS trend in2009, NSC is likely to grow faster than peers in 2010+ on volume recovery and realization of growth and productivity initiatives.” Greene also noted, “We heard nothing during the investor day which would suggest that the long-term rail pricing story is at risk.”
Dahlman Rose’s “buy” recommendation of NS stock was not echoed by Morgan Stanley’s Greene, who nonetheless observed, “We aren't against owning NSC—especially for investors with a multi-year time frame.”
Both Federal Transit Administrator Peter M. Rogoff and Federal Railroad Administrator Joseph C. Szabo will address the American Public Transportation Association’s 2009 Rail Conference in Chicago at the Opening Session June 15, APTA said Wednesday.
Szabo was confirmed as FRA’s chief May 1, while Rogoff was confirmed to head FTA May 22.
The 2009 APTA Rail Conference, being held at the Hilton Chicago, runs June 14-18. For more information, contact Heather Rachels at (202) 496-4838, or by email at email@example.com.
The recession is not currently expected to have a "significant impact" on Bombardier Transportation because "for the rail industry, the fundamentals remain strong."
Bombardier Inc. issued that statement Wednesday as it reported that its rail equipment division posted earnings before income taxes of $125 million, or $5.6% of revenue totaling $2.3 billion, for the fiscal quarter ended April 30. This compared with EBIT of $118 million, or 4.8% of revenue, for the corresponding period a year ago.
Bombardier Transportation's order backlog at the end of the quarter was $25 billion, compared with $24.7 billion on April 30, 2008. The division reported new orders of $1.2 billion in the quarter, for a book-to-bill ratio of 0.5. Since the end of the quarter, BombardierTransportation has booked orders totaling another $1.2 billion.
Corporate performance was hurt by cancellations of orders for business aircraft at Bombardier Aerospace, which outpaced the level of new orders.
Consolidated revenue reached $4.5 billion in the fiscal quarter, compared with $4.8 billion in he 2008 period EBIT was $235 million, down from $312 million.
As for the future, President and CEO Pierre Beaudoin commented: "We are taking action to cope with the present economic situation as we continue to invest in new products such as the C Series, the Learjet 85,the ZEFIRO high speed trains, and the EC4 suite of technologies, At $47.4 billion, our large and well diversified backlog, combined with our strong balance sheet, high level of liquidity, and the cost cutting measures already in place, will enable us to weather the storm."
New York State’s legislature recently passed legislation closing a two-year, $5 billion operating budget gap, but according to a report released Tuesday by New York State Comptroller Thomas DiNapoli, longer-term financing support remains problematic.
The report says budget gaps in calendar years 2009 and 2010 are relatively small, though budget risks could make balancing the budget more difficult. Moreover, budget woes in successive years could once again become severe, DiNapoli said.
“An unprecedented increase in state assistance will stabilize the MTA’s operating budget and could help fund the next capital program, but the MTA is not fully out of the woods yet,” DiNapoli said. “The MTA has to deliver on its promise to reduce costs. I’m also concerned that the next five-year capital plan may rely too heavily on debt, which would divert resources from operating needs, just as heavy borrowing in the past has contributed to the MTA’s current fiscal crisis.”
The comptroller announced three new audits of the MTA in addition to two MTA audits already under way, continuing his review of the MTA’s financial operations. The audits include: examining the authority’s cashmanagement controls and its banking services and fees; reviewing the efficiency of the MTA’s maintenance program; and examining the costs and timeliness of the MTA’s capital program.
The Ramsey County (Minn.) Board Tuesday unanimously approved purchasing St. Paul’s Union Depot main building for $8.2 million, to facilitate use by the planned 11-mile, $914 million Central Corridor light rail transit project and for future passenger intermodal options as well. The board serves as the Regional Rail Authority overseeing the matter.
The purchase includes the head house and the parking structure and the land that the building sits on. Thirty-nine condo units built by the current owner will remain in private hands.
Union Depot is scheduled to reopen in 2012, two years ahead of the planned debut of the Central Corridor. The depot was built from 1918 to 1923.
"Today marks the official start of the project to return the Union Depot to what it once was: a transportation hub for Ramsey County, the state of Minnesota, and the entire upper Midwest," Commissioner Jim McDonough, chair of the Regional Rail Authority, said. The site would facilitate Amtrak and/or Midwest high speed rail service, Greyhouse and Jefferson Lines buses, Metro Transit, and bicycle transit options under current plans.
State officials and rail advocates in Iowa and Illinois have been lobbying for new Amtrak routes to add to the national rail passenger carrier’s Chicago hub. Now a similar effort in the Midwest, spearheaded by Appleton, Wis., representatives, seeks to restore passenger rail service to the state’s Fox Valley, connecting Green Bay, Wis., with Chicago.
"We could transport people from here and get them connected to Chicago, one of the biggest economic engines in the country and the world. That's an incredibly powerful thing to have," said PaulLinzmeyer, president of the advocacy group NEWRails and a founder of New North, an economic development consortium of 18 northeastern Wisconsin counties.
Fox Valley last was served by passenger service Apr. 30, 1971; Amtrak’s launch the next day terminated all offerings to the region. Advocates say Amtrak could run on existing Canadian National right-of-way,stopping at Appleton, Neenah, Menasha, Oshkosh, and Fond du Lac, terminating or originating in Green Bay.
Perhaps stating what many in the passenger railroad business would consider obvious, Canada’s Department of Finance has labeled VIA Rail as "not self-sustaining," grouping VIA Rail with eight other entities that could be sold as part of the government's asset review.
Ottawa last November said it would conduct a review of Crown assets, and government documents publicized since then suggest the government would consider privatizing VIA Rail and at least eight corporations requiring federal financial assistance. The move is part of a government effort to rein in Canada’s deficit, expected to surpass C$50 billion (US$46 billion) this year. Asset sales are projected to raise as much as C$4 billion (US$3.7 billion).
Under the Financial Administration Act, Parliament would have to approve the privatization of any Crown corporation, and such passage is not assured, observers said.
A Finance Department spokeswoman said the asset review won't necessarily lead to sales in all cases.
Amid fallen giant General Motors Corp.’s larger troubles,the beleaguered U.S. auto manufacturer owes CSX Corp. $8.9 million for automotive shipments. CSX hopes to receive some reimbursement despite GM’s declaration of bankruptcy June 1.
"We've had informal discussions about that they would assume our contract and wouldn't be able to get out of bankruptcy until they made good," CSX spokesman Garrick Francis said. Francis said CSX has carrier liens on all the goods that are in transit so it won't lose money on those carloads.
CSX’s involvement and exposure is relatively small, given that Detroit-based GM owes creditors roughly $172 billion.
RailComm says its wireless remote control derail system at Hammond, Ind.-based Indiana Harbor Belt Railroad’s RIP track facility is fully functional. A customized Local Control Panel, located within the shop, provides wireless remote control to the derails. The panel includes a keypad for advanced security and logging.
The user is required to input a unique passcode (PIN #) to operate the derail machines. All control panel operations are recorded and stored on a wirelessly linked PC workstation.
The data entries contain the name and trade of the operator, the nature of the operation, and the date and time. Fairport, N.Y.-based RailComm says the workstation allows supervisors, managers, and other authorized personnel to review the operation logs and manage the system security.