Crediting cost control measures and lower fuel prices, BNSF Thursday reported second-quarter earnings rose to $404 million, or $1.18 per diluted share, compared to second-quarter 2008 earnings of $350 million, or $1.00 per diluted share. The 2008 earnings figures included a $0.31 per share charge related to environmental matters in Montana. Earnings results soundly surpassed analysts' earnings-per-share expectations of $1.00.
BNSF said operating expenses for the quarter declined $1.25 billion, or 33%, to $2.52 billion, compared with second-quarter 2008 operating expenses of $3.76 billion. The $1.25 billion reduction was primarily attributable to strong cost controls, decreased unit volumes, and lower fuel prices.
Freight revenue fell $1.13 billion, or 26%, to $3.22 billion in the quarter compared with $4.35 billion in the prior-year period. BNSF attributed the decline in part to a decrease in fuel surcharges of about $600 million. The remaining variance was due to lower unit volumes as a result of the economic downturn, partially offset by improved yields.
“BNSF had another strong quarter of cost control in an extremely difficult economic environment,” said BNSF Chairman, President, and Chief Executive Officer Matthew K. Rose (pictured at right).
“We are beginning to see BNSF’s volumes stabilize in our more economic sensitive businesses, and because of our continued focus on productivity combined with our long-term market opportunities, we are well positioned to benefit when the economy recovers," Rose said.
Morgan Stanley & Co. analysts William Greene and Adam Longson said BNSF's second quarter results tell a a “solid story”: “Earnings surpassed our expectations, even when adjusted for one-time items, and the degree of cost volume variability displayed in recent quarters is impressive.” However, there may be somewhat less room for improvement, compared to other Class I's: “We expect BNSF pricing to trail other rails given its larger relative exposure to truck competitive traffic. Moreover, volumes are unlikely to recover as much as other rails on any rebound in auto production given limited auto exposure, previous customer wins and volume outperformance, and the loss of Hub Group traffic.”