Buffet to Berkshire Shareholders: ‘You Can Be Proud of Your Railroad’

Written by Marybeth Luczak, Executive Editor
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BNSF has reported record net earnings of $5.99 billion in 2021, up 16.1% from 2020. “Here, it should be noted, we are talking about the old-fashioned sort of earnings that we favor: a figure calculated after interest, taxes, depreciation, amortization and all forms of compensation,” Warren E. Buffett, Chairman/CEO of parent company Berkshire Hathaway Inc. told shareholders in a Feb. 26 letter.

(That definition, he wrote, “suggests a warning: Deceptive ‘adjustments’ to earnings—to use a polite description—have become both more frequent and more fanciful as stocks have risen. …”) BNSF trains traveled 143 million miles last year and carried 535 million tons of cargo. “Both accomplishments far exceed those of any other American carrier,” Buffet continued in the letter, which was part of Berkshire’s 2021 Annual Report. “You can be proud of your railroad.”

BNSF reported its fourth-quarter and full-year 2021 financial results on Feb. 28. Operating income for the three months ending Dec. 31, 2021 came in at $2.4 billion, up 12% (or $253 million) over the previous-year period; for full-year 2021, it was $8.8 billion, up 14% (or $1.1 billion) over 2020. Operating ratios were 60.0% for fourth-quarter and 60.9% for full-year 2021, improvements of 0.3% and 0.7%, respectively, compared with the same periods in 2020.

Total revenues for fourth-quarter ($6.282 billion) and full-year ($23.282 billion) 2021 grew 11% and 12%, respectively, compared with the prior-year periods. “The changes included a 3% decrease and 7% increase, respectively, in unit volume for the fourth-quarter and full-year 2021,” BNSF reported. “In 2021, our full-year volumes were 1% lower than the pre-pandemic volumes of 2019. Additionally, average revenue per car/unit increased 13% and 3%, respectively, in the corresponding periods.”

The full-year 2021 volume increase over 2020 “is primarily due to continued improvements from the 2020 effects of the COVID-19 pandemic, partially offset by the ongoing disruptions in the global supply chain,” according to BNSF, which also attributed it to:

• Consumer Products’ volumes falling 9% for fourth-quarter and rising 8% for full-year 2021 from the corresponding 2020 periods. BNSF attributed the full-year increase primarily “to growth in intermodal in both international and domestic shipments driven by increased retail sales, inventory replenishments by retailers and increased e-commerce activity. Increases in Consumer Products volume in the first three quarters were partially offset by reductions in the fourth quarter due to broad supply chain challenges which limited volume tendered and handled by BNSF.”

Industrial Products’ volumes gaining 6% and 5% for fourth-quarter and full-year 2021, respectively, vs. the 2020 periods. “These changes were primarily due to improvement in the U.S. industrial economy driving higher volumes in the construction and building sectors, partially offset by lower petroleum volumes due to unfavorable market conditions in the energy sector,” the Class I railroad reported.

Agricultural Products’ volumes declining 2% and increasing 3% for fourth-quarter and full-year 2021, respectively, vs. the prior-year periods. The railroad attributed the full-year increase primarily “to higher grain shipments during the first three quarters, as well as higher volumes of ethanol and related commodities. The fourth quarter decreased when compared to all-time record volumes in the fourth quarter of 2020. The decline is primarily due to lower grain shipments following a poor spring wheat harvest, partially offset by higher fertilizers and ethanol volumes, as well as increases in new renewable diesel business.”

Coal volumes rising 9% for both fourth-quarter and full-year 2021, compared with 2020. These changes reflect, primarily, “increased electricity generation, higher natural gas prices and improved export demand,” according to BNSF.

Operating expenses for both fourth-quarter and full-year 2021 increased 10% from the 2020 periods. This “reflected higher volumes and higher average fuel prices offset by productivity improvements,” BNSF said. The railroad noted that the compensation and benefits expense was down 1% in fourth-quarter 2021 and up 3% for the full year. The full-year increase was “primarily due to increased volume, wage inflation, and health and welfare costs, partially offset by productivity improvements,” it explained. “Changes were not significant for the fourth quarter compared to the same period in 2020.”

The purchased services expense fell 3% in fourth-quarter 2021 and increased 6% for the full year. BNSF said the full-year increase “was primarily due to higher volumes, insurance recoveries in 2020 related to 2019 flooding, and higher volume-driven purchased transportation costs of our logistics services business, offset by improved productivity. Changes were not significant for the fourth quarter compared to the same period in 2020.”

Fuel expense rose 80% and 55% in fourth-quarter and full-year 2021, respectively, reflecting, primarily, “higher average fuel prices,” BNSF said. “Locomotive fuel price per gallon increased 86% for the fourth quarter of 2021 to $2.52 and 50% for the full year 2021 to $2.16.”

The materials and other expense grew 13% and 6% in fourth-quarter and full-year 2021, respectively. The full-year increase “was primarily due to higher volume-related costs while the fourth-quarter increase related to higher casualties and property and other taxes,” according to the railroad.


BNSF’s 2021 capital expenses came in at $2.97 billion. In 2022, they will reach $3.55 billion, according to the railroad. The maintenance and replacement component is expected to be $2.71 billion, covering nearly 14,000 miles of track surfacing and/or undercutting work and the replacement of 381 miles of rail and approximately 2.7 million rail ties. Approximately $580 million of the 2022 capital plan will be for expansion and efficiency projects “to support the growth of our Consumer, Agricultural and Industrial Products customers’ businesses,” BNSF said. On the Southern Transcon route between Southern California and the Midwest, the Class I railroad “will continue a multi-year effort to add several segments of new double-track in eastern Kansas and begin a multi-year effort to add a new segment of triple-track in California, both supporting traffic growth. In addition, BNSF will continue a multi-year bridge project near Sandpoint, Idaho, to increase train capacity in the Pacific Northwest. Finally, BNSF will continue or begin multi-year intermodal facility expansion projects in North Texas (Alliance) and Chicago (Cicero). In Southern California (San Bernardino), BNSF is undertaking various initiatives to improve the efficiency of its intermodal facility.” About $259 million of the 2022 capital plan is for freight cars and other equipment acquisitions.

BNSF: ‘A Key Asset’ Now and a Century From Now

Buffet in his Feb. 26 shareholder letter also addressed how “[g]ood luck—occasionally extraordinary luck—has played its part at Berkshire,” including leading Berkshire “to its most important acquisition”: BNSF. In fall 2009, Berkshire held a Board meeting in Fort Worth, Tex., where its TTI subsidiary was located.

“At that time, BNSF, which also had Fort Worth as its hometown, was the third-largest holding among our marketable equities,” Buffet wrote. “Despite that large stake, I had never visited the railroad’s headquarters.

“Deb Bosanek, my assistant, scheduled our board’s opening dinner for October 22. Meanwhile, I arranged to arrive earlier that day to meet with Matt Rose, CEO of BNSF, whose accomplishments I had long admired. When I made the date, I had no idea that our get-together would coincide with BNSF’s third-quarter earnings report, which was released late on the 22nd.

“The market reacted badly to the railroad’s results. The Great Recession was in full force in the third quarter, and BNSF’s earnings reflected that slump. The economic outlook was also bleak, and Wall Street wasn’t feeling friendly to railroads—or much else.

“On the following day, I again got together with Matt and suggested that Berkshire would offer the railroad a better long-term home than it could expect as a public company. I also told him the maximum price that Berkshire would pay.

“Matt relayed the offer to his directors and advisors. Eleven busy days later, Berkshire and BNSF announced a firm deal. And here I’ll venture a rare prediction: BNSF will be a key asset for Berkshire and our country a century from now.”

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