American Railroads

News each weekday of American railroads. Our focus is on freight rail, but Amtrak and commuter rail are also essential ingredients. Nothing published on holidays.

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Location: Middleburg (Jacksonville), Florida, United States

Published in Trains magazine, Railfan & Railroad, Passenger Train Journal

Tuesday, October 24, 2006


Ryan D. Humphrey

All the major railroads are reporting big profits for the third quarter, and BNSF is leader among them. In the photo, A BNSF stack train climbs towards Sullivan’s Curve as another BNSF stack train climbs up track 2 on March 5 in Cajon, Cal.

Bottom line:

BNSF reports all-time record quarter

BNSF said today in Houston its quarterly earnings were $1.33 per diluted share, or 22 percent higher than third-quarter 2005 earnings per diluted share of $1.09.

Third-quarter freight revenues increased $597 million to $3.82 billion, with increases in volume, price and fuel surcharge. Its operating income was $920 million, an increase of $142 million.

BNSF Corp. (NYSE: BNI) today reported record quarterly earnings of $1.33 per diluted share, a 22-percent increase over third-quarter 2005 earnings of $1.09 per diluted share.

“BNSF experienced double-digit revenue increases in each of the company’s four business groups during the third quarter of 2006,” said Matthew K. Rose, BNSF chairman, president and CEO.

“We again handled record volumes in the quarter led by a 10-percent unit increase in coal, and an 8-percent unit increase in both our intermodal and agricultural products businesses. This led to our 18th consecutive quarter of year-over-year volume increases.”

Third-quarter 2006 freight revenues increased $597 million, or 19 percent, to an all-time quarterly record of $3.82 billion compared with $3.22 billion in the prior year. Revenue for the third quarter of 2006 included fuel surcharges of approximately $500 million compared with approximately $300 million in the third quarter of 2005. The increase in fuel surcharges was driven primarily by rising fuel prices, which was offset by the $293 million increase in fuel expense.

Coal revenues rose by $126 million, or 20 percent, to $748 million, due to record loadings of Powder River Basin coal. BNSF exceeded second quarter 2006’s record loadings by nearly 3 percent. Consumer Products revenues increased $244 million, or 18 percent, to $1.58 billion due to strong revenue increases in the international and domestic intermodal sectors. Industrial Products revenues increased $128 million, or 17 percent, to $871 million led by double-digit revenue growth in chemicals and plastics, petroleum and construction products. Agricultural Products revenues were up $99 million, or 19 percent, to $621 million, due primarily to strength in corn and soybeans.

Operating expenses for the third quarter of 2006 were $3.02 billion compared with third-quarter 2005 operating expenses of $2.54 billion. The $480 million increase in operating expenses was principally driven by a $293 million increase in fuel expense primarily reflecting higher prices and a declining hedge position as well as a 7 percent increase in unit volumes.

All-time quarterly record operating income of $920 million, increased $142 million, or 18 percent, compared with the third quarter of 2005.

CN posts 27 percent quarterly increase

Canadian National Ry. last week reported its financial and operating results for the three-month and nine-month periods ended September 30.

Third-quarter 2006 financial highlights show a net income of Canadian $497 million, a 21 per cent increase over third-quarter 2005 in its October 19 report in Montreal. Elsewhere, its diluted earnings per share (EPS) was 94 cents, an increase of 27 per cent, its operating income of C$844 million was up 27 per cent, and solid revenues of C$1,981 million was an increase of 9 per cent.

The railway’s record quarterly operating ratio of 57.4 per cent was an improvement of 5.9 percentage points, and nine-months free cash flow of C$1,131 million.

E. Hunter Harrison, president and CEO, said, “CN produced exceptional third-quarter results, reflecting substantial revenue growth, asset utilization and cost control accomplishments. Revenues increased 9 per cent, freight volume was up six per cent, and carloadings improved by 2 per cent.”

Harrison added, “The top line benefited from the underlying strength of the diverse and balanced portfolio of commodities that CN transports, as well as freight rate increases. Cost control was again outstanding – operating expenses declined 1 percent during the quarter despite an increase in workload and much higher fuel expenses. Our revenue, cost performance and asset utilization focus all came together in producing a record quarterly operating ratio of 57.4 percent.

“CN’s business model – the pursuit of long-term, sustainable growth, and its consistent ability to grow the business at low incremental cost – continues to hit the mark, driving superior bottom line growth and delivering shareholder value.”

Harrison noted, “I’m pleased to announce today that CN is revising upwards its full-year 2006 earnings guidance because of the strong year-to-date financial performance of the company. CN now expects 2006 adjusted diluted earnings per share to be approximately C$3.40.”

Building on the strength of CN’s 2006 financial track record, the company expects 2007 diluted earnings per share to grow in the 10 percent-plus range, consistent with the company’s long-term vision.

In addition, CN expects 2006 free cash flow of approximately C$1.3 billion, and 2007 free cash flow of approximately C$800 million, with the reduction in 2007 reflecting higher cash payments for Canadian income taxes.

CN’s 2007 financial outlook assumes, among various conditions, the latest consensus forecast of North American economic growth of 2.6 per cent; crude oil prices (West Texas Intermediate) of U.S. $65 per barrel; and a Canadian-U.S. dollar exchange rate of U.S. $0.89 per Canadian dollar.

CP reports weaker third quarter

Canadian Pacific Railway (TSX/NYSE: CP) said today from Calgary, Alberta, a third-quarter net income of $162 million. Net income was lower in 2006 by $42 million when compared to the same period in 2005 due primarily to the impact of foreign exchange on long-term debt and a one-time special reduction to an accrual taken in third-quarter 2005.

“I am very pleased with our results,” said Fred Green, CPR President and CEO.

“CPR has delivered growth of 26 per cent in normalized diluted earnings per share and an improved operating ratio of 74.2 percent. We achieved this while significantly improving the safety of our train operations. Our operating metrics, which measure how well our railroad is running, are excellent and show that our scheduled railroad strategy is driving us closer to our goal of being the safest and most fluid railway in North America.”

Excluding foreign exchange gains and losses on long-term debt and other specified items, income was $168 million, up 24 percent. Its diluted earnings per share was $1.06, an increase of 26 per cent from 84 cents, and its operating ratio improved 320 basis points to 74.2 percent.

Operating expenses were virtually flat at $854 million despite increases in fuel costs, the carrier reported.

In the third quarter, total freight revenues improved by 4 per cent to $1.12 million, with growth in grain of 18 per cent; industrial and consumer products of 13 per cent; sulphur and fertilizers of 10 per cent; and intermodal of 8 per cent. This growth more than offset a sharp decrease in coal revenues of 25 per cent.

CSX reports strong third-quarter earnings

CSX Corp. [NYSE: CSX] reported on October 17 third quarter 2006 net earnings of $328 million, or 71 cents per share. Earnings in the quarter included a 17-cent per-share benefit from Hurricane Katrina insurance recoveries and the resolution of certain income tax matters.

Excluding these items, earnings were 54 cents per share, up 50 percent from 36 cents per share reported in the same quarter of 2005.

“Improved service, growing volumes and continued strong pricing drove our strong third quarter financial results,” said CSX Corp. chairman and CEO Michael Ward

“We continue to invest in strategic capacity and create opportunities for long-term growth,” he said.

The company’s surface transportation businesses posted record third quarter revenues of $2.4 billion, a 14 percent increase from the third quarter last year. The increase was driven by improved pricing and volume growth. Yields increased 12 percent with improvements across all markets. Volumes grew nearly two percent, led by strength in agriculture, coal and intermodal volumes, which more than offset softness in phosphates and fertilizers, automotive and forest products.

These top-line improvements, combined with continued momentum in operations, generated record third quarter Surface Transportation operating income of $489 million, including the $15 million benefit from insurance recoveries. Excluding the insurance recoveries, operating income was $474 million, a 31 percent increase over the $361 million reported in the third quarter of 2005.

“We expect demand for rail and intermodal transportation services to remain strong,” said Ward, adding, “With improved service on our extensive network, CSX is well positioned for the future.”

NS reports 18 cents

Norfolk Southern Corp. (NYSE: NSC) yesterday reported its regular quarterly dividend of 18 cents per share on its common stock, payable on December 11 to stockholders of record on November 3. The firm reported the change from its corporate headquarters in Norfolk, Va.

Peering into the NS mindset

Moorman offers a railway future view


By David Foster

Norfolk Southern President, Chairman, and CEO Charles “Wick” Moorman made a major address on October 19 at Hotel Roanoke, which he characterized as a “coming out party” for the railroad’s I-81 strategy.

Intermodal is the fastest growing sector of NS’s business, he said, and set out four key reasons behind that statement

First, he said, are rising oil prices, which constitute a competitive advantage for rail. Next comes a chronic shortage of long-distance truck drivers. He cited an example of a major trucking company that needs 18,000 drivers, and to retain this number they have to recruit 14,000 each year.

Huge increases in imported goods added to the mix – all the big box stores, from Wal-Mart to Target to Lowe’s, etc. are importing enormous volumes of goods from overseas, which helps railroads.

Highway congestion will remain a problem for the foreseeable future. There is neither the money nor the will to address this, he said, so it will stay with us.

Since the first quarter of 2003, NS’s intermodal revenues are up 23 percent. Margins are up, too, he said, noting how in the past it was hard for rail carriers to make money on intermodal shipments because of intense truck competition. Now, he said, the margins on intermodal are comparable to those on other commodities.

Moorman defined some I-81 terms as a prelude to his talk.

“I-81 refers to the truck catchment area,” he said, and can extend all the way to Texas.

“I-81 Corridor” refers to from North Jersey into the deep South, and includes both the NS Piedmont and Shenandoah lines. He said the Shenandoah line paralleling I-81 “will never be a route where we run a lot of trains at high speed.”

“NS can be part of the solution to congestion on I-81, but we can’t be the solution,” Moorman said.

He peered back at the company’s history of involvement in the corridor. Moorman said Wiley Mitchell started the analysis as far back as 1981. He traced developments up to more recent steps in 2003 with the PPTA and the Reebie Study, which he said is “the genesis of a lot of our plans since then.”

“We didn’t go out and beat the drums for I-81,” Moorman said, “because of priorities with the Heartland Corridor project.”

He described the significance of that effort and the multi-state cooperation and financial support it has received.

Now that Heartland is okay, it’s time to turn to I-81. “We’ll be talking a lot more about it as time goes on.”

Moorman said there are about 4 million trucks per year on I-81, and validation of data is ongoing.

“This market is largely untouched by rail,” he said. He drew a contrast by way of comparison with the Chicago-New York market. In that corridor, rail has a market share of more than 50 percent of the “would-be truck traffic.” Most of those are container shipments, and large companies control most of it.

The I-81 market is more highly fragmented.

It’s mostly trucks, and many are “moms and pops” (owner-operators). NS faces inadequate infrastructure and a very complex market in the I-81 corridor, which will make competing difficult.

“Consistency is number one,” he said, and that requires reasonable speed and adequate terminal capacity... in short, infrastructure. High speed is not required.

Over-the-road speeds of 35 to 40 mph have been adequate, he said, to capture premium intermodal business elsewhere.

A prerequisite for capturing the I-81 market is a more open intermodal strategy, and helped the audience understand what that means – mostly lots of new equipment, that can carry all kinds of trucks.

Moorman said the I-81 market could be attacked incrementally.

Modest infrastructure improvements could divert 100,000 to 200,000 trucks annually. At the billion-dollar investment level in track, terminals, and rolling stock, it may be possible to take a million trucks per year off I-81. A public private partnership would be needed, with the public’s share in such cost commensurate with public value.

Ultimately he said, with $6 or $7 billion, and a completely double tracked railroad, NS could do even better. It sounds like a lot, he said, but went on to contrast it to STAR’s $13 billion just for the section in Virginia.

State transportation officials are coming around, he said. They realize they cannot whip this thing alone. It’s going to require a corridor or regional approach, and NS can do that.

“We are the environmentally friendly way to go,” Moorman said, explaining some of the other advantages of relying on rail.

“We can move ahead quickly,” he said. If funding can be identified, he added, a project could be in place in five years.

The writer is the RAILSolution executive director

UP reports record third quarter earnings

Union Pacific Corp. (NYSE: UNP) reported on October 19 its record third quarter 2006 net income of $420 million, or $1.54 per diluted share. Last year’s third quarter net income was $369 million, or $1.38 per diluted share, which included a non-cash income tax expense reduction of $118 million after-tax, or $.44 per diluted share.

Excluding the tax item, third quarter 2005 net income would have been $251 million or 94 cents per diluted share. Comparing 2006 to 2005 results without the tax item, net income increased 67 percent and diluted earnings per share grew 64 percent.

Operating income during the third quarter of 2006 was $752 million, up from $481 million reported in the third quarter of 2005.

“Quarterly operating revenue and income were the best ever in the history of the Railroad,” said Jim Young, President and CEO.

“This quarter marks the sixth consecutive quarter of operating income growth. Unlike last year’s results, which were affected by hurricanes, this quarter we converted the demand for our services and greater operational efficiency into strong performance.”

Operating revenue set an all-time quarterly record, growing 15 percent to $4.0 billion compared to $3.5 billion in the third quarter 2005. Five of six business teams achieved all-time record results in the quarter. The sixth business team, Automotive, posted its best third quarter ever.

Operating ratio improved 5.0 points versus the third quarter 2005 to 81.1 percent.

The Railroad’s average quarterly fuel price increased 21 percent from $1.88 per gallon in 2005 to $2.27 per gallon in the third quarter of 2006. The fuel surcharge recovered approximately 89 percent of the cost in excess of the Railroad’s $.75 per gallon base fuel price.

The company’s fuel consumption rate, as measured by gallons per thousand gross ton-miles, was a best ever-quarterly rate of 1.26 versus 1.27 in the third quarter 2005.

While quarterly carload volume grew 3 percent, average terminal dwell, as reported to the Association of American Railroads, improved 7 percent year-over-year to 26.2 hours and average third quarter train speed decreased only slightly to 21.3 mph from 21.6 mph in 2005.

UP settled all insurance claims related to the January 2005 West Coast Storm, which reduced operating expense by $23 million in the third quarter 2006.

UP’s third quarter railroad commodity revenue summary vs. 2005 shows agricultural up 19 percent, energy up 17 percent, industrial products up 15 percent, chemicals and intermodal each up 14 percent, and automotive up 10 percent.

“We are optimistic about the fourth quarter,” Young said. “We anticipate that continued revenue growth and operational improvements will be converted into strong bottom line results.”

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