Class 1 3rd Quarter Financial Reports Are Due to be Released This Month; Improvements Expected

North America’s Class 1 railroads will begin issuing their third quarter financial reports later this month and one Wall Street firm has already begun adjusting its expectations of what those reports will show.

In an article posted on the website of Railway Age magazine, Cowen & Company said it now expects the railroads to report freight volume lossess when compared to third quarter 2019 figures, but those numbers are expected to be an improvement over what was reported in the second quarter of this year.

During the second quarter of 2020, Class 1 railroads reported a 20 percent freight volume decline when compared with the same period in 2019.

Cowen expects carload volumes to check in at a 13.5 percent decline over 2019 while intermodal volume is expected to be up 2 percent over last year.

In a note to investors, Cowen analysts noted that despite losing substantial levels of freight traffic this year due to a COVID-19 pandemic-induced economic downturn, the practice of precision scheduled railroading with its emphasis on cost cutting has enabled some Class 1 railroads to post some impressive operating ratio figures of below 65 percent.

The operating ratio reflects what percentage of revenue is spent on operating expenses.

Only Norfolk Southern had an OR above 65 percent. NS reported its OR in the second quarter was 70.7 percent.

NS expected to report an OR of 62.5 percent in the third quarter due to aggressive cost reduction efforts.

Cowen said that it remains to be seen if Class 1 railroads will be able to continue to restrain their expenses in future quarters and to what extent.

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