Posts Tagged ‘Class 1 railroad financial reports’

Industry Observers Adjusting Rail Outlooks

July 7, 2021

North American Class 1 railroads will be issuing their second quarter financial reports later this month and ahead of that Wall Street analysts are issuing their expectations about what the carriers will report.

Cowen and Company, whose insights appear often in the trade publication Railway Age, said it has adjusted its rail models to reflect a number of factors that influence railroad performance in the second quarter, including carloads, fuel, foreign exchange, and cost implications as the supply chain remains tight.

It expects carloads trends to exceed previous expectations, noting total carloads are up approximately 23 percent.

Because the second quarter of 2020 was the height of the COVID-19 pandemic, Cowan has been comparing this year’s performances against 2019 to get a more accurate reading on 2021.

In that comparison, carload traffic last week was down 2 percent compared with 2019, the second consecutive week that 2021 has underperformed 2019.

“Unlike the first quarter, there were no material weather impacts for the railroads that affected volumes,” Cowan wrote.

Cowan expect supply chain tightness to persist for the remainder of 2021 and it also expects intermodal to continue to be robust as well.

The report said big box retailers have yet to see a slowing of orders. Thus far this year, intermodal traffic is up 18 percent.

The elevated demand has enabled railroads to choose their business, but increased intermodal traffic volume also has meant a decline in rail service.

This has included embargoes at terminals that are unable to take in more cargo.

Costs associated with these developments are expected to increase costs.

Diesel fuel prices are rising, although these tend to have a two-month lag in how they affect railroads because the carriers contract for fuel in advance to lock in prices.

Class 1 CEOs Optimistic About Traffic Growth

January 28, 2021

Optimism was the underlying theme this week in investor calls hosted by top executives of Norfolk Southern and Canadian National.

CEOs of both Class 1 railroad systems expect intermodal traffic to drive growth this year as the economy recovers from the COVID-19 pandemic induced economic downturn of 2020 that at times threw the nation into a recession.

Both railroads expect to see growth in carload traffic although it is likely to lag behind intermodal volume in terms of percentage growth.

“As we take stock of what we achieved in 2020 while managing both the pandemic and energy market challenges, including the successful idling of four additional hump operations while driving productivity to record levels, we see much more opportunity ahead,” CEO James Squires said.

CN CEO J.J. Ruest made similar comments, noting that the economic recovery remains uneven but traffic continues to grow.

“We are increasingly optimistic about 2021 and we are reinstating our full-year financial outlook,” he said.

NS expects revenue growth this year of intermodal and merchandise volume in the high single-digit range.

But energy-related traffic is another story. NS management expects coal volume to continue to decline due to low natural gas prices, increased use of renewable energy, and unusually high utility stockpiles.

NS Chief Marketing Officer Alan Shaw said demand for intermodal traffic is expected to remain strong due to consumer spending and retailers restocking depleted inventories.

The decline in merchandise traffic was due to falloffs in crude oil, natural gas liquids, and frac sand shipments.

All of those declined due to the effects of the pandemic, lower refinery production, additional pipeline capacity, and reduced oil and gas drilling.

However, Shaw said there are signs that steel, automotive, plastics, forest products and agricultural shipments are picking up.

Further boosting carload traffic will be a rebounding manufacturing and housing market.

NS said 2020 operating income and revenue fell 13 percent as traffic skidded by 12 percent.

NS managers said 70 percent of the revenue decline came from energy-related traffic. Earnings per share fell 10 percent, to $9.25. 

The 2020 operating ratio set a record by falling 0.3 points to 64.4 percent, the fifth straight year of improvement.

“We see ample opportunity to affect more positive change and remain focused on closing the operating ratio gap with the industry,” Squires said. 

NS is aiming to shave 3 points off its operating ratio this year, hoping it will fall to 60 percent by the fourth quarter. 

The operating ratio reflects the percentage of revenues that are devoted to expenses.

At CN, management expects traffic growth of 5 percent this year.

Driving that is a record Canadian grain tonnage, demand for lumber and propane, and international and domestic intermodal gains driven by e-commerce and refrigerated grocery shipments.

CN expects earnings to rise in the high single-digit range this year, with an operating ratio below 60 percent.

The capital budget of $3 billion remains unchanged from last year.

Ruest said CN will continue to focus on managing capacity, increasing profit margins, and deploying technology that makes the railroad safer and more efficient, as well as easier for customers to do business with.

Falling Traffic to Highlight Reports

October 15, 2020

Ahead of third quarter financial reports being issued by the big six Class I railroads, Wall Street analysts are releasing their projections of what those reports will say.

The analysts project earnings will fall an average of 8 percent at the six publicly traded Class I systems.

Continued declines in traffic will highlight many reports with carload traffic for the industry having falling  9 percent on average during the third quarter.

However, intermodal traffic is on a growth spurt, rising 1 percent on average.

Coal traffic continues to be dismal with Class 1 railroads losing an average of a quarter of their coal volume.

CSX is expected to show the smallest overall quarterly traffic decline.

Overall traffic at CSX is expected to be down 3.8 percent, but its intermodal traffic has risen by a 6 percent.

Earnings at CSX are expected to be down 14.8 percent when it issues its report on Oct. 22.

Canadian National’s earnings are expected to plunge by 13 percent compared with the third quarter of 2019.

Norfolk Southern is expected to report on Oct. 28 a 4.8 percent fall in earnings.

Railroad Quarterly Reports Expected to be Gloomy

April 15, 2020

Class 1 railroads will begin issuing their first quarter earnings reports starting this week and the results are not expected to look good.

A report posted at the Trains magazine website said Wall Street Analysts expect Canadian National, CSX, Norfolk Southern and Union Pacific to report earnings decline averaging 7 percent.

Some of those carriers may report even deeper declines. CSX, which will report its financial results on April 22, has seen its traffic sink fall 2.1 percent in the first quarter when compared to the same quarter in 2019.

Analysts are projecting CSX earnings could drop nearly 9 percent.

NS has lost 12 percent of its traffic in the first quarter although some of that was due to its efforts to improve profit margins by increasing rates

It will report its quarterly financial numbers on April 29.

With its traffic DOWN 6.8 percent, CN is expected to post an earnings per share decline of nearly 8 percent.

Investors will be watching for how railroads describe their plans to get through an economic downturn triggered in part by the COVID-19 pandemic.

Railroads might stop providing financial outlooks for the remainder of year due to the uncertainty surrounding the pandemic and the economy.