Friday, April 1, 2016

Railroad Profits Will Be Down 5% to 10% in Q1 Because of Poor Demand

Profits for U.S. railroads will be down 5% to 10% in first quarter 2016 because of substantial declines in traffic this year.

Union Pacific (UNP) rail volumes were down 9% year to date through Week 12 ended March 28, 2016. The declining volume trend has actually gotten worse. For example in Week 12, volumes at UNP were down 18% to 148,307 carloads/intermodal units from 181,857 carloadings during the same week a year ago. Coal volumes at UNP were down 41% in Week 12 and down 36% year to date.

Norfolk Southern (NSC) volumes were down 3.1% year to date through Week 12. CSX volumes were down 4.4% YTD.

Norfolk Southern and CSX showed positive volume growth for three weeks in a row ended March 5. The trend ended in Week 10 when volume numbers declined for both railroads. Week 11 was troubling, with NSC volumes down 9.5% and CSX volumes down 12.4%.

BNSF Railway, owned by Berkshire Hathaway (BRK.B), has seen its volumes fall 6% through Week 12. Coal volumes were down 32%, petroleum volumes were down 26% YTD. On the positive side, movement of motor vehicles were up 20% YTD. Container volume was up 10%, but trailer volume was down 13%.

Class I railroads report volumes on a weekly basis. CSX, Norfolk Southern and Union Pacific report volume trends on their web sites on Tuesday for the previous week. BNSF Railway reports its volume trends on Thursday. They all feed to the Association of American Railroads, which does an aggregate report every Thursday. 

In Week 12, the Association of American Railroads reported total U.S. weekly rail traffic was 470,271 carloads and intermodal units, down 16.5% compared with the same week last year.
Total carloads for the week ending Mar. 26 were 232,348 carloads, down 18.% compared with the same week in 2015, while U.S. weekly intermodal volume was 237,923 containers and trailers, down 14.5% compared to 2015.

AAR said two of the 10 carload commodity groups posted an increase compared with the same week in 2015. They were miscellaneous carloads, up 18.5% to 9,629 carloads; and motor vehicles and parts, up 0.1 percent to 18,676 carloads. Commodity groups that posted decreases compared with the same week in 2015 included coal, down 37.8% to 66,281 carloads; petroleum and petroleum products, down 22.1% to 10,738 carloads; and grain, down 16.1% to 19,144 carloads.

For the first 12 weeks of 2016, U.S. railroads reported cumulative volume of 2,905,113 carloads, down 13.7 percent from the same point last year; and 3,085,831 intermodal units, up 2.2 percent from last year. Total combined U.S. traffic for the first 12 weeks of 2016 was 5,990,944 carloads and intermodal units, a decrease of 6.2 percent compared to last year.

What is troubling about these latest numbers is this: Some analysts said comparables would get better for railroads because the slide in volumes started a year ago in March. Volumes were down throughout 2015. As a result, some analysts thought 2016 numbers would match or exceed 2015 numbers. But that has not happened.

Writer Michael Hooper owns shares of Berkshire Hathaway, Union Pacific, CSX and Canadian National Railway.

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