Blanchard Railroad Week in Review,Second Quarter 2016

The Railroad Week in Review:
Second Quarter 2016

Current Issues. Available in Adobe Acrobat format only. You will need the free Adobe Acrobat reader.

Week ending June 24
Union Pacific second quarter revenue units drop 10.5 percent on freight revenues down 12.6 percent; system RPU dips 2.3 percent; fuel surcharge (FSC) fees cloud the picture, being about $200 million less than a year ago. KCS second quarter revenue units unchanged at 537K in spite of drops of a thousand units or more in ores/minerals, frac sand, and intermodal; total revenue declines three percent to $547 mm. Canadian Pacific in Q2 moves 614K revenue units, down eight percent year-over-year, with total revenue C$1.45 billion, down 13 percent. System RPU was down five percent due in part to double-digit drops in grain (both Canadian and US), and crude oil.

Week ending June 17
The STB has published first quarter 2016 Quarterly Freight Commodity Statistics (QCS); an easy way to get five-year trends. Are we in going-out-of-business mode? Non-Class I commodity trends for the same period. How the short line adds value to the railroad customer experience and the Class I taketh away.

Week ending June 10
Railway Age holds its annual Rail-Insights conference in Chicago this week to rave reviews. Merchandise cartload trends; two keys to winning back the critical short-haul carload franchise.

Week ending May 27
BNSF first quarter revenue of $4.6 billion down 15 percent year-over-year on 2.3 million revenue units, down six percent; ex-FSC operating ratio dips 44 basis points to 69.1. P&W first quarter freight revenue $6.6 million, down 2.7 percent, on 9,975 revenue units, down 12.1 percent; OR stubbornly well north of 100. How the Reading made money in its short-haul carload franchise 50 years ago; can that shoe fit today?

Week ending May 20
Norfolk Southern holds its 15th Annual Short Line Meeting in Norfolk this week; deemed a great success by all comers. GWR North American April carloads down 13%; major commodity groups lag. Watco to lease 309 route-miles of Norfolk Southern ex-Virginian and ex-NYC trackage in WV and Ohio; July start expected.

Week ending May 13
Berkshire Hathaway's First Quarter 10-Q and the 2015 Chairman's Letter provide important insights regarding BNSF in particular and the railroad business in general. More mileage than expected out of last week's comments on the railroads' automotive business; how lower car sales translate to lower general freight volumes. Class I year-over-year carload comps for the 2016 Week 17 vs. the same week in 2012; why it'll take four years to make up the losses — if ever.

Week ending May 6
Digging deeper into the effect of subprime loans and leasing/fleet sales on auto sales growth rates; possible effects on rail volumes. Why "financial engineering," a fancy name for cooking the earnings report with share buy-backs, may actually be hampering economic expansion. BNSF's Matt Rose on the 2016 outlook. Why muni loan defaults are bad for short lines. Shortline volume growth over four years barely matches household inflation rate.

Week ending April 29
Freight carload observations in southern New Jersey; what is vs. what's possible. Canadian National operating income up 14% on 7% fewer units; valuable ops take-aways. Genesee & Wyoming NA vols down, ops income up; corporate results positive. Revisiting NS results; root-cause analysis of what works; auto sales the next Big Short?

Week ending April 22
Kansas City Southern reports a five percent operating income gain to $188 million even as total revenue drops seven percent to $563 million; six of the seven expense lines on the income statement post decrease. Canadian Pacific does C$1.6 billion in first quarter revenue, down five percent, on 614,000 revenue units, down four percent; revenue ton-miles slip five percent. Union Pacific revenue units down 8.4 percent; revenue down 14 percent. Norfolk Southern first quarter operating income jumps 19 percent to $723 million even as revenue dips six percent to $2.4 billion on 1.6 million revenue units, down three percent. All in all, pas mal, as the French would have it. All the rails are taking advantage of reduced volumes to right-size their properties,
which ought to result in faster, more nimble operations and increased competitive advantage.

Week ending April 15
The realities of railroading in a soft economy with low forward expectations come home to roost on the CSX call; railroad running much better and smarter. Genesee & Wyoming March carloads for North America drop 8.3 percent year-over-year; among the commodities comprising 80 percent of total volume, coal drops to fourth place from first place five years ago. The oil patch hits a rough spot; potential effects on short lines serving drillers. The Uberization of freight coming to a shipping dock near you: FEC's EZ Buy leads the way.

Week ending April 8
Observations on rethinking the entire railroad operating and commercial model. Providence & Worcester full-year 2015 results. The dangers of conflating "service" as in AAR metrics with "service" as customer perception. Traffic trends as a risk to railroad investment. Charts.

Week ending April 1
No foolin' here. Headline: STB Seeks Comment on Revocation of Commodity Exemptions, targets a few commodities dear to non-Class I roads. Wheat from a Kansas perspective. First quarter earnings begin April 12 with CSX. Case History in successful shortline business development.

THE BLANCHARD COMPANY
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Roy Blanchard, rblanchard@rblanchard.com
Laura Blanchard, lblanchard@rblanchard.com