Blanchard Railroad Week in Review, Second Quarter 2024

The Railroad Week in Review:
Second Quarter 2024

Week ending June 28
The tea leaves are pointing toward a continuing slow economy in 2H2024; expecting to see even slower rates of growth as inflation accelerates. Consumer staples stable. BNSF plans new distribution facility near Phoenix. Fertilizer for plants directly and animal feed indirectly. Two NS accidents suggest supervisory failure as root cause.

Week ending June 21
As we near the end of 2Q2024, Class I railroad shares are all below their 200-day moving averages, having begun their negative trend back in March. Similarly, the manufacturing ISM index continues its slide into negative territory — translates into fewer revenue units on the railroads. JOLTS. Using the economic "quads" graphic at hedgeye.com.

Week ending June 14
UP on demonstrating what's possible; creating demand in a demand-driven business. BNSF leadership changes; keeping strong players in the disciplines they know best. CSX shares languish; the benefits of creating products customers want vs. products you want to make.

Week ending June 7
NS short lines' rate of merch carload increase exceeds that of NS; steps being taken to accelerate the process even further. Kudos to NS for grabbing shortline marketing guru Stefan Loeb and empowering him to make paying more attention to short lines and regionals truly worthwhile. Short line and regional railroad operators developing their own hand-hand technology to enhance customer communication and service. Transport shares trending down a leading indicator of a softening economy.

Week ending May 31
Why commodity carloads, supply chains, and the business cycle are inextricably linked; charts and real-life examples. Also joined at the hip are the Manufacturing ISM and the business cycle; using the business cycle to predict carload volumes. Adding railroad stock charts to the predictive mix.

Week ending May 24
Coal may not be revisiting the record volumes of days past, but reports of its demise are premature. AI and its power demads are increasing the need for much more electrical power exponentially, and there's no way renewables can meet that demand. Ergo coal demand continues. Nuclear is showing promise, but replacing extant coal fired generating facilities will take time.

Week ending May 17
Feb shortline carloads increase at twice the rate of Class Is; lead, follow, or get out of the way. Ancora tells us where NS needs to clean up its act; I say selling more non-performing branch lines to regional players would be a start. Class I volume comps. James Bonner leaving NYA to run the Susquehanna.

Week ending May 10
BNSF 1Q2024 results encouraging if you look beyond the FSC numbers; Abel on outlook for volumes. Marmon has decent quarter for UTLX; some forward caveats. NS defeats Arcona proxy push; rancor remains.

Week ending May 3
CN, CP, and UP reported 1Q2024 ths week. All the calls were upbeat and show how attention to details that benefit the customer really work. CN freight revenues were off two points while revenue units and RPU both slipped one point. As for the core carload franchise, retiring CMO Doug MacDonald went down the commodity llst in detail showing expected 2024 puts and takes. Union Pacific total revenue slipped one percent to $5.6 billion from $5.7 billion on two million rev units, also down a point, and the downside was all fuel surcharge revenue. Kenny Rocker provides commodity results and Eric Gehringer highlights the new Service Performance Index. What I look for in Trip Plan Compliance. CPKC results in pro forma numbers as if the merger had taken place two years ago. John Brooks on the three-country franchise benefits.Keith Creel on the Meridian Speedway.

Week ending April 26
Though Alan Shaw is really taking the heat for East Palestine -- and I think it's mostly unwarranted -- NS had been slipping commercially, financially, and operationally for years as his predecessors shrank the NS toolbox to satisfy the investment community at the expense of customers and employees. Financialization, in a word. This WIR is mostly excerpts from the 2023 10-K which details NS' core strengths and how they can be brought to bear once again on building and maintaining the franchise. There are a couple of short paragraphs on 1Q2024 results that try to show what's being fixed and how. I've read the proxy statement and were I a shareholder I'd be firmly in the Board's camp.

Week ending April 19
Why I tend to take the long term view when evaluating past railroad performance and use that as a window on possible future performance; 5-year ratios table. Alan Shaw Fireside Chat w Scott Group; making PSR work by following Hunter's exact precepts closely. CSX Q1 results; getting CSX financial house in order.

Week ending April 12
Wall Street prognostications on 1Q2024 railroad results. Why "owner earnings" are important when evaluating railroad value to shareholders; Benjamin Graham's "intrinsic value." Friends' discussion on short lines' economic importance and value to the Class I; how do we get the message across? STCC 33 Primary Metals carload volume as leading indicator of economic activity.

Week ending April 5
BNSF launches new web-based "Customer Portal" to give customers greater visibility over and control of their freight from origin to destination; there are already some 63,000 active web tool users —about 10,000 use it daily. Share price increases for companies in the industrial products space taking the lead over tech stocks; commodities run the gamut from steel plate and aluminum ingots to copper, fertilizers, building materials, petroleum products from asphalt to nat gas and plastics, metallic ores, paper/packaging, non-consumer scrap steel, coking coal, and anthracite.

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