(Bloomberg News circulated the following story by Craig Trudell on July 23, 2009.)
WASHINGTON, D.C. — Burlington Northern Santa Fe Corp. and Union Pacific Corp. posted second-quarter profits that beat analysts’ estimates as savings on fuel helped offset a drop in shipments.
Net income at Burlington Northern, the biggest U.S. railroad by sales, rose 14 percent from a year earlier to $404 million. Earnings at Union Pacific, the second biggest, fell 12 percent to $468 million.
Railroads have been able to trim costs, led by fuel, as the recession has curbed demand for freight hauling. The average price paid by Union Pacific for diesel fuel tumbled 56 percent to $1.57 a gallon. The two biggest railroads also reduced labor expenses as they scaled back employment.
“The powerful multiyear productivity story continues to fire on all cylinders,” Rick Paterson, an analyst at UBS Securities LLC in New York, said in a report today. He recommends buying shares of all four of the biggest U.S. railroads, which also include No. 3 CSX Corp. and Norfolk Southern Corp.
The three largest have reported combined net income of $1.18 billion for the second quarter. Norfolk Southern is scheduled to report results on July 28.
Union Pacific fell 8 cents to $59.15 at 4:15 p.m. in New York Stock Exchange composite trading, after reaching an eight- month intraday high earlier. Burlington Northern gained $2.42, or 3.2 percent, to $79.20.
Per-share profit excluding a gain from a land sale was 78 cents, Omaha Nebraska-based Union Pacific said. The exceeded the 75-cent average on that basis of 15 analyst estimates compiled by Bloomberg. Burlington Northern, based in Fort Worth, Texas, beat the 99-cent average of 14 analyst estimates.
Burlington Northern
Burlington Northern’s net income rose from $350 million, or $1 a share, a year earlier, the company said in a statement. Revenue declined 26 percent to $3.32 billion.
The company reported that its fuel cost fell 61 percent to $509 million during the quarter. That contributed to a 33 percent drop in total operating expenses.
Burlington Northern said its number of loads handled decreased 19 percent.
Union Pacific’s net income fell from $531 million, or $1.02 a share, a year earlier, according to the company’s statement. Revenue declined 28 percent to $3.3 billion.
Total fuel expenses plunged 68 percent to $370 million, the railroad said. Union Pacific reported a 30 percent drop in operating costs, as freight volume dropped 22 percent.
The railroads won’t get the same benefit in the second half from fuel prices, which plunged in that period of 2008, Chief Executive Officer James Young said in an interview.
‘Stronger’ Economy
“Our outlook says fuel could be a little bit of a drag” in the second half, Young said. “But higher fuel prices actually benefit our industry as long as they’re reasonable because rails are more efficient than trucking, and higher prices are an indication the economy is getting stronger.”
The company trimmed payroll by operating with about 45,000 workers in the quarter, its lowest employment since its 1996 purchase of Southern Pacific Rail Corp., Young said.
Rail-freight volumes fell 19 percent this year through July 18, according to the Association of American Railroads, the industry’s Washington-based trade group.
“We are beginning to see Burlington Northern’s volumes stabilize in our more economic sensitive businesses,” Chief Executive Officer Matt Rose said in the company’s statement. Warren Buffett’s Berkshire Hathaway Inc. is the railroad’s largest shareholder, with 23 percent.
Union Pacific recalled some furloughed workers since June as weekly carload rates gained about a third from their low point three months ago, the company said. About 900 of the 5,300 conductors, engineers and other employees laid off as of mid- June have returned, said Tom Lange, a spokesman, in an e-mail.
Union Pacific also brought 6,000 rail cars out of storage as shipments rose in the past month. About 1,900 locomotives remain in storage until the economy improves.
Coal volumes were at their lowest quarterly levels in nine years, Young told analysts on a conference call. The mineral is railroads’ biggest freight category by shipments. Because of strong volumes in 2008’s second half, coal will continue to be down from a year earlier, he said.