(The Associated Press circulated the following story by Samantha Bomkamp on October 23, 2009.)
NEW YORK — Consumers still aren’t buying. Manufacturing lines are still slow. And, oil prices are going up.
For all these reasons, the nation’s railroads can’t predict when the economic engines will hum again. All they’re saying is, for now, it’s not getting worse.
Fewer shipments of everything from cars to clothing are rolling across the country compared with a year ago, although the railroads say shipping volume seems to have stabilized from earlier points this year. For the moment, the country’s biggest rails, including Union Pacific Corp. and Burlington Northern Santa Fe Corp., say they will still be able to make gains by improving efficiency on their lines to offset some of the shipping volume shortfall. Lower costs for fuel and labor are also keeping results from being a lot worse.
But next year will be challenging. Union Pacific chairman and CEO Jim Young said Thursday that the economy will “limp along” until unemployment starts to improve. And Burlington Northern CEO Matt Rose said in a conference call with analysts that consumers are going to be the driver of any improvement in the economy, but no one is buying yet.
That’s part of the reason that Burlington Northern issued a fourth-quarter earnings forecast well below Wall Street’s expectations. The railroad, based in Fort Worth, Texas, now thinks it will earn between $1.10 and $1.20 per share for the period. Analysts predicted $1.36 per share.
Burlington reported a 30 percent drop in third-quarter profit Thursday, while revenue fell 27 percent to $3.6 billion. Union Pacific said its profit was off 26 percent, while revenue fell 24 percent.
Another problem for the railroads in the coming year will be how much coal is needed to make electricity. Coal demand has fallen off sharply because of the mild summer, a number of industrial plant shutdowns, and more consumers turning off the lights to save money. Executives at both Union Pacific and Burlington Northern said they expect coal shipments to remain weak for some time. And last week the country’s No. 3 railroad, CSX Corp., also said it doesn’t expect coal demand to get better in 2010.
When CSX reported third-quarter results, it said it believed the worst of the recession is over, but its third-quarter earnings fell 23 percent from a year ago. CSX’s chief rival Norfolk Southern Corp. will report third-quarter results next week.
Randy Cousins, an analyst with BMO Capital Markets, is cautiously optimistic about the near future because many of the major railroads seem to be reporting freight volume that’s sluggish, but improving.
“I think the good news is that unequivocally everybody believes the second quarter was the low,” Cousins said. “The debate we’re going to have is the degree of the positive.”
He added: “We’re off the bottom, and I’ll take that.”
The signal for major economic improvement will come from retail sales, the rails say.
When asked if he had any closing comments for analysts in Thursday’s conference call, Burlington Northern CEO Matt Rose put it simply.
“Everybody go out and buy some stuff at Wal-Mart, Home Depot, Target and Lowe’s.”