(The following story by Kelly Evans appeared on the Wall Street Journal website on January 19, 2010.)
NEW YORK — The improving economy likely helped railroad companies deliver better fourth-quarter results. But a recent slowdown in rail demand could be a warning sign for 2010, reports The Wall Street Journal.
CSX, the nation’s third-largest rail operator by revenue, reports fourth-quarter earnings Tuesday. Analysts polled by Thomson Reuters expect CSX to post earnings of 76 cents a share on revenue of $2.39 billion, down from 90 cents a year ago, but the third consecutive quarterly increase.
Fellow rail companies Union Pacific and BNSF will follow on Thursday, and are expected to show similar improvement thanks to a pickup in rail volumes last quarter as the U.S. economy likely expanded at a better-than-5 percent pace.
Yet doubts persist about the sustainability of that growth following the one-time boost from inventory restocking and stimulus programs like “cash for clunkers.” And one cautionary sign comes from the railroads themselves.
While rail volumes have improved since last spring, they started the year on a weaker note: U.S. railroads originated about 237,000 carloads in the week ended Jan. 9, according to the Association of American Railroads, down 12 percent from the same week a year ago and 28 percent from 2008.
Weekly carloads, one of the timeliest gauges of economic activity, remain below their recent high of about 287,000 reached in late November. “Intermodal” shipments, meaning freight moved by rails at some point but other transportation as well, have held up slightly better, but also weakened in early January.
The Dow Jones Railroad Index has gained some 76 percent since early March, outpacing the Dow Jones Industrial Average’s 50 percent rebound during that time.
Railroads account for two-fifths of the freight hauled across the country and can move goods more cheaply than tractor-trailers, particularly as fuel costs rise.
Warren Buffett billed his deal for BNSF in November as an “all-in wager” on the future of the U.S. economy. But investors shouldn’t assume a repeat performance of 2009.
The Association of American Railroads’ weekly figures, due out Thursday, will give more details on the recovery. Railroads still may be good for the long haul, but the next leg of the trip mightn’t be smooth.