(Bloomberg News circulated the following story by Andrew Frye and Betty Liu on May 6, 2010.)
WASHINGTON, D.C. — Berkshire Hathaway Inc.’s Burlington Northern Santa Fe, the railroad Warren Buffett bought this year as an “all-in wager” on the United States, said the economy is growing as the industry posted its first across-the-board increase in freight volumes since 2004.
The nation’s top four railroads – Burlington Northern, Norfolk Southern, CSX and Union Pacific – all are benefiting from the turnaround.
“It’s striking,” Matthew Rose, CEO of Burlington Northern, said at the Berkshire annual meeting in Omaha, Neb., last week. “We’re seeing the economy grow.”
The Association of American Railroads reported increases in U.S.-originated hauling of trailers, containers and each one of 19 carload commodity groups in the week ended April 24. It was the first time in more than five years that all categories rose, said Holly Arthur, a trade group spokeswoman. Berkshire swung to profit in the first quarter and Buffett, the firm’s CEO, told shareholders the economy “picked up steam.”
Norfolk Southern Corp., the nation’s No. 4 railroad, said last week that its first-quarter profit rose 45 percent from the same quarter a year ago and operating revenues rose 15 percent to $2.2 billion.
“Looking ahead, we are increasingly convinced that the domestic economic recovery is well under way, although the rate of growth is still somewhat unclear,” Norfolk Southern CEO Wick Moorman told Wall Street analysts in a teleconference last week.
“We are seeing an uptick,” in businesses that serve broad industries, like railroads, said Buffett, who paid $27 billion for Burlington in February in his biggest takeover.
Rose, who’s led Burlington since 2000, oversees the second-biggest railroad in the United States with about 35,000 employees and 6,700 locomotives that haul coal, grain and consumer goods. Buffett negotiated the acquisition to give Berkshire access to shipping routes in the country’s West.
“Railroads are the one area we are most excited about,” said Walter Spracklin, an analyst at RBC Capital Markets, who also covers trucking firms and airlines. Industry data since the end of March suggest “that the recovery is well under way and that’s all we need to get earnings out of this rail group.”
Union Pacific Corp., the country’s No. 1 railroad by sales, has advanced 17 percent this year on the New York Stock Exchange. CSX Corp., the third-biggest rail hauler, and Norfolk Southern are both up 14 percent in 2010 as of Tuesday’s close of trading.
“The question is what sustainability it has,” said Rose, 51, of the economic recovery.
The Commerce Department reported last week the U.S. economy grew at a 3.2 percent rate in the first quarter. U.S. freight carloads averaged about 265,000 a week in 2009, 16 percent fewer than in 2008, according to data from the association complied by Bloomberg.