(The Associated Press circulated the following story on July 24.)
NEW YORK — Railroad industry analysts on Wednesday reiterated their opinions on the sector’s biggest names after two days of earnings reports pointed to strengthening operational efficiency and continued pricing strength.
“We believe the rails are performing better financially and operationally than most industries and should continue to do so during 2007 regardless of the economy,” said Edward Wolfe, an analyst at Bear Stearns, in a note to clients.
Four of the nation’s six largest railroads reported earnings gains this week. CSX Corp. reported a gain in fourth-quarter profit of 46 percent Monday. On Tuesday, Burlington Northern Santa Fe Corp. said its quarterly income improved 21 percent and Canadian National Railway Co. posted a 16 percent gain. Norfolk Southern Corp. on Wednesday said its profit in the quarter advanced 6 percent.
Union Pacific Corp., the nation’s largest railroad, reports its results on Thursday. Canadian Pacific Railway Ltd. wraps up the earnings season for Class I railroads with its report scheduled for Jan. 30.
Perhaps the biggest surprise came from CSX, which is on the rebound from hurricane damage to sections of its routes in 2005. While its results fell in line with Wall Street estimates, the company’s operational efficiency exceeded expectations.
“CSX has demonstrated admirable progress on the operating front with velocity up an average of 3.3 percent and dwell times down close to 14 percent,” said Gary Chase, an analyst at Lehman Brothers, in a note to clients Tuesday.
Velocity is a measure of how quickly trains move across a network, while dwell measures how long trains and rail cars spend in a terminal before leaving for the next destination.
Burlington Northern also rode operating efficiency into an earnings upside. The company said its consolidated operating ratio, a key measure of efficiency, stood at 75.7 percent in the quarter. Railroads generally target 80 percent.
“Burlington Northern saw margins improve dramatically during the fourth quarter as a direct result of continued focus on operational efficiencies,” said Jason Seidl, an analyst at Credit Suisse, in a research note on Wednesday.
Even Canadian National, which faced severe weather in the quarter, reported operational gains. Its operating ratio improved to 61.1 percent.
“The improvement came despite adverse weather that included abnormal levels of snow in British Columbia and heavy rain followed by avalanches in Alberta,” said John Larkin, an analyst at Stifel Nicolaus & Co. in a research note. “The performance confirms our view that CN is the best railroad operator in North America.”
Pricing remained robust, too. Larkin noted that CSX posted an 8 percent gain in revenue despite a slide in volumes of 0.4 percent.
“The strong pricing environment drove the revenue growth,” Larkin said.
Shares of railroads traded lower on Wednesday, giving back some of the gains they recorded on Tuesday. Shares of Norfolk Southern lost the most ground, retreating $2.85, or 5.3 percent, to $50.88 in afternoon trading on the New York Stock Exchange, where they have traded between $39.10 and $57.71 over the past year. Although the company posted an earnings gain, the results narrowly missed expectations due to softness in automotive and metals shipments.