(The Associated Press circulated the following on April 14.)
NEW YORK — Despite the crippling effects of a sluggish U.S. economy and poor demand, analysts expect the nation’s railroads to post strong first-quarter results, helped by lower costs and higher yields.
Fuel surcharges coming in during the first quarter should also drive revenue, said JPMorgan analyst Thom Wadewitz.
“U.S. rail earnings growth is likely to provide a sharp contrast to weakness at other asset based transports,” including trucking and parcel companies, he wrote in a note to clients.
Wadewitz said that while several of the sector’s stocks already reflect strong recent growth, he thinks they still have some room to grow even if the broader market pulls back further. He said Norfolk Southern should have the best near-term stock performance, as Wadewitz expects the rail to beat Wall Street’s first-quarter expectations by the widest margin.
For the two major Canadian rails, however, Wadewitz’s forecast is much less optimistic. The analyst sees first-quarter earnings of Canadian National Railway Co. and Canadian Pacific Railway Ltd. being hurt by severe winter weather and cost pressures.
Morgan Keegan analyst Art Hatfield also expects largely positive first-quarter results for the U.S. rails, despite rising fuel costs and weak freight demand. While traffic across the industry has slipped from last year, he expects pricing strength and continued operational improvements to drive earnings.
Hatfield noted that Burlington Northern Santa Fe Corp. has raised its earnings expectations for the first quarter, Union Pacific Corp. recently reiterated its forecast and CSX Corp. issued a first-quarter expectation for the first time in company history, saying it expects earnings well above analysts’ forecasts.
Jacksonville, Fla.-based CSX Corp., will be the first railroad to report when it releases earnings before the market opens Tuesday.