(The Associated Press circulated the following on January 16.)
NEW YORK — Severe winter storms, high fuel costs and weak demand plagued railroads during the fourth quarter, but analysts remain largely optimistic that the rails will be able to make up for the shortfall.
Morgan Keegan analyst Art Hatfield said he expects strong pricing and recent improvements in efficiency across the rails to drive earnings for the quarter.
Stifel Nicolaus analyst John G. Larkin said noted that pricing remained strong during the quarter, but carloads remained flat to slightly negative _ reflecting the demand slump that hit freight companies across the board.
Bear Stearns analyst Edward Wolfe said volumes declined 1 percent overall during the quarter. But although volumes slipped year-over-year, the metric improved versus a 2.4 percent decline in the third quarter and a 2.8 percent decline in the first half of 2007, Wolfe noted.
Delays in the time between a rise in gas prices and the recovery of these costs from customers also left the rails vulnerable to soaring diesel costs, Larkin said.
Particularly tough winter weather also provided a headwind for rails.
But the rails felt less regulatory pressure on their shoulders in the quarter, Larkin said, as the Surface Transportation Board considered easing certain costs and companies began to prioritize their efforts to become more environmentally efficient.
And grain markets, driven by the soaring consumption of ethanol, remained strong during the quarter.
Larkin expects Burlington Northern and Canadian Pacific will potentially miss Wall Street’s expectations. Canadian National and Union Pacific, the largest U.S. railroad, both said the lag in fuel surcharges and harsh winter weather will drag down results. For Canadian National, a weak U.S. dollar provided an added hurdle.
But the two largest Canadian rails used the poor exchange rate to their advantage by acquiring regional U.S. rails during the quarter.
Canadian National Railway Co., the largest Canadian rail by revenue, said in September it would by a major stake in Illinois-based Elgin, Joliet and Eastern Railway Co for $300 million. Canadian Pacific completed its purchase of Minnesota’s Dakota, Minnesota and Eastern Railroad Corp. in October for $1.48 billion.
Railroad earnings reports will kick off with Jacksonville, Fla.-based CSX Corp., Norfolk Southern Corp. and Canadian National Railway, which all report fourth-quarter and full-year results on Jan 22.