(The Associated Press circulated the following story by Samantha Bomkamp on April 21, 2009.)
Analysts see a bright light coming down the railroad tracks, as they expect many of the nation’s largest railroads to surpass Wall Street’s estimates for the first quarter through higher prices, cost cuts and operational improvements.
Wall Street already received one first-quarter earnings surprise with the first rail to report results for the period – CSX Corp. Jacksonville, Fla.-based CSX said its first-quarter profit fell 30 percent from a year earlier, but the results handily beat Wall Street’s expectations as cheaper fuel and lower costs partially countered plunging demand.
All U.S. railroads faced deteriorating demand in the first-quarter. According to the Association of American Railroads, the industry’s main trade group, total U.S. rail carloads fell 16.3 percent in the first three months of 2009 compared with a year earlier.
In a note to clients last week, Deutsche Bank analyst Marcelo Choi said that CSX’s first-quarter results bode well for the rest of the railroad group. He suggests that analysts may have underestimated the railroads’ ability to focus on cost-cutting.
CSX said about half of its reduced operating expenses came from lower fuel costs. Furloughs, faster train speeds and less time spent in the station accounted for the rest.
Lee Klaskow, an analyst with Longbow Research, said he expects railroads’ ability to raise prices for its services will continue. During the first-quarter, CSX was able to raise core prices by 6.5 percent, despite a sharp drop in shipments. Klaskow believes the railroad can raise prices by 5 percent to 6 percent this year, but warned the railroad may have trouble with price hikes in 2010 if demand hasn’t improved.
The next U.S. railroad to report earnings is CSX’s eastern rival, Norfolk, Va.-based Norfolk Southern Corp., on Tuesday after the market closes. The country’s two largest railroads, Union Pacific Corp. and Burlington Northern Santa Fe Corp., are expected to release results on Thursday.