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From SCDigest's On-Target E-Magazine

- Feb. 25, 2014 -

Logistics News: Rail Carriers See Generally Strong Results for Q4, Full 2013

Profits as Usual Nicely Out Run Volume Growth; Union Pacific Continues to Lead the Pack

SCDigest Editorial Staff

In a relatively down year for public US rail carriers, our group of four Class I railroads overall still saw good economic times, with profit growth much higher than increases in carload volumes.

SCDigest Says:

Pricing power seems to have fallen from recent years, with CSX and NFS saying core pricing was up just about 1.5% - well down from the 4-5% increases common in recent years.

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As always, SCDigest is here this week with a review of Q4 and full year 2013 results from our group of four publicly traded rail carriers: Union Pacific, CSX, Norfolk Southern, and Kansas City Southern.

That includes both summary tables of financial and operating results as well as any noteworthy commentary from the various Q4 earnings releases. Both should be of interest to shippers.

Last week, we did the same for major truckload carriers (see Lackluster Q4 Ends Decent 2013 for US Truckload Carriers). We'll end the process next weeks for the LTL carriers.

Overall, the Association of American Railroads said that for the full year of 2013, US railroads reported cumulative volume of 14,608,403 carloads, down 0.5% from 2012, and 12,831,692 intermodal units, up 4.6% from last year. Total combined US traffic for the 52 weeks of 2013 was 27,440,095 carloads and intermodal units, up 1.8% from last year.

Among our group of four rail carriers, total carload volumes for the year ranged from flat growth at Union Pacific to a 3.3% increase at Norfolk Southern.

Growth was mostly better in terms of intermodal, though here again Union Pacific was flat, while the other three carriers saw increases of 5.4 to 6.4%.

First looking at Q4 results, profits were up sharply at three of the four carriers, with only CSX having a tough quarter, seeing net income down 5.1%. Union Pacific profits rose 13%, and Norfolk Southern and Kansas City Southern enjoying profit growth of over 20% in Q4.

That was reflected not surprisingly in continued improvements in operating ratios, or operating expenses divided by operating revenue, a key metric in the transportation sector. The unweighted average of the four carriers fell to 68.1%, down 1.4 percentage points from 2012. Union Pacific saw its OR in Q4 fall to just 65%, leading the way among the four carriers.

These and results are shown in the table below.

US Rail Carriers Results Q4 2013

See Larger Image

All told, net profits for the group were up 11.9%. several times the change in volume growth.

(Transportation Management Article Continued Below)

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Results were Ok for the full year, but not as strong as in Q4. Profits for the group as a whole were up just 7.3%, a change from the double digit growth the rail carriers have generally seen in recent years.

Union Pacific saw profits rise 11.3% for the year, and Norfolk Southern over 9%, while CSX was flat and KCS saw full year profits down 7%.

Union Pacific was able to achieve that profit growth despite seeing its coal volumes fall another 8.9%, as the collapse of the coal market can't seem to find a bottom.

Pricing power seems to have fallen from recent years, with CSX and NFS saying core pricing was up just about 1.5% - well down from the 4-5% increases common in recent years. UP retained some pricing power, saying core price was up 3.5% in Q4, the same as in 2012.

The full year rail carrier results are shown below:

US Rail Carriers Results Full 2013

See Larger Image

Below some of the more interesting comments by each of the carriers in their Q4 earnings releases is provided below:

Union Pacific

UP said that for the first time in six quarters, it reported overall volume growth, despite significantly weaker coal shipments.

Union Pacific's operating ratio of 65.0 percent was a fourth quarter record, 2.1 points better than the fourth quarter 2012 and only 0.2 points off the all-time quarterly record of 64.8 percent set in the third quarter 2013.

Company believes it will easily be able to achieve a full year OR of 65% before its stated goal of doing so by 2017.

CSX

Core pricing was up 1.6% in Q4, the same as in 2012.

CSX said it expects GPD growth of 2.7% and industrial production growth of 3% in 2014, and that general merchandise rail volumes increases will exceed those macroeconomic numbers.

Company said that it is "on track to sustain a high-60s operating ratio by 2015," while "a mid-60s operating ratio remains the target longer-term."

Norfolk Southern

Saw core pricing gains of about 1.5%.

Said that "Strong intermodal, chemical, automotive, and agricultural shipments more than offset declines in coal traffic to drive total volumes up 4 percent."

Kansas City Southern

NFS saw an 8% revenue increase on just a 2% gain in carloads.

The company saw "mid-single digit" core pricing gains, and expects price to continue to exceed inflation.

Since 2010, KCS has averaged 1.3 points of annual operating ratio improvement.

Cross border traffic, mostly in and out of Mexico, increased 30% , to 27% of total revenue.

Any reaction to the rail Q4 and year-end 2013 results? Let us know your thoughts at the Feedback button (for email) or section (for web form) below.

Recent Feedback

Given the decline in coal manufacturing and the increase in the rail carriers overall performance, could the Bakken oilfields be over compensating for the decline in coal? The rail market seems dependent on a few core products including coal and oil. I look forward to seeing how the composition of rail cargo changes given the increase in local oil production in the Bakken oil field and the decline of coal manufacturing. I also look forward to seeing how retail of consumer products will continue to grow as a major client of rail as well.

Holli Wertheimer
Student
The McCombs School of Business- University of Texas
Mar, 05 2014