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Focus: Transportation Management

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From SCDigest's On-Target E-Magazine

- May 12, 2013 -


Logistics News: Q1 2014 Rail Carrier Review


Weather Hurts Top and Bottom Lines, but Union Pacific Once Again Finds Smooth Tracks; Rail Pricing Power Seems to be Dwindling

SCDigest Editorial Staff


We're back as usual every quarter with our review of the results and comments from leading public rail carriers, as the last of them finished up their Q1 2014 earnings reports in the last two weeks.

SCDigest Says:

Union Pacific reiterated its plan to reach a full-year operating ratio of under 65% before 2017.
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Last week, we covered the US truckload sector (see Q1 2014 Truckload Carrier Review).

Here we look at the four major Class I public carriers that make up the US rail sector (Burlington Northern is of course part of public company Berkshire Hathaway, but its results are not broken out in any detail and thus are not included)


Shortly, we'll have the same analysis for the less-than-truckload (LTL) sector.

For three of the four quarters we provide results for both the just closed quarter as well as year-to-date numbers, but as nearly all carriers operate on a calendar year basis, after Q1 the quarter and year-to-date are obviously the same, so the latter is unneeded.

It was a somewhat challenging quarter for the rail sector, and as with most of the truckload carriers we track, the rugged winter weather across much of the US was given much of the blame, as snow and cold were cited as impacting the top and bottom lines for most of the group.

CSX, for example, said that "operating income declined 16% to $739 million and the operating ratio increased 520 basis points to 75.5%, primarily due to the impact of harsh weather."


As shown in the table below, total revenue for the four carriers was up 3.5%, to just under $12 billion, but those gains were hardly even. Kansas City Southern saw its top line jump 9.9%, while Union Pacific saw a 6.6% gain. Menawhile, revenue at CSX was up just 1.7%, while Norfolk Southern saw the top line fall 1.8%, on a drop in total carloads of 1.1%.


The carriers were still pretty profitable, but mostly down double digit percentages from Q1 2013, with the exception being Union Pacific, which saw profits rise 13.7%, driving  net income to an impressive 19.3% of total revenue.


Q1 2014 US Rail Carrier Results


For Quarter Ending March 31, 2014 Data in $Thousands, Meaning for Example Union Pacific had about $5.6 billion in Sales.
Carrier Total Operating Rev Including Fuel Change 2012 to 2013 Total Volume Growth (Revenue Carloads) Volume Growth General Merchandise, Auto, Ag, etc. Volume Growth Coal Volume Growth Intermodal Net Income Change 2013 to 2014 Net Income as % of Revenue  Net Income as % of Revenue 2013 Operating Ratio

Ratio 2013

Union Pacific $5,638,000 6.6% 5.0% 5.7% 7.0% 3.0% $1,088,000 13.7% 19.3% 18.1% 67.1% 69.1%
CSX $3,012,000 1.7% 3.0% 2.0% -1.0% 5.0% $398,000 -13.9% 13.2% 15.6% 75.5% 70.3%
Norfolk Southern $2,689,000 -1.8% -1.1% -1.0% -12.6% 3.0% $368,000 -18.2% 13.7% 16.4% 75.2% 74.8%
Kansas City Southern $607,400 9.9% 4.0% 4.7% 1.1% 3.0% $94,000 -9.8% 15.5% 18.8% 68.1% 69.5%
Total Carriers $11,946,400 3.5%         $1,948,000 -1.3%     71.5% 70.9%


This reduction in general profitabilty is naturally reflected in an increase in operating ratios (operating expanse divided by operating revenues, and key transport industry metric), which rose from 70.9% in Q1 2013 to 71.5% this year. Once again, however, Union Pacific bucked that trend, dropping its OR by an impressive 2 percentage points in the quarter. Kansas City Southern saw a 1.8 percentage point drop in its OR. while CSX and NS went the other direction.


Pricing power was down in the quarter, with most referencing 2% or less in pricing gains, a far cry from the 4-6% rail carriers had been seeing quarter after quarter in recent years.


But the carriers continue to increase efficiencies. As shown in the graphic below, Norfolk Southern has been able to increase the number of railcars it moves per employee in Q1 from 56.5 in 2012 to 61.2 in 2014, an increase of8/4$ in two years.


Norfolk Southern Continues to Drive Strong Productivity Gains



(Transportation Management Article Continued Below)


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In the section below, we break out key points made in each carrier's earnings releases and analyst presentations, although the the releases tended to be rather terse this quarter.


Union Pacific

Saw record profitability for the Q1 quarter.

Quarterly freight revenue increased 6% compared to the first quarter 2013, driven by volume growth and core pricing gains, though price was only up about 2% this quarter.

UP reiterated its plan to reach a full-year operating ratio of under 65% before 2017.




The company expects to sustain a mid-60s operating ratio longer-term.

Attributed $35 million in extra expense in Q1 due to the weather issues.


Norfolk Southern

Company said pricing was basically flat in Q1.

NS spent $379 million in capital expenses in Q1, about flat with 2013, and that was more than half of its cash from operations of $723 million in the quarter.


Kansas City Southern


KCS benefitted from a sharp rise in grain shipments, up big after the impact of the 2012 drought in the Midwest, which decreased carloads dramatically.


Company moved 86 carloads per employee in the quarter, versus 84 in 2013 and just 73 in Q1 2010.

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