Q4 was a somewhat tough quarter for US rail carriers, with profits down almost 20% year over year, but compared with other modes the numbers are still very strong on a relative basis.
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| While net income for the group was down sharply, falling 19.1%, net income as a percent of revenue also fell but was still strong at 18.8% for the full group. |
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We're back as usual every quarter with our review of the results and trends across freight modes, starting last week with US truckload carriers (see US Truckload Carriers See Mixed Q4, Amid Sluggish Freight Environment).
This week, we look at the rail transport sector, and then next week we'll review results and trends in the less-than-truckload group.
As part of that review 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).
In general, it has been a somewhat tough year for rail carriers. Total carloads in the quarter were down for all four carriers, from 2% at Kansas City Southern to 9% at Union Pacific. That again is in part due to a another major decline in coal volumes for all but KCS, but there was general weakness in general merchandise and intermodal volumes as well.
The Association of American Railroads says that for all of 2015, total rail traffic volume in the United States was down 2.5%. That includes traditional rail cars down 6.1%, and the usually fast growing intermodal business up just 1.6% for the year.
But despite those sluggish volumes, several of the rail carriers indicated they saw strong pricing environments. Union Pacific said rates were up 3.5% in Q4, while CSX referenced "strong pricing" for all of 2015.
Union Pacific's change in rates in recent quarters is shown in the graphic below:
Union Pacific's Recent Quarterly Rate Changes
Source: Union Pacific
Average operating ratios (OR), or operating expense divided by operating revenue, a key metric in the transport sector, were up one percentage point in Q4, to 68.2% (unweighted average) from 67.2% in 2014. That level of OR is of course far superior to that seen in the truckload or LTL sectors, which generally see ORs in the high 80 percent levels and low 90 levels, respectively.
Union Pacific saw it OR rise almost two percentage points in Q4, but still achieved an impressive operating ratio of just 63.2%.
While net income for the group was down sharply, falling 19.1%, net income as a percent of revenue also fell but was still strong at 18.8% for the full group. Most quarters Union Pacific leads in this metric, but in Q4 Kansas City Southern took the top spot, with profits of 23.4% of revenues.
Full Q4 financial results for our group of rail carriers is shown below:
Q4 US Rail Carrier Operating Results
(See More Below)
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Results for the rail carriers were slightly better for the full year, with profits down 8.6% year over year, and operating ratios about flat with 2014, as shown in the table below:
Full Year 2015 US Rail Carrier Operating Results
As usual, we provide a few highlights from the earnings releases of each carrier, though they were even more terse in Q4 than usual.
Union Pacific
Total volumes decreased 9 percent in the quarter, more than "offsetting another quarter of solid core pricing gains" of 3.5%.
Union Pacific's operating ratio of 63.1% was a full year record, improving 0.4 points from the previous record set in 2014.
Union Pacific's capital program in 2015 totaled $4.3 billion, an increase of approximately $200 million compared to the full year 2014 and equal to 19.7% of revenue.
CSX
Fourth quarter revenue declined 13% as "pricing gains were more than offset by the impact of lower fuel recovery, a 6%
volume decline and continued transition in the company's business mix."
The company saw its first sub-70 full-year operating ratio at 69.7%.
Said it saw "strong pricing" in 2015.
On-time arrivals rose to 61% in Q4, versus 43% in Q4 2014, but as shown in the chart below are still well below levels seen in 2012-13.
Norfolk Southern
Norfolk Southern noted its strategic plan "to streamline operations and drive profitability and growth. The plan includes cost reductions across the organization and improved operational efficiencies."
As a result of this plan, "the Company expects to achieve annual productivity savings of more than $650 million by 2020, with approximately $130 million to be realized in 2016. Through the initiatives announced today, Norfolk Southern is confident in its ability to achieve an operating ratio below 65% by 2020," the company said - no doubt in part to reduce shareholder interest in a merger with suitor Canadian Pacific.
For 2016, Norfolk Southern plans to invest $2.1 billion to maintain the safety of its rail network, enhance service, improve operational efficiency, and support growth opportunities.
Kansas City Southern
KCS reported a fourth quarter 2015 operating ratio of 63.4%, a 3.3 point improvement from fourth quarter 2014. The full year 2015 adjusted operating ratio was 66.4% compared with the adjusted operating ratio of 67.1% in 2014, a 0.7 point improvement.
Company said it plans on significant spending on its Sasol Project in 2016 and 2017, which involves a new rail yard next to the Sasol Chemicals in Louisiana, as well as new or expanded sidings to improve line-of-road fluidity.
As oppose to other carriers, KCS appears to have seen flat pricing in the quarter.
Any reaction to the Q4 and full year 2015 results and trends from the rail carriers? Let us know your thoughts at the Feedback section below.
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