Carrier income reports: 2004 third quarter

Burlington Northern Santa Fe

BNSF posted a sharp drop in third-quarter profit, as a charge to reflect changes in the way the company estimates asbestos and environmental liabilities hurt its bottom line.

The railroad said third-quarter net income came to $2 million, including a charge of $288 million, compared with $203 million a year earlier. On a more positive note, the company noted that third-quarter freight revenues increased to an all-time quarterly record of $2.74 billion compared with 2003 third- quarter revenues of $2.37 billion.

Excluding the pretax charge for asbestos and environmental liabilities ($465 million), the railroad's operating ratio was 79.4 percent. Consumer Products revenues increased $168 million, or 18 percent, to an all-time quarterly record of $1.10 billion as a result of double-digit increases in the international intermodal, truckload and perishables sectors. Industrial Products revenues increased $80 million, or 14 percent, to an all- time quarterly record of $634 million reflecting strong demand in the construction products, building products, and petroleum products sectors. Coal revenues rose $78 million, or 15 percent, to $589 million resulting from record demand by utility customers.


CN, which has the highest profit margin among North American railways, said third-quarter earnings rose 18 percent, helped by acquisitions and higher shipments. Net income climbed to C$346 million ($283 million) from C$294 million, or C$1.02, the company said in a statement. Revenue rose 21 percent to C$1.71 billion.

CN benefited from the purchase of two U.S. ore-hauling railroads in May and the July acquisition of rights to operate the routes of BC Rail Ltd., which hauls forest products including lumber. CN bought the Duluth, Missabe & Iron Range Railway and the Bessemer & Lake Erie Railroad from Blackstone Group LP's Great Lakes Transportation LLC unit in a $380 million transaction. The Canadian company spent C$1 billion at auction for the rights to run BC Rail.

Total shipments rose 19 percent. Ore shipments more than doubled and forest products increased 20 percent, the company said.

CN also reported that is operating ratio for the 2004 third quarter was 65.4 percent, which is 2.5 percentage points better than the prior year's quarterly performance.

Canadian Pacific Railway

Canadian Pacific Railway reported third-quarter 2004 net income of $177 million, compared with net income of $91 million in the same period of 2003 (all figures Canadian). The increase included an after-tax gain of $73 million on foreign exchange on long-term debt. Volumes grew in six of seven business lines, including a 9-per-cent jump in intermodal, which is on pace to become a $1 billion business line for CPR this year.

Excluding foreign exchange gains and losses on long-term debt, income in third-quarter 2004 increased 9 per cent to $104 million, compared with $95 million in third-quarter 2003.

The railway's operating ratio of 77.9 percent in the 2004 third quarter compares with 77.5 percent in the 2003 third quarter.

CPR reported that its operating income of $219 million was an increase of 8 per cent over the 2003 quarter. Its revenue was also up $85 million, but operating expenses were also up $70 million, driven by higher freight volumes and fuel prices, temporary costs to train additional crews, and a return to a normal level of performance-based incentive compensation.


Third quarter earnings at CSX fell about six percent over the same quarter of 2003. Excluding quarterly charges in 2004 for the Conrail spin-off and charges in 2003 for restructuring, earnings were $109 million in the third quarter compared with $116 million in 2003.

The dividing up of Conrail assets contributed $14 million, or 7 cents, a share, to CSX's net income. Revenue rose more than 5 percent in the quarter to $1.98 billion from $1.88 billion. Expenses fell 13 percent to $1.72 billion from $1.98 billion.

The railroad's operating ratio for the 2004 third quarter was 86.7 percent compared to 85.2 percent in the 2004 second quarter. Surface Transportation revenue, including rail and intermodal, increased $115 million to $1.94 billion, merchandise revenue was up 6%, and coal revenue was up 10%.

"We are encouraged by these results and remain committed to further improving CSX's service and costs. This will allow CSX to capitalize even more on both growth and yield," said CSX Chairman, President and Chief Executive Officer Michael J. Ward.

Kansas City Southern

Kansas City Southern reported net income for third quarter 2004 of $8.9 million compared to $1.0 million for third quarter 2003. KCS posted record third quarter 2004 operating revenues of $162.1 million, an increase of $17.2 million, or 11.9%, over the comparable 2003 period. Four of its five commodity groups attained quarter-over-quarter double digit revenue growth led by Paper & Forest Products, which increased 23.3% with strong gains in all its market segments. Intermodal revenues, including Norfolk Southern and CSX haulage business, increased 14.1% in third quarter 2004 compared with a year earlier.

KCS third quarter 2004 total operating expenses of $137.5 million were $10.7 million higher than the same period in 2003, driven by higher fuel prices, compensation, and casualty and insurance costs.

KCS third quarter 2004 operating income increased $6.5 million, or 35.9 % year-over-year. KCSR's operating ratio improved to 84.8 % compared with 87.5% for the prior year period.

Norfolk Southern

Boosted by surging Asian imports, renewed coal exports and increased freight rates, Norfolk Southern more than doubled its 2004 third quarter profit compared to its 2003 third quarter profit.

The nation's fourth-largest railroad made $288 million in the quarter ended Sept. 30, up from $137 million in last year's third quarter. Per-share earnings rose to 72 cents from 35 cents.

Among the highlights this quarter, NS noted that:

Union Pacific

Union Pacific Corp., which operates the nation's largest railroad company, said its profit fell 38 percent in its third quarter as high fuel prices and service problems more than offset the impact of a rise in revenue.

The company earned $202 million, or 77 cents a share, in the period ended Sept. 30 compared with $317 million, or $1.21 a share, a year ago. Revenue rose to $3.08 billion from $2.96 billion a year ago.

Service problems caused by a surging economy increased costs by about $44 million in the third quarter, while hiring and training new workers to meet demand cost $35 million and consolidating operations at its new headquarters in Omaha cost $23 million, railroad officials said.

UP has been struggling with a crew shortage and rail congestion since last fall, when the economy began picking up. The railroad also was surprised by the number of engineers and conductors taking retirement under new federal rules.

For the first nine months of the year, Union Pacific earned $525 million, or $2 a share, up from $1.03 billion, or $3.94 per share, a year ago. Revenue rose to $8.998 billion from $8.586 billion a year ago.

"Our $3.1 billion in third quarter operating revenue marks the second consecutive quarter of Railroad revenue over the $3 billion mark and our best total revenue performance ever as a company," said Dick Davidson, chairman and chief executive officer. "However, unprecedented fuel prices and high operating costs resulting from our service inefficiencies out-weighed the revenue growth."

Union Pacific's operating ratio for the 2004 third quarter was 86.4 percent, compared to 80.0 percent for the third quarter of 2003. Its year-to-date operating ratio is 87.9 percent, compared to 82.0 percent for the first nine months of 2003.

In the third quarter, commodity revenue was up 4 percent compared to the 2003 third quarter. The breakdown is as follows: Industrial Products up 9 percent; Chemicals up 8 percent; Intermodal up 7 percent; Automotive up 4 percent; Energy was flat; and Agricultural down 4 percent.

Quarterly average system speed, as reported to the Association of American Railroads, improved 0.5 mph versus the prior quarter, but was 1.1 mph lower than the third quarter of 2003.




© 2004 Brotherhood of Locomotive Engineers and Trainmen