Toby Kolstad

GLG News by Toby Kolstad, President

Mr. Buffet, buying a real railroad is not like in the board game.

November 6, 2009

Analysis of:Buffett: Railroad business is 'in tune with the future' | www.usatoday.com

Hardly anyone can resist the temptation to by a railroad in the game of “Monopoly.” They are reasonably priced, have OK earnings potential, and if all four are owned, they have outsized rental rates and the payment rates with sites on all four sides of the board. In real life however, railroads are rarely cheap compared to their earnings and the STB will keep anyone from owning more than one. So why would such an astute investor as Warren Buffet purchase one?

Freightcar America has a strong balance sheet; but that’s all!

October 3, 2009

Analysis of:FreightCar America: A Long-Term Bargain Today | stocks.investopedia.com

Freightcar America is a fine company with an old pedigree and a reputation for producing some of the best coal cars in America. Although the company has no debt, it also has few prospects for growth, since it seems that almost everyone, want to decrease coal usage in the future. While it has designs for other car types, it has never produced any of these in sufficient quantities to offset any substantial decline that it may be facing in its coal car business.

Continued Rise in rail traffic is far from certain

September 28, 2009

Analysis of:Back On Track? | finance.yahoo.com

The weekly AAR railroad traffic report is an excellent real-time indicator of the health of the economy. Unfortunately, the volume changes, even when measured over many weeks, are generally so small that they are dismissed by most observers. Moreover, the freight rate increases pushed by the railroads during the past few years have blurred the falling traffic levels behind a screen of rising revenues and profits.

NS is tooting is own horn too loudly on fuel efficiency!

September 16, 2009

Analysis of:Norfolk Southern's Sustainability Report Highlights Carbon Footprint, Improved Fuel Economy | finance.yahoo.com

Norfolk Southern rightly claims that it has increased it fuel efficiency by 10% during the past ten years; but that achievement is less than half of what the other major carriers in the U.S. have achieved during the same period. The BNSF has notched a 24% gain, the UP has made a 23% improvement, and its Eastern competitor, CSX has managed a 17% in just the last seven years. So what is there to brag about?

If rail volumes are up by 8%, why are earnings forecasts up 20%?

September 15, 2009

Analysis of:The planes, trains and automobiles rally | money.cnn.com

Freight transportation volumes and freight company earnings have always been a good indicator of how the overall economy is doing, and the current transport trends appear to be support the conclusion that the economy has stopped contracting and is now expanding. However, with rail traffic up only between 4% and 8% on the four largest US carriers over the totals posted for the second quarter, why are earnings forecasted to grow by 18% to 25% from the same period?

Rail Traffic is up slightly, mostly due to Clunker program

September 7, 2009

Analysis of:AAR Reports Rail Traffic Continues to Register Gains Rail Carloadings at Highest Level Since December 2008 | www.aar.org

The volume of railroad traffic for the week ending August 29th was the highest since the end of 2008 and continued the slight upward trend in weekly car loadings that began in early July. Most of the gains appeared to be related to the cash-for-clunkers program, which means it may not continue in coming weeks.

Domestic intermodal traffic is best hope for railroad recovery

August 19, 2009

Analysis of:CSX Starts Work on Major Intermodal Site | www.joc.com

In 2003, revenue from railroad intermodal traffic surpassed receipts for coal shipments in the US, mainly due to the phenomenal growth of imported containers. Although both are down this year and both imports and coal traffic may take a while, if ever, to recover to 2007 levels, domestic intermodal may eventually replace them both as the engine of growth for railroad revenue, at least that is what the railroads must be hoping.

Railcar industry will take time to recover, lots of time.

August 10, 2009

Analysis of:2Q freight car production results “not surprising” | www.railwayage.com

 There were only 2,165 orders for new railcars during the second quarter, while deliveries totaled 6,463 cars according to the ARCI. Both numbers were 20% less than the totals reported for the first quarter and appear to support both a forecast of 22,000 deliveries in 2009 and a much lower production rate for 2010. Beyond 2010, the future is a lot cloudier than some forecasters will admit, especially those projecting a return to pre-recession production levels within a few years.

Cost control has been preserving profits for all the major railroads

July 27, 2009

Analysis of:CSX 2nd-qtr profit down 20 percent as shipping volume shrinks, fuel surcharges dry up | www.wtxx.com

 US railroad traffic and revenues are down for the second quarter, but earnings are up. Management response to dramatic shifts in traffic has not always been as timely in the past as railroad operating ratios have usually trended up during traffic downturns. The change however, owes as much to some industry changes as to improvements in management skills.

Tough times for railcar builders and especially for The Greenbrier Companies

July 14, 2009

Analysis of:The Greenbrier Companies (NYSE: GBX) Posts Q3 Loss Amid Contract Dispute with General Electric (NYSE: GE) | www.hotstocked.com

In the quarterly earnings release, Greenbrier (GBX) noted that it had delivered only 800 cars compared to 1,300 last quarter and 2,200 during the comparable quarter in 2008. The decline in business will be a common theme for all railcar builders this quarter, and the outlook for the next twelve months is not encouraging. Deliveries are expected to keep falling for the rest of the year and possibly next year if the economy doesn’t show the classic “V” shaped recovery pattern in the GDP. Some builders will suffer more than others, and Greenbrier may be among the builders who see the most significant decline in new car production.

Is it hutzpah or hot air? CSX’s CO2 goal could be a difficult goal!

July 1, 2009

Analysis of:CSX Announces Commitment to Cut CO2 Emissions by Eight Percent | jacksonville.bizjournals.com

CSX announced that it will reduce CO2 emissions per revenue ton-mile by 8% by 2011; a neat trick considering its fuel efficiency as measured in revenue ton-miles per gallon fell by 2% from last year’s average efficiency during the first quarter and is expected to fall even more in the second quarter. Before the recent decline in traffic however, CSX had achieved a remarkable record of improving its fuel efficiency. Between 2003 and 2008, it averaged an annual 2.7% improvement, raising its fuel efficiency from 395 to 452 revenue ton-miles per gallon during the five year period. However, during the first quarter of 2009, its efficiency slipped to 444 and may have fallen even further as traffic declined in the second quarter. It will be a stretch to achieve an 8% gain over the 452 record, but then again, CSX may measure its success against the less efficient numbers that will be posted for 2009.

Bumper world grain crop is reason behind drop in US exports and railroad grain traffic

June 17, 2009

Analysis of:WA at the fore as grain exports surge | www.thewest.com.au

In these troubling times of economic contraction, it’s easy to assume all cutbacks are due to financial problems or decreases in consumer demand as citizens around the world adjust their purchases to both declining incomes and declining levels of wealth. Such is not the case however, in the U.S. agricultural sector. The current collapse in export demand, ranging from -25% to -65% for the various crops grown in the US, is due to bumper crops in other grain consuming and exporting nations. This decrease in exports is the reason rail grain shipments are down 15% compared to last year.

A railroad contrarian -- for the sake of argument

June 15, 2009

Analysis of:Analysts reaffirm rail industry’s long-term value | www.railwayage.com

Almost all of the well known commentators on the railroad industry wear two hats: under one they advise investors on the railroad companies they track; under the other they help the railroads promote their own agendas in order to keep close relations with them and to gain access to their properties. Consequently, one never hears from them a negative comment on either the industry or any of its major companies.  It is therefore, sometimes difficult to accept their endorsements of these companies and the rosy expectations of future developments. For the sake of argument, let’s look at what might not be so good for the railroads in the future.

Delay in CO2 legislation may not affect declining railroad coal traffic

June 4, 2009

Analysis of:Green-energy gurus not holding breath on CO2 rules | www.marketwatch.com

Several months ago, sweeping changes in the energy sector were forecasted to occur after the passage of a comprehensive energy bill by Congress later this year. Now many of the more controversial features of that legislation, including expensive Cap & Trade provisions for carbon, are not expected to pass and are not being aggressively pushed anymore by environmental lobbyists as the costs of these measures is becoming apparent. Even without these restrictions however, utilities have been installing wind farms at a pace not truly appreciated by even the wonks at the EIA of the DOE, and switching to cheaper and cleaner burning natural gas and away from coal.

Falling coal usage drops rail traffic volumes

May 13, 2009

Analysis of:Rail group warns economic recovery still far off | finance.yahoo.com

The American Association of Railroads (AAR) has warned that rail traffic is still falling and that there are still no signs of an economic recovery for the industry. Carload traffic seemed to have stabilized during the first quarter at an average weekly volume that was about 16% lower than last year. Average weekly intermodal volumes were around 15% lower than last year during the first quarter. However, during the first six weeks of the second quarter, average weekly carload volumes have been down 22% from last year, and intermodal traffic had been off 18%. The latter can be attributed to a plunge in coal shipments, but the fall in intermodal traffic levels is signaling a further contraction in the overall economy.

Natural Gas Discoveries are bad news for those looking for growth of railroad coal traffic

May 6, 2009

Analysis of:U.S. Gas Fields Go From Bust to Boom | online.wsj.com

Recent discoveries of new natural gas reserves have sent well-head prices to levels not seen since late 2002, and supplies are now estimated to be sufficient for 100 years at current rates of usage. Just last year, supplies were thought to be limited and it looked like the natural gas industry was going to be as reliant on foreign imports of LNG as the gasoline industry was on the import of foreign crude oil. Now price, supply, and LNG imports are no longer obstacles to increasing the use of natural gas to make electricity and to power highway. Since coal has been the reserve fuel for those utilities which thought natural gas supplies were limited, the prospects for the former fuel have declined as those for natural gas have risen.

Rail freight, thought to be stable, is falling again

April 27, 2009

Analysis of:US rail shipments sink 24.3 percent from a year earlier, industry trade group reports | finance.yahoo.com

The American Association of Railroads (AAR) reported that rail shipments decreased 24.3% during the week ending April 18. Unlike the AAR statements in previous weeks, this one did not contain an explanation about how weather or the Good Friday holiday caused the unfavorable comparison. In the detailed report available to AAR members, carloads were down by significantly more than 24.3% for most traffic segments, with Motor vehicles (-57.7%) and metallic ores and metals (-52.9%) suffering the most. Grain traffic was still down 21.3% and even coal shipments, which for the year are only down 5.8%, decreased 16.2%. Could rail traffic be settling at an even lower level than previously projected?

FreightCar America to halt production at its second shop in two months

April 16, 2009

Analysis of:FreightCar to halt production in Roanoke | www.roanoke.com

With the temporary closure of its Roanoke VA plant, FreightCar America (RAIL) will be down to just one plant in Danville IL where union workers were notified in February that four of five jobs would soon be cut. In 2007, with production falling to 10,282 from 18,548 railcars in 2006, the company closed its largest and oldest facility in Johnstown PA and transferred all production work to its two other plants in Roanoke and Danville. Deliveries held constant in 2008, at 10,239 railcars, but output was expected to a fraction of that total this year. The closure of the Roanoke VA facility indicates that this forecast was on target.

Enlarged STB might be better than anti-trust legislation for railroads

April 13, 2009

Analysis of:Compromise bill getting close | www.railwayage.com

Railroads, shippers, and legislators seem to be working on a compromise bill that would enlarge the STB and remove some exemptions the railroads currently enjoy from regulatory oversight.  Railroad labor unions have join forces with the rail carriers to oppose the alternate bills that are currently in committee and are expected to advance in both the house and senate next month.  The compromise bill seems to have some chance of passing then either of these pieces of legislation. It will probably be unnecessary legislation and an example of more government waste by the time the bill becomes law since the railroads are already under market pressure to rectify some excessive rates.

Despite bad weather related weekly carloads, coal traffic is one bright spot of rail traffic.

April 6, 2009

Analysis of:Coal volume slump leads freight traffic decline | www.railwayage.com

Coal traffic was down 21% for the week ending March 28, compared to last year, and railroad ton miles were off 24% for the same period. Blizzard conditions in Wyoming hampered loading operations and contributed to the decline in production and transportation more than any other factor.  Before these numbers were added to the yearly totals, coal traffic was only down 3.9% on a national basis, and all of that loss was in the East and was due to the decline in export sales of Appalachian steam and metallurgical coal. Coal production and railroad traffic in the West was running about even to last year until the weather interfered with mine operations. Moreover, new coal plants coming online this and next year should keep coal traffic climbing, albeit slowly, for a while out of the Powder River Basin fields.

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