GLG News by Mr. Toby Kolstad, President
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
-
Railroad Intermodal traffic will probably not rebound for quite a while
May 29, 2008
Soft international container demand drives down total Q1 intermodal volume, IANA says | www.progressiverailroading.com
IANA (Intermodal Association of North America) reported that the first quarter intermodal volume was down 2.4%, almost identical to the decline reported by the AAR several weeks ago. Not surprisingly, the decline in imports was cited as the main reason for the decline, although the losses were partially offset by tenth consecutive increase in domestic shipments. Although it was forecasted that imports should improve at a healthy pace once the current bout of economic weakness passes, no guess was made as to when that might occur. Our guess is that railroads may be in for a long wait for that to happen.
-
UP freight rates for Powder River coal are found to be excessive by STB
May 22, 2008
Union Pacific must cut coal rates for KC utility | biz.yahoo.com
The Surface Transportation Board ruled that the freight rates that the Union Pacific Railroad unilaterally imposed upon Kansas City Power and Light in 2006 for the transportation of their Powder River Coal were in excess of the board’s guidelines for a carrier that had market dominance. Since the STB used an easily understood methodology in reaching this decision, this may be the first of many challenges to the railroad freight rate increases since 2006, often characterized as their newly discovered “pricing power”.
-
Trade Mag. finally gets it right; CSX is on the road to recovery after years of poor management
May 16, 2008
CSX powers up for a fight | www.railwayage.com
Trade magazines are usually constrained to write only positive comments about the companies in the industries they cover, since subscriptions and ad revenues are more dependent on goodwill rather than good investigative reporting. In the article reviewed below however, the writer/editor finally fesses up, CSX was poorly managed in the past, and much of the blame belongs to the ex-Chairman/CEO, John Snow. The article goes on to heap the usual praise on the new management team assembled a few years ago by Michael Ward, probably trying to aide in their defense against the corporate raid being staged by the TCI fund.
-
Coal car builder Freightcar America blames poor economy while coal traffic is up 4%
May 9, 2008
UPDATE 1-FreightCar profit plummets, cites economy, costs | www.reuters.com
CEO’s never like to go into lengthy explanations on the dynamics of their industry in explaining a dismal financial performance, but with year to date coal volumes up 4.6%, according to the most recent AAR report, blaming the economy for the problems besetting the company seems more like dodging the issue than helping shareholders understand the situation. The new president of FreightCar America cannot be blamed for how the company found itself in these waters, but a better explanation of the problems might have given shareholders more confidence in his ability to navigate the company in the future.
-
New car production losses at Greenbrier (GBX) are eating into overall profits
April 18, 2008
Greenbrier Q2 profit misses Street estimates, shares fall | www.reuters.com
During the last downturn in the railcar building industry, Greenbrier gained market share while cutting back production since the cars it produced were more popular that the car types manufactured by the other builders. This time around, just the opposite is true; there is almost no demand for the intermodal well cars, lumber flats, and boxcars that carried Greenbrier through the last recession, but there are still buyers for the coal, tank, and grain cars manufactured by the other railcar builders. In response to market conditions, Greenbrier closed its Canadian plant last year and began to solicit orders in other car types such as covered hoppers and tank cars. Manufacturing margins for these car types will be slim for a while as Greenbrier buys its way into these new markets. In the mean time, its plants are not operating at the levels that are necessary to earn a profit in this marketplace.
-
Right conclusion, but faulty reasoning that prospects for FreightCar America are not good
April 11, 2008
Derailed Growth at FreightCar America | seekingalpha.com
Per the author(s) of this blog, 10Q Detective, the prospects of increasing demand for railroad coal cars is not good and therefore the chances of accelerating growth at Freightcar America is also poor. There is so much that is wrong with this article and how it analyses the demand for new coal cars that it is hard to see how they managed to get to the right conclusion that the future prospects for Freightcar America are less than positive; but they did. Notwithstanding the current trends in railroad coal traffic (up 4.3% for the year), demand for coal cars is going to be soft for the next few quarters. Since coal cars are the main product of FreightCar America, its railcar deliveries will be lower in 2008 than in 2007.
-
Tight capacity is one of the preconditions for railroad pricing power, so why worry about it?
April 8, 2008
Rail: Operators choose parallel paths to the same destination | us.ft.com
For almost 100 years, or since 1921 to be precise, the railroad industry has been shedding excess capacity and abandoning lines and terminals. For most of that time, unfortunately, it was also losing traffic to other modes of transportation, primarily to the trucking industry. It was only recently that the railroads finally realized that they had abandoned too many lines and that excess capacity was no longer an issue. BNSF had to buy back a line they had sold that went from Seattle across the Cascade Range, and UP has been busy relaying some of the double track the SP had removed from the Sunset Route in the early 1990s. (The SP president was named the Railroad Man of the Year for that and similar feats.) With capacity tight, the railroads learned that they could charge more for their services and be somewhat indifferent to traffic losses as long as they were operating at or near capacity. Why would a company in such a situation be in any hurry to build more capacity?
-
Idle cars mean cutbacks are coming for railcar builders.
April 2, 2008
Weak Economy Slows Cargo, Idles Railcars | biz.yahoo.com
The decline in trailer and container shipments, especially those originating at West Coast ports, has resulted in a large surplus of railroad intermodal cars, specifically the doublestack well cars used to handle containerized imports. BNSF (NYSE:BNI) has been reported to have parked thousands of well cars around its system. Other railroads are reporting, however, that surplus quantities are no greater than might be expected at this time of year due to the seasonal nature of this traffic. Nevertheless, with traffic down significantly from last years’ levels (-4%), it’s hard to imagine how the seasonal railcar surplus looks normal.
-
CSX Exec boasts confidence in continued turnaround
March 26, 2008
CSX predicts higher earnings through 2010 | jacksonville.bizjournals.com
Mike Ward said that CSX would continue to enjoy double digit earnings growth for another few years, and he put an exclamation point to his forecast by boosting the share buyback program and increasing the dividend on these shares outstanding. His inspiring words however, might just have been an opening salvo against the investment funds who want to scale back CSX’s capital investment programs in order to reward their short term investments. It’s a shame that such bravado is necessary, but it would also be a pity if The Children's Investment Fund and 3G Capital Partners were allowed to loot the CSX treasury for their short term gain at the expense of other investors and perhaps the US taxpayers if they set up another Conrail type bailout in the future.
-
Limited ethanol distribution channels and slowing production growth means surplus railroad tank cars
March 25, 2008
Weekly US ethanol profits steady depite corn rise | uk.reuters.com
Two years ago, the ethanol industry went into overdrive in expanding production facilities and ordering railroad tank cars to move the expected flood of new production. No one, however, looked at how the ethanol was to be handled at the customer end of the distribution network and that has produced a major problem for the new industry. Even with corn prices well above $5.00 per bushel, ethanol producers could make about $0.20/per gallon if they could get their product to the final customer, the US motorist. Unfortunately, there are only four terminals ready to handle unit trains of ethanol and the shipment of small carload lots is just too slow to move the expected production. Tank car lessors who ordered large numbers of railcars to move ethanol have been left holding the bag this time waiting for the gasoline distributors to get with the program.
-
Railroad freight rate increases are only reason for increased profits and share buybacks
March 13, 2008
Why Warren Buffett is buying railroads | biz.yahoo.com
It’s hard to argue with success, and success is what the railroads are currently achieving after a decades -long battle for survival with their highway and barge competition. While all modes of transportation saw freight traffic soften in recent quarters, only the railroad companies have been able to maintain their profit growth. Praise is coming from all quarters and investors are being encouraged to join the likes of Warren Buffet in buying into the rail industry. The high P/E ratios are said to be justified by the prospects of double digit profit growth for several more years. Notwithstanding all the hype about productivity, the problem is, all of the recent growth in profits has been due to freight rate increases, and it must be questioned how many more years these annual increases can be maintained.
-
Chill in ethanol industry may give railcar lessors a bad cold
March 10, 2008
Sector Snap: Ethanol Stocks Plummet | www.chron.com
The growth rate of the ethanol industry has slowed significantly in recent months as the price of corn pinched the profit margins of most firms and put some inefficient producers out of business. With corn prices at $5.55/bu., reformulated gasoline (ethanol) prices must be above $2.00/gal just to break even, and prices last summer dipped as low as $1.50/gal. after a small surplus of ethanol developed. As uncertainties about costs, prices, and demand increase, producers are scaling back their plans for expansion. Railcar lessors however, have already committed to buy, or have already taken delivery of enough railroad tank cars to move the previously projected production total of 10 million gallons 2008. Car surpluses are developing as lessees walk away from commitments, a rarely used and dangerous practice for most users in that industry.
-
Ag and Coal are lifting railroads above economic potholes.
March 3, 2008
Rail volume up 2.1% in latest week | www.railwayage.com
The two largest railroad carload traffic segments, Agricultural products and Coal, are once again flowing in record quantities after a disappointing performance in 2007. Grain traffic is up 17% for the first 8 weeks of the year and coal shipments are up 3.4% for the year following increases last week of 18.3% for grain and 4.8% for coal compared to the same week last year. Traffic segments related to construction and the domestic economy in general were all down, except for Chemicals which include ethanol (up 3.7% YTD). The largest segment by revenue, Intermodal, was also down for the year, -3%.
-
Railroad Pricing power being fueled by boom in commodity prices
February 20, 2008
Global demand lifts grain prices, gobbles supplies | www.usatoday.com
Railroads, both large and small, have managed to keep raising freight rates each year, even as some of their traffic segments have suffered declines in loadings and ton miles. Although the data is still incomplete, it does not look as if the rate increases are to blame for these traffic losses. Moreover, opposition to the freight rate increases has not grown significantly and regulatory laws that have been promoted by groups such as CURE are not likely to be passed in the near future. If there is one factor that has been responsible for this situation it is the steady increase in commodity prices during the past few years, and rail freight rates should be able to keep rising as long as commodities keep getting more expensive.
-
Icahn is known for his patience and he will need it with Greenbrier (GBX)
February 6, 2008
Icahn Owns 9.5 Pct of Railcar Maker | biz.yahoo.com
Carl Icahn’s purchase of a 9.5% stake in Greenbrier Cos. seems to imply that he intends to pursue a merger between American Railcar (ARII), in which he controls a majority of the stock, and Greenbrier, two railcar builders with complimentary design portfolios and railroad business interests. The two companies each lack what the other possesses and the merger might be a good strategic move in an industry plagued by cyclical swings. However, Greenbrier’s manufacturing output has declined for the past two years and looks to fall again in 2008.
-
Wabtec scores second win in sales of its high tech brake technology
February 5, 2008
Wabtec Receives Order for ECP Equipment for Southern Company Coal Train | biz.yahoo.com
Southern Company, a southeastern utility which owns and leases a large fleet of railcars, gave Wabtec and order to equip 300 of them with electric brakes. The NS and BNSF railroads had been given approval to operate trains with electric brakes in 2007, after which NS ordered 210 electric brake systems for its coal cars from New York Air Brake Corporation. Around the same time NS had given Wabtec an order to develop a system to electronically manage its train operations.
-
The fourth quarter orders for new railcars were inflated to make a bad situation look good.
January 30, 2008
Rail-car orders up in fourth quarter, but expect decline in '08, EPA says | www.progressiverailroading.com
Last week the ARCI released the railcar industries results for the fourth quarter of 2007, including 23,722 new orders, 14,862 deliveries, and a backlog of 75, 860 cars. Normally, those types of numbers would signal a rising production schedule in the year ahead. Instead, total deliveries in 2008 are expected to fall from the 63,156 delivered in 2007 to around 48,000 in 2008. The reason for the discrepancy is the number of orders that have been reported for cars that will be built after 2008
-
Railroad’s pricing power continues to offset traffic loses
January 24, 2008
Railroads Report Strong Q4 | biz.yahoo.com
Both Norfolk Southern (NSC) and CSX Transportation (CSX) posted strong earnings for the fourth quarter and the year in spite of traffic losses. Costs were tightly controlled on both systems and were reduced in proportion to the contractions in traffic, allowing all of the freight rate increases to be reflected in the bottom lines. CSX had the most aggressive rate increases and indicated that they would take similar pricing actions in 2008, preferring margin gains over traffic increases. Both companies have promised and delivered rate increases for three straight years. Although those who have doubted that rates could go much higher have been proven wrong in each of the two previous years, once again it must be asked if these increases be sustained indefinitely
-
Greenbrier needs a better second half to match their regular earnings in 2007
January 15, 2008
UPDATE 2-Greenbrier Q1 earnings trail Street, shares fall | www.reuters.com
Greenbrier’s reported earnings that were only one third of what had been expected, and even before the special charges due to more plant closing costs and currency losses, the earnings would have been 30% lower than had been recently estimated for the company. Greenbrier tried to put a positive spin on the performance by comparing it to their first quarter of 2007 when they earned $0.12 vs. the $0.16 this year. The comparison was partially appropriate; in a weak new railcar market, the winter months are much worse for Greenbrier than other companies because buyers of intermodal equipment usually prefer to take delivery of their new cars in the second and third calendar quarters. During last year however, Greenbrier had other problems besides a weak market that hurt earnings during their first quarter.
-
Railcar builders are in two camps, those in for a rough year, and those holding their own.
January 7, 2008
Rail Stocks Are Still off the Track | www.thestreet.com
It is difficult to argue with Chris Versace’s facts regarding the past performance of the railcar builders and the railcar industry in general. This is a cyclical industry and the past is often prelude to the future. However, his broad assertions that roughly apply to the industry as a whole and perhaps to general trends at each company overstate the “problems” for some companies, painting some good companies with the red ink that might only apply to a few. The key to separating out the winners and losers is to know what types of cars each builder profitably produces and what cars are going to be built.
- Subscribe to Updates
-
Leading institutions connect with Toby Kolstad through GLG
Most Popular Energy & Industrials News
-
Big-Foot YRC Drops the Other Shoe on Shareholders
November 3, 2009
-
Bombardier Barbs Shows CSeries Can't Cut The Mustard
November 2, 2009
-
New 777 Depends On 787 Success
October 13, 2009
-
Airbus Lost $7.5bn+ Trying to Flog the A350XWB
August 28, 2009
-
Airbus A380 Struggling To Cut The Mustard?
August 24, 2009