Mr. Toby Kolstad

GLG News by Mr. Toby Kolstad, President

Pricing is propelling CSX profit gains

July 18, 2007

Analysis of:CSX profit falls 17% | www.marketwatch.com

Notwithstanding the misleading headline, CSX reported exceptionally strong earnings for the second quarter compared to both the second quarter of 2006 and the first quarter of this year. Both carload and intermodal traffic volumes were less than reported for the same quarter in 2006, but they did not decline as much as they did in the first quarter comparisons. Once again, the increase in revenue due to freight rate increases exceeded the decrease in revenue resulting from lower traffic volumes. Once again it can be asked how long the increases in freight rates can continue.

Quarterly data is sometimes misleading for railcar companies

July 12, 2007

Analysis of:Greenbrier Whistles A Happy Tune | www.forbes.com

Greenbrier says that its attention to costs allowed it to reverse the $0.38 loss in its second quarter with a $0.81 per share profit in its third quarter, bringing its fiscal year income out of the red and up to a $0.55 per share profit. Management always wants to be seen as being in “control”, mitigating bad developments, and capitalizing on market opportunities as they happen; but perception is not always reality, especially in the case of Greenbrier, and to a lesser degree, the other railcar companies. The problem lies in the relatively short time of a reporting quarter and the large sums involved in individual railcar transactions.           

Railroad ethanol traffic is growing faster than expected while grain traffic slows

July 6, 2007

Analysis of:Riding the Rails With Ethanol | www.businessweek.com

Ethanol production has been increasing at an exponential rate during the past 12 months, surpassing forecasts of just six months ago. Industry capacity now exceeds 6.3 billion gallons and another 6.1 billion gallons of capacity is under construction. At 12 billion gallons per year, the railroad industry should handle almost 400,000 carloads of ethanol, up from less than 50,000 carloads in 2003 when only 2.8 billion gallons of ethanol were produced. Carloads of corn have not declined during the last few years because there was enough surplus grain in stock to handle the increase in demand from ethanol producers. This year’s expected bumper crop of corn should be just enough to meet all orders, but the demands of the ethanol industry will soon double, and there may not be enough corn to meet the demands of both the exporters and domestic users.

Freightcar America adds some sugar to make bad news more tasteful

June 27, 2007

Analysis of:FreightCar America Estimates Earnings Per Share for Second Quarter, Receives Purchase Commitment for Hopper Railcars | www.freightcaramerica.com

Freightcar America’s announcement that its second quarter earnings will be only half of what was earned during the first quarter, down to 30% of the 2Q06 earnings, and 25% below recent estimates of $1.20/share were included with an announcement of a commitment by a company to order 1,900 new hopper cars as replacements for older cars in 2008. Very few orders for new aluminum coal cars are expected this year, and the announcement that a large fleet owner plans to replace some of its older hopper cars could not have come at a better time. Moreover, the order may signal that the recent (2006-2007) trend to replace the old open top hopper fleet with manually operated gates will continue into 2008 and that perhaps the 88,000 car fleet will not disappear by 2015 as past trends might have suggested.

Railcar repair and rehabilitation shops temporarily meeting “new car needs”

June 13, 2007

Analysis of:CSXT, BNSF order ballast-unloading systems from Georgetown Rail | www.rtands.com

Georgetown Rail Equipment Co. (GREX, a privately held railroad equipment supplier) has won orders for over 475 automatic ballast unloading systems to be installed on existing ballast cars in the CSX and BNSF company material hopper fleets. GREX has grown in recent years to be a major supplier of automatic ballast unloading systems, both modifying old coal and ballast cars and selling kits to new car manufactures. Based on the information released to date for 2007, the used car business might be outpacing the new car orders, but in the years to come, that situation might change.

So what’s new about this, railroads have been loosing autoparts business for years

June 7, 2007

Analysis of:Railroads feel profit pinch as U.S. automakers trim production | www.stltoday.com

In a recent article from Bloomberg News, it was reported that Norfolk Southern will loose autoparts traffic when a Norfolk VA Ford F-150 assembly plant closes so that production can be consolidated in a Michigan Plant. The article is very accurate in presenting the details of how the railroads have handled light highway vehicles and parts in the past, but it omits some of the background facts and recent trends that have affected the numbers more than the relocation of production facilities and the declining market share of the Big Three.

Early estimate of Second Quarter ’07 Railroad carloads

June 5, 2007

Analysis of:Rail Freight Traffic Trails Year Ago Week | www.aar.org

Enough weeks have passed in the second quarter to make a guess of how the second quarter’s carload statistics of each of the US railroads might look. Although car loadings for the year are down 4.5%, not all railroads did this badly. Some have done better than their reported performance during the first quarter, but some have done worse; and it can’t be as easily explained from geography as it was back in April. The continued growth in the market share of Western coal has helped carriers in that region, but not enough to overcome some of the other traffic losses out West.

Rail operating managers will do better, provided….

May 30, 2007

Analysis of:Icahn joins Buffett for a ride on the rails | www.marketwatch.com

Everyone seems to be buying railroad stocks, from short term hedge funds looking for a turnaround in management performance and financial strategy, to long term value investors like Buffet and Icahn who see promising business prospects and well positioned companies. Both groups seem to have “found” the railroad industry after most of the railroad companies had posted impressive profit gains and stock performances for two straight years. The word “renaissance” has been used extensively during this period to suggest that a new era had begun for the railroad industry. But this phrase was actually first coined 15 years ago when the railroads were outshining most other industrial companies and their stocks were outperforming the Dow Jones Industrial Average. It was what happened then and what probably won’t happen now that makes these stocks now so attractive to savvy investors.

Will newly trained employees leave the railroads?

May 16, 2007

Analysis of:Burlington Northern idles more than 400 employees | money.cnn.com

The layoffs by the Class I railroads that have recently been reported were well received by Wall Street and the prices of their stocks increased. The report of the layoffs was old news however, to most of the crewman affected, since railroad traffic has been below last year’s level since the start of the year. Through May 5, carload traffic was down 4.3% from last year and intermodal traffic, as measure by the count of the containers and trailers, was off almost 1%. Traffic for the most recently reported week showed similar comparisons to the traffic levels in 2006 for the same period. Railroads have traditionally responded quicker than most industries to declining business levels, but layoffs do cut expenses quite as fast as revenue is lost.

LBO or private equity takeover of railroad has little upside

May 10, 2007

Analysis of:Private Equity Takes To The Rails | www.forbes.com

Norfolk Southern’s CEO recently stated that the private equity LBO model is not suited to railroads. The recent purchase of the Florida East Coast Railroad by the private equity group Fortress Investment Group LLC is not an exception to his comment. The FEC was owned by a holding company that also has a real estate company that contributed almost 40% of the Earnings of Florida East Coast Industries on 27% of the revenue in 2006. Moreover, the FEC was one of the best managed railroads in the country as evidenced by it earnings. The purchase price reflected the full value of both companies. Almost all of the other railroads are pure transportation companies, and although there may be more profit to be squeezed out of their traffic, it is not a quick fix situation.

Investing in the future sometimes hurts present earnings (TRN)

May 7, 2007

Analysis of:Trinty Industries annouces first quarter earnings | biz.yahoo.com

Trinity Industries reported 1^st quarter earnings of $0.74 per share, compared to their best quarterly earnings from ongoing operations of $0.71 in the fourth quarter of 2006. Moreover, their backlog of unfilled orders increased to an all time high of 37,790 cars, which represented almost 50% of the total backlog for the car building industry. However, they also announced that the will be building cars for their own lease fleet during the second quarter and for the remainder of the year. This will reduce their manufactures earnings since they are not allowed to report a profit on cars sold to another division.

Bifurcation of railcar builders into haves and have nots

April 22, 2007

Analysis of:Car orders, deliveries and backlog fall in first quarter, ARCI says | www.progressiverailroading.com

 

The ARCI announced that during the first quarter, the North American railcar builders delivered over 17,000 new railcars but received orders for just more than half that total. As a result, the backlog of unfilled orders fell from roughly 85,000 to 79,000, which is still more than will be built in 2007. The backlog is heavily weighted with cars associated with the ethanol industry, namely the tank and jumbo covered hopper cars. Those builders who fabricate these car types are looking at backlogs extending well into 2008, while builders of other car types don’t have enough orders backlogged to keep production going at the current rate past September.

Union Pacific Profits fall 20% in spite of increased freight rates

April 22, 2007

Analysis of:Union Pacific Profit Surges 24 Percent | biz.yahoo.com

The market hype is the UP profits surged 24% in the first quarter in spite of a 5% decline in traffic. Evidently, the market was looking to see if the railroad still had any pricing power and was cheered by their report which showed that increased freight rates had allowed them to raise freight rates on coal traffic by 3% over the fourth quarter rates and 1% on all other commodities. Rates on intermodal shipments decreased from the last quarter. Nevertheless, railroad officials were predicting that earnings would grow by 15% and that per share earning would be around $1.44. Why are investors cheering the fact that the UP will most likely, by their own estimates, only match their 2006 earnings per share?

CSX still has Pricing Power that is keeping earnings up; but are industry trends being overlooked?

April 19, 2007

Analysis of:CSX up 4 pct as 1st-qtr profit well received despite miss | yahoo.reuters.com

CSX announced first quarter earnings that were only 2% less than those reported for the first quarter of 2006 even though their carload traffic was down 5% and their intermodal traffic was off 1%. Increases in freight rates helped CSX to actually increase their freight revenue by 4% in spite of the traffic loses; increased cost drove their operating ratio, a broad measure of railroad efficiency, up from 79% to 80%. After the report was released, the price of CSX common stock rose 3.5%. The crowd on Wall Street be encouraged by the continued ability of the rail sector to raise their freight rates, but they should recognize that there will be a limit to these increases. Investors should not overlook the underlying trends of declining traffic and stagnant operating ratios for CSX and the other railroad companies.

Not all railroads are like BNSF, and the railroads are still in a cyclical industry

April 11, 2007

Analysis of:Is Burlington Northern A Smart Buy? | www.forbes.com

 

Berkshire Hathaway’s decision that there is value in Burlington Northern Santa Fe Railroad seems to have convinced many investors that the railroad industry is not going to be subject to cyclical swings anymore, or at least of the near future. That would be good news if it were true, but notwithstanding all the reports of a railroad renaissance, the factors that drive this industry have not changed in recent years and downturns might be in store for some companies in the months ahead. We’ll know more after all the 1^st quarter numbers are out, but with carload traffic down almost 5% and intermodal traffic up only an anemic 0.2% for the year, it will take a lot of rate hikes to significantly improve on last year’s revenue numbers.

It will all be downhill at Greenbrier for while

April 5, 2007

Analysis of:Greenbrier Posts 2Q Loss, Sales Flat | biz.yahoo.com

 

Greenbrier (GBX) announced today that it lost $0.38 per share during its second quarter after a disappointing profit of $0.12 per share during its first quarter. Analysts had expected $0.54 per share in both quarters prior to the earnings announcements. The railcar models for which Greenbrier is best known have been in surplus supply for several months and the end of this situation is not in sight. Railcar production facilities that are not running near capacity can be big drains on corporate cash and that is why most plants are built to only produce around 3,000 cars per year. There was no business in sight for the Trenton plant and the decision to close the facility was a hard, but necessary decision. Greenbrier has made more than its share of tough decisions over the years, and it might have to make even more in the future.

OSB speedbump is not a roadblock

March 30, 2007

Analysis of:OSB - Southern Capacity Glut | www.marketwire.com

The housing market has presented Oriented Strand Board (OSB) builders a setback to their expansion plans. At the beginning of last year, the industry was expected to add 20% more capacity by 2008, but now the demand for structural panels has declined by over 6% and all that new capacity will not be needed. Instead, a capacity surplus has led to price reductions and cutbacks in expansion plans by some companies who now look to mergers and acquisitions as the only way to grow. However, what Forestweb, the source of this doom and gloom report fails to mention, is the long term trend for OSB to replace plywood in the structural panel market.

 

For railcar builders, the roller coaster cycle is still a problem and a soft landing a myth

March 23, 2007

Analysis of:Railcar makers seek steady track | business.bostonherald.com

The Wall Street Journal article of Mar 22 proclaimed that railcar builders can expect a soft landing when falling from the 75,000 railcar delivery rate posted in 2006. The writer quoted forecasters who expect to see deliveries of 69,000 railcars in 2007 and close to that number for the next few years. According to some experts the writer consulted, the railroads are flush with cash to pay for more equipment and half of the national railcar fleet is over 25 years old and needs to be replaced. I was interviewed at length for this article and was also quoted for a tidbit of information that I supplied, but the writer chose to ignore my forecasts and stick with the more optimistic projections of industry leaders. I believe he made a mistake!

Greenbrier has little to offer even with concessions

March 12, 2007

Analysis of:MacKay urges N.S. rail car workers to delay strike, meet with governments | www.news1130.com

The labor union at the Nova Scotia plant of the Greenbrier Corp had already rejected the company’s request for contract concessions and a three year freeze on wages and was set to strike when government officials asked for a postponement in order to arrange a meeting involving government, union, and company personnel. The plant had been closed during the fourth quarter and was opened in January for a single order that will be completed by April if there is no strike. The union has few options since Greenbrier has little to lose if they shut the plant permanently.

Still enough corn to go around, but not for long

March 12, 2007

Analysis of:Corn turned to ethanol to rise next year | www.businessweek.com

The USDA projected that 50% more corn will be used to make ethanol next year, rising from 2.15 billion bushel in 2007 to 3.2 billion bushels in 2008. The White House wants the US use of ethanol to grow to 35 billion gallons per year by 2017, compared to the 4 billion gallons burned in 2005 and the 7.5 billion gallons already targeted for 2012. The latter amount will most likely be reached in 2008 and require the fermentation of 2.8 billion bushels of corn. In all enthusiasm to make more ethanol, someone needs to do a reality check on the amount of corn that will be required.

Previous Page : 123456789Next101 to 120 of 174