Blanchard Railroad Week in Review, Third Quarter 2002

The Railroad Week in Review:
Third Quarter 2002

Current Issues

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Week ending September 27, 2002
Canadian Transportation Agency (CTA) denies the running rights applicationof Ferroequus Railway Company. Truckers looking at a fairly robust Q3 in terms of yoy earnings increases. Union Pacific and NS set prices for UP origins with NS destinations for sheet steel, coil, and all other finished steel products (not including scrap); NS-to-UP pricing to come later. CN wants out from under its 42% stake in EWS. Kansas City Southern warns 3Q earnings will fall short; analysts cut estimates 25%. Genesee & Wyoming starts NYSE trading 9/27 with ticker symbol GWR. Standard & Poors reaffirms "triple-B-plus" (adequate capacity to meet obligations with some constraints) and "A-2" (satisfactory capacity subject to the same constraints) ratings to various levels of BNSF debt.
Week ending September 20, 2002
This week a note from Ed Burkhardt's Rail World lays out bid process in BAR bankruptcy court. RailAmerica Treasurer Michael Howe makes the case for FCF based on operating income. New AAR intermodal study says the mode will keep growing at a 5% per year clip. Why I think that's good for carload shippers as well. Amtrak to drop express service and rebuild Beechgrove wrecks. Railinc releases "Concur" web-based car management system for shortlines. Conrail YTD stats thru July. Do rail stock prices mirror franchise management? UP completes Utah sale.
Week ending September 13, 2002
Rail stocks bracket the unchanged DJIA with NS, CN up 4%. J P Morgan Logistics Conference railroad presenters generally upbeat. More comment on the recent CSX earnings warning. BNSF ramps up 18 new intermodal lanes with money-back performance guarantees. Days may be numbered for West Virginia lawsuit lottery over asbestos. UP/CSXT Express Lane wins first load of "soft goods" with honeydews to NYC from California.
Week ending September 6, 2002
This week we look into cash flow and "owner earnings" -- what's left over after the costs for plant expansion and replacement -- and find a wide range of results for six class 1s and two shortline holcos. BNSF's employee magazine tells how the railroad has brought the Industrial Products business development process into line with 21st Century supply-chain management practices. WATCO picks up another BNSF shortline. UP's Ike Evans comments on the link between Trip Plan Compliance and Customer Satisfaction. Consolidated Freightways files for bankruptcy. More on trackage rights vs ownership, future of the Conrail Shared Asset Operation.
Week ending August 30, 2002
Why a shortliner sends regular marketing success stories to his connecting class 1s, replete with estimated dollar projections, service agreements, and the names of the larger roads' personnel facilitating the new relationships. GNWR buys Utah Railway for $54 mm in an all-cash deal. Australian Wheat Board projects 30% downturn in harvests -- RRA sees some revenue hit in 3Q02. July carloads for RRA, GNWR up on acquisitions, down for same railroad vs AAR's up a bit. Earl Durden's RMC to operate St. Joe's Apalachicola Northern. CN moves Montreal intermodal facility to Taschereau from Turcot. Editorial comment on rumors of CSAO breakup.
Week ending August 23, 2002
The entire focus this week is the UP shortline meeting and the opportunity it afforded to get "behind the curtain" and see how the railroad works. The attached report brings together the essential links between and among performance measurement, customer satisfaction, and car movement data quality. The main takeaway for shortlines is you can't fix what you don't measure and without customer feedback you'll never know what needs fixing.
Week ending August 16, 2002
Notes this week on the effects of the continuing lack of rain on the ag business; CSXT possibly better positioned than others. BNSF launches a new logistic subsidiary. Amtrak fails again. P&W loses money for the second quarter in a row but at least the operating ratio got below 100. UP hosts shortline meeting in Omaha this coming week with a terrific carload story. Chart excerpts from Quarterly Review.
Week ending August 9, 2002
AAR Carloads for Week 27 show chems, automotive, metals to be the winners,possible signs of better times to come. NS takes the lead in two shortline marketing awards. BNSF's Matt Rose on business ethics. Pioneer Rail results report and why we don't follow small rails. Trading strategies for rail stocks. Quarterly Review preview.
Week ending August 2, 2002
Earnings Week wraps up with reports from GNWR, RailAmerica, FEC. I&M Rail Link begins operations as Iowa, Chicago & Eastern as part of DM&E link-up. Some members of Congress think small grain shippers are too limited in their rail choices. Wharton's Jeremy Siegel on "Core Earnings." Comparing YTD shortline carload growth vs class 1s.
Week ending July 26, 2002
Earnings Week was a lot of very good news and no real bad news. There are no operating ratios in the 90s and four of the seven railrods reporting this far had double-digit net margins. Four posted ORs below 80. And in most cases revenue gains were ahead of car-count gains indicating better yields. No CEO seemed particularly daunted by the recent stock market follies and all feel the economy is in relatively good shape. The big take-away is that each of the seven railroads reporting to date has specific carload niches to fill, and that's good news for shippers and shortlines alike.
Week ending July 19, 2002
It was another brutal week on Wall Street with the DJIA down 7.7% and 20% for the year, officially entering Bear Territory. The rails as a group fared a litle better. UP, CSX and BNSF all stayed in the down 2-5% range; NS tied the DJIA. Only KSC remained unchanged with CP, CN and FEC all down about 3%. RRA lost a percent and GNWR was off 3% for the week. Elsewhere we look at the effect of expensing stock options on RR earnings. Further details on the RRIF program in light of the DME-IMRL transaction. June carloadings for GNWR and RRA. Grain tariff and demurrage changes at BNSF. Earnings for WAB. And the UP earnings short-form.
Week ending July 12, 2002
The rails were no safe haven this week as they got caught like everybody else in Friday's final sell-off. Weak earnings in paper industry may bode ill for some shortlines. NS buys 21-mile private line from Peabody Coal. Mike Ward tapped for President CSX Corp; others move up and out. Ab Reese to leave KCS. Mount Hood Railway wins the third shortline RRIF grant ever to be issued; Amtrak gets RRIF $mms in two weeks. Liquidity as a measure of stock viability.
Week ending July 5, 2002
The stock market went nuts on a short day Friday and the rails did OK. Monday will tell us more. Earnings week is almost upon us and this week there's a chart and commentary on the importance of free cash flow. UP had its 140th birthday Monday, celebrating with yet another week of strong
traffic gains. Goldman Sachs begins its rail industry coverage with favorable remarks re BNSF and CN. RailAmerica May carloadings front-run the class 1s again.

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Roy Blanchard.215-913-7740 mobile, royblan@icloud.com
Laura Blanchard, 215-985-1445, lblanchard@rblanchard.com