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The Railroad Week in Review 8/9/97
featuring: The Breakup of Conrail

Ready reference: homepages for Conrail | CSX | Norfolk Southern

RailTex (Nasdaq: RTEX) posted 2Q97 results last week and there was much to cheer. Earnings were off two cents from 2Q96 and nine cents for the half, however when you get into it, the revenues and earnings story is quite good. The interest picture is something else again.

The gains in revenues and carloads are impressive. A 32% increase in carloads from an 11% increase in track miles says they're buying better properties, and this is borne out by the 19% growth in carloads per mile and 9.4% more revenue per mile. Also moving in the right direction were revenues per employee and carloads per employee.

The press release says first half results were impacted by the mine collapse in Q1. How much could that be if revenues were up 22% for the half? CFO Laura Davies writes that much of the revenue increase came from the 1996 acquisitions like the DT&I. "Same store" revenues were up only $1.6 MM or just shy of the $1.9 MM added interest expense for the first half. New funds borrowed to fund investments in Brazil and the US came to $63.2 MM.

The conclusion I draw is that had the mine not collapsed same store revenues would have taken less of a hit and would have done more to cover the added interest. According to the 1Q report, the hit was about a $million. The mine resumed normal shipments in April, so 2Q results were once again on track. Pro forma, put the $million back and, everything else being equal, you add back a dime to earnings per share.

Revenue per car is somewhat less than the reported $308 by my way of thinking. In the quarterly RTEX uses total operating revenues to arrive at the average revenue per car whereas the more usual course is to use freight revenue for that. It's not a huge difference, $308 vs. $266. However, in a separate schedule, RTEX provides a revenue break-out by commodity and that shows average RPC of $266, down from $285 last year. The biggest his was in autos, to $185 per car from $642.

According the to half-year balance sheet, long term debt increased to $60.3 MM from $36.4 MM, or 65%. As Davies pointed out, they took on new debt to buy more railroads, which they did, to the tune of $37.2 MM Jan-June. Question is, can they afford it? First half last year, EBIT was $11.0 MM and interest $3.0 MM, so interest was "covered" 3.7 times. This year, EBIT was $11.3 MM and interest was $5 MM, so coverage dropped to 2.3 times.

This is perhaps the only worrisome part of the RTEX results. Everybody knows railroads are a cyclical business, and as such need the cash cushion for debt service when the business cycle turns ugly (or a mine caves in). It just might be that the level of leverage is keeping the stock price depressed. RTEX closed for the week at 19 1/2, down 1/8 from last Friday's close. There was a peak in daily volume mid-week, but on balance it was a very ho-hum trading week for the San Antonians.

Shortliners take note: you can now e-mail the Norfolk Southern marketing and sales staffs nation-wide. All the addresses and letter forms are there for the clicking at Canadian National has decided to unload another marginal line, this one between Moncton, New Brunswick, and Mont-Joil, Quebec. CN says the 301-mile line handles 35,000 cars a year. At more than 100 cars per mile per year, it might be a gem. And if so, why is CN selling? What's wrong with this picture?

A 25-year Burlington Northern employee (doesn't say whether originally GN, NP, CB&Q, ATSF or what) writes on the advantages of buying shares on payroll deduction. He says it's a great way to build a stake in a company that's making the right moves. The decisions to double track from Pasco to Whitefish, repurchase and rehab of former NP line through Yakima, and implement a successful injury-reduction program didn't hurt. Why mention this? Because readers without payroll deduction stock purchase programs can accomplish the same thing through DRIPs or Dividend Reinvestment Programs. Write for details.

Industrial Development Department: When there's no wayside site and you have a shot at a major ID project, do what the Ann Arbor did. Give 'em some of your land. Chrysler went looking for someplace to build a new Jeep plant. Ann Arbor and Toledo wanted to keep Jeep in town and along with it the chance to capitalize on the planned $1.2 billion in the new plant and upgrades to a current facility. Bottom line: AA gets the auto ramp and Toledo eliminates the current truck traffic taking new Jeeps to ramps several miles away.

It suddenly dawned on me how many vendors have websites in their space advertising. Koppers, Hub Group, LB Foster, CIT Group, etc. Of the lot, Hub ( has perhaps the best design and structure for fast loading and useful information. You get a map with location dots which are links to addresses and phone numbers, a brief lesson in logistics management, a corporate history and financials. Koppers ( and Siemens ( do a lot of business outside the railroads, however their rail stuff is accessible and informative. On the other hand, there were a lot of disappointments. I'll leave it to you, gentle reader, to ferret them out.

--Roy Blanchard

Ready reference: homepages for Conrail | CSX | Norfolk Southern

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