The Blanchard Company

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The Railroad Week in Review 9/20/97
featuring: The Breakup of Conrail

Ready reference: homepages for Conrail | CSX | Norfolk Southern

Shortline railroad and logistics systems operator Emons Transportation Group has announced net income of $774,000 for the fiscal year ended June 30, 1997, up 65% from $470,000 in fiscal 1996 on record operating revenues of $16.1 million up 7.7% from last year's $14.9 million. The firm, based in York, PA said that for the fourth quarter ended June 30, 1997, net income was $292,000, a 229% increase from the $89,000 for fiscal 1996's fourth quarter on revenues that increased 13% to $4.2 million from $3.7 million for the quarter.

A key measure of the company's growth lies in the respective increases in carloads and revenues. Robert Grossman, Chairman and President said, "The results for the year and fourth quarter, in particular, were strong because freight revenues, excluding intermodal, were up 11.6% for the year and 18.4% for the fourth quarter. These increases resulted from a 7.2% increase in carloads for the year and the same for the quarter. Further, average revenues per carload increased 4.2% for the year and 10.4% for the fourth fiscal quarter." That's the kind of story that makes me smile: revenues increasing faster than carloads means margins are increasing. And since the profit margin is one of the three drivers of ROE, the Emons news is welcome news indeed.

Providence and Worcester and Connecticut Central Railroad Company have signed an agreement for a trip to the altar. It will be a straight stock purchase transaction. By way of review, CC handles about 1,100 car a year over 29 miles of track in, logically, central Connecticut, and owned by the state, subject to a long term agreement with the State. There's already a synergy with the P&W since CC connects with P&W's rail system in Wallingford, Connecticut and also operates on a P&W line between Wallingford and New Haven, Connecticut. The transaction is contingent upon the approval of a definitive purchase agreement by the respective Boards of Directors and approval of the STB.

CSX seeks to bring good news to the states of New York and Ohio. In the first, Selkirk, the former NYC class yard near Albany, has been identified as a "key hub" serving five traffic lanes and the railroad will locate one of its regional headquarters at Selkirk to control operations, crew management, engineering, maintenance and service planning. The lanes are Montreal/Boston - Miami, Montreal/Boston - St. Louis via Albany, Boston/NYC - Memphis via Cincy, Selkirk - New Orleans via Atlanta, and the present Chicago - NYC.

In Ohio, CSXT's Dave Hemphill addressed legislators on the subject of industrial development. He said that in Ohio alone CSX plans to invest nearly $175 million for major route and facility upgrades throughout the state, creating powerful incentives for businesses to locate on CSX. He also noted, "Over the past three years, 19 new customers have located in Ohio, providing CSX with the potential for 12,500 carloads and $17 million in revenue, annually," Most of these projects have been in and around Cincinnati, Columbus, Cleveland and Toledo. That's two pieces from CSX in short succession about specific market benefits. Can NS be far behind?

The STB this past week said its Section of Environmental Analysis (SEA) has issued a Preliminary Mitigation Plan (PMP) for the areas in and around Reno, Nevada and Wichita, Kansas in conjunction with the UP-SP merger. The PMP "describes preliminary, additional environmental mitigation for these areas and to address further potential environmental impacts unique to these areas" as a result of the merger. For more on the SEA, see Week in Review for 8/2/97 and the related website,

In a move to enhance Greenbrier's focus on core railcar businesses, the Company plans to divest its third party transportation logistics business, Greenbrier Logistics, as well as its trailer and container leasing operations, Greenbrier Capital. Greenbrier will retain Autostack(R), a part of the logistics business involved in transporting automobiles. William A. Furman, president and chief executive officer, noted, "The railcar manufacturing and leasing markets are currently strong and the long term outlook is positive. The intermodal segment of the market, where Greenbrier is an industry leader, is very active. We plan to devote a significant portion of fiscal year 1998 production to double-stack railcars. Our rail customers are continuing to outsource repair, refurbishment and service functions which should present new opportunities for our railcar repair and refurbishment business."

In economic news this week, stocks surged ahead Tuesday as Financial markets cued off a lower-than-expected rise in the August Consumer Price Index and a strong industrial production report. The CPI rose in August by a smaller-than-expected 0.2 percent, after an identical gain in July, to stand at an annual rate of 2.2 percent.

The economy is still buzzing along at a nice clip. Industrial output unexpectedly picked up last month, which indicated that a slowdown in economic activity anticipated by the Fed might not happen in the third quarter. Total output climbed 0.7 percent last month, nearly double July's 0.4 percent gain, on a broad-based pickup in national manufacturing activity. So it's no wonder the big rails did well in the rally. BNSF, CSX and NS were all up 2 or more points while the Nasdaq issues languished with gains of less than a point or even lost a tad.

One of the reasons the rails did so well is that as an industry we're finally coming to grips with customer satisfaction. If you can get a customer to try you once, and make him happy he did, you stand a chance at keeping him. Fellow William & Mary alum Randy Befumo wrote in his Tuesday financial on-line news column, "Federal Express rose $4 1/2 to $75 3/4 after reporting a better than 100% increase in Q1 EPS of $1.22 that beat estimates of $0.75 for the world's largest "express" transportation company. The results were, of course, attributed to the fact that the company delivered more than 9.5 million "extra" packages during the UPS strike. The company estimates that approximately 15% of the 800,000 extra packages carried per day have been 'retained,' meaning that the balance ($0.25 to $0.30 per share) can be likened to a one-time gain for the quarter." And to think that there are still those among us who say a one-shot piece of business isn't worth the effort.

The dispatching controversy continues. My eastern observer offers up this take: "Of course your BNSF friend is right about distance not being a relevant factor. There is no INHERENT flaw, but there is one related to management incentives related to expenses. What is a factor is the nature of the training and qualification process. For example, CSX ain't likely to spend the money necessary to send a dispatcher from Jacksonville to Michigan to ride his/her territory to qualify and really LEARN how it works and looks to the train crews. They learn lines on maps and screens instead, and that's no substitute for the real world that NS and CR require their people to work with. I've heard CSX and UP dispatchers ask the crews where a particular place on a line is, and it's the territory they are dispatching. I have NEVER heard that on Conrail." Are we done yet?

--Roy Blanchard

Ready reference: homepages for Conrail | CSX | Norfolk Southern

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