The Railroad Week in Review:
Week Ending May 2, 1998

Wisconsin Central (Nasdaq: WCLX) reports 1Q98 income up 16% over 1Q97 with record operating revenues, operating income, net income, and eps. Not bad considering carloads were actually off about a percent while revenues were up 5%. Truth be told, the volume drop was attributable to 6,400 IM boxes shifted to haulage (haulage units don't count in volume numbers) and termination of an ore contract. Operating expenses were up just 4.3%, so the 70 basis-point spread here helps the OR, hitting 81.0 vs. 81.2. Offshore contributions were off 3% across the board with the 11.3% increase from the English Welsh & Scottish unit being more than offset by losses in New Zealand.

There's an excellent thread going on in the Yahoo WCLX message area ( RailTex faxed word late Wednesday that it had reached an agreement with Central Properties of Kokomo Indiana to acquire two rail lines for $14 mm. The two lines are the Central Railroad of Indianapolis (CERA) and the Central Railroad of Indiana. CERA is a 73-mile cluster of former PRR and NKP lines around Kokomo IN while CIND is essentially the old NYC "James Whitcomb Riley" double track main between Cincy and Indy, though CERA stops short of the latter in Shelbyville, some 96 miles total. The two lines are connected by an agreement with Conrail providing overhead rights for CIND between Shelbyville and Frankfort. The two lines handled about 18,000 carloads in 1997 for a density of 100 a mile. Track condition runs from FRA excepted to class 3, and the 60 miles east from Shelbyville to Lawrenceburg is under embargo for track.

RTEX supplied a map with its notice, and there's an interesting link-up between this new acquisition and its former DT&I line north of Cincy. Moreover, CSX has signed an agreement with the City of Indianapolis to grant access between shortlines for $100 a car. Recall RTEX owns the Indiana Southern, a coal-hauling line extending south and west from Indy. From this it would appear that RTEX is beginning to put together some regional systems, much along the lines of the GNWR model.

RailAmerica has picked up another 51 miles for it's Michigan-based Saginaw Valley Railway (SGVY) from CSX. it's as logical sale, if you look at a CSX map. The SGVY and sister RAIL property Huron & Eastern occupy the "thumb" of the Michigan Mitten whereas the CSX line being sold runs due east across the base of the thumb.

Interestingly, both transactions are of the ilk foretold by GNWR President Charles N. Marshall at a breakfast speech in Hershey PA this week. In his remarks, Marshall, a former Conrail Executive, noted that post-merger CSX and NS may well have too little traffic supporting too much infrastructure, and that more consolidations were inevitable. Specifically, he said, shortlines will grow by buying one another out and by picking up those class 1 branches that "make more sense" as part of a regional carrier than they do as part of a trunk system. The RTEX and RAIL transactions would seem to fit the mold.

Out west, BNSF is making some serious infrastructure commitments. A headline on their website proclaims, "BNSF Plans Track Maintenance Blitz Between Springfield and Memphis." The company is spending $14 mm (as much as RTEX did for an entire railroad) over the last two weeks in June. The work schedule is being compressed "to minimize impact on customers and communities" and will see nearly 100,000 new wood and concrete ties installed. Also, 14 miles of jointed rail will become continuous welded rail (CWR) with 1,200 thermite "field welds." The whole process is being handled in a neighborly and environmentally friendly way. A trip to the whole story at is highly recommended.

On Monday the STB helped the UP cause by denying an appeal by DeBruce Grain to reopen a complaint against the railroad because UP is up to date on car orders. Moreover, it appears UP had been asking for certain documents from DeBruce and they were not forthcoming, so the STB gave the customer till the middle of this month to report on compliance. In a related development, the STB denied Consol Mining's request to file now for standing in the Conrail Merger. Consol for its part, said it had hoped to resolve its concerns about rail access to its mines in Conrail's Mon valley coal region "out of court." When it looked like the process was going on the rocks, Consol applied. As it turns out, NS, CSX, and Consol made up so the filing request is moot.

Greenbrier has doubled its earnings for the fiscal second quarter ended February 28, 1998 on 24% more revenue than 2Q97 and absent the $1.3 mm loss from discontinued logistics operations a year ago. For the fiscal YTD, earnings are up 65% on 15% more revenue. The manufacturing backlog as of 2/28/98 was 6,700 cars at $335 mm. To put this in context, GE Railcar's Mike Calabucci told a Pennsylvania industry group last week that car orders will be up slightly in 1998 over 1997 as buyers are replacing smaller cars with newer, heavy-loading 286,000 lb. capacity cars. Calabucci also thinks order-books will shrink somewhat in 1999 as the 286's enter service and the rails improve car cycle times. Even at that, GBX has been upgraded to Market Outperform by some rating services.

Recall my "NY abstains" remarks of a few weeks ago wherein we discoursed on NY's propensity to take the opposite side of any issue, and the Conrail merger was no exception. Well, change is in the wind. Some 37 companies that rely on rail transportation - including a number of privately held shortlines -- have joined an advocacy group called Transportation Advocates for Competition (TRAC). This is a coalition of more than 700 local, state and national associations, transportation organizations, shippers, suppliers and other entities that are supporting the division of Conrail. Now if we can just get the East of Hudson groups to settle down...

Railroad stock prices through April continued to lag the averages. My unweighted market basket of equal dollars in each of 15 rail stocks was up just 11% YTD vs. the S&P's 14.6%. The big winners are Canadian National (up 37.3%) and Kansas City Southern (43.7%). Of course, the latter's earnings are more financial management than railroad, so CN is the clear winner across the board. Several issues are actually down YTD. CSX is off a percent and a half, Providence & Worcester is off slightly, and UNP is off ten percent from the start. Happily both GNWR and WCLX have recovered from earlier losses.

The vendor market basket is down four names: Alcatel, Timken, Varlen, and Wabash National. The goal here is to focus on companies whose major business is supplying the freight railroads (and where there is overlap, the rail transit group). Dropping the hybrids gives a lot better feel about the industry without the potential for cross-subsidies or drains from other fields. That being said, a market basket of the remaining ten companies is up 23% YTD vs. the S&P 14.6%. The big winners have been Johnston Car, Harmon, and MotivePower Industries while the only real loser has been ABC Rail, off 12.5% YTD. The more widely traded issues lagging the averages include Greenbrier (up 7.6%), Trinity (up 14%), and Westinghouse (up 9%).

Sing a Song of Safety? "The Railroaders," a band comprised of workers from CSXT's Willard Shops have reworked some old rock songs to incorporate a safety theme. Thus is the reincarnation of an earlier group called "Whiskey River" and has been making the rounds playing their tunes at what CSX calls "railroading socials." For what it's worth, Norfolk Southern's "Lawmen," a group of NS policemen, has been playing and performing popular ditties for years -- tapes and CDs are available.

--Roy Blanchard

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