The Railroad Week in Review:
Week Ending October 17, 1998

Railroad stocks continued their recovery along with the rest of the market last week. For the two weeks ending Friday Norfolk Southern (NYSE: NSC) and Wisconsin Central (Nasdaq: WCLX) enjoyed the highest gains, up more than 13% each. The rest of the US class 1s and both Canadians were all up 5-8% for the month to date. Providence & Worcester (AMX: PWX), Genesee & Wyoming (Nasdaq: GNWR), and RailTex (Nasdaq: RTEX) continue to lag, down 7, 9, and 19% respectively. The view from here is that perceived off-shore exposure continues to haunt the latter two while recent stock issues may be hampering the per-share value of PWX.

YTD, only Kansas City Southern (NYSE: KSU), NSC and Burlington Northern Santa Fe (NYSE: BNI) are in positive territory, up 13.6%, 7.4%, and 6.7% respectively. Here again, RTEX, PWX, and GNWR continue to lag their peers by 35.4%, 41,5%, and 48.7% respectively.

Vendors also have some YTD gainers. Westinghouse Air Brake (NYSE: WAB) is up 46% on strong earnings and some heads-up acquisitions (see below). Carbuilder Johnstown Industries (Nasdaq: JAII) is up 33% on improved sales and earnings while Harmon (Nasdaq: HRMN) and Motive Power (NYSE: MPO, see below) are up on innovation, presence, and sheer power in the market place. Carbuilders Greenbrier (NYSE: GBX) and Trinity (NYSE: TRN, see below) both saw small gains last week though they continue to lag their Jan 1 prices by 22% and 30% respectively

There could be a major transportation shake-up afoot. Monday container-ship operator Neptune Orient Lines (NOL) said it might want out of the stack train franchise if got as part of the APL package it recently acquired. The burning question is, as John Gallagher notes in Traffic World, who will/can buy it? CSX (NYSE: CSX) already has Sea-Land. The underlying APL contracts are already held by Union Pacific (NYSE: UNP) and NSC. BNI has its own 18,000-unit container fleet, so hardly needs more.

Writing in Monday's Wall Street Journal Danny Machalaba points out APL's 30,000 mile rail network brings its owners a profitable $800 mm a year in revenues. He also says truck operator J. B. Hunt (Nasdaq: JBHT) sees APL as something "worth noting but declined to comment further." Former Conrail intermodal marketer Rich DeGennaro thinks the NOL spin-off could trigger some interesting STB issues pertaining to who can own what.

Ansaldo Signal (Nasdaq: ASIGF) subsidiary Union Switch & Signal Inc. ("US&S") has signed a Project Definition Agreement with Britain's Railtrack as the preferred bidder to design, build and install a Network Management Center system for its 600-mile West Coast Main Line. The system will be designed to manage and control conventional and high-speed passenger and freight traffic travelling as much as 140 mph. The Network Management Center is part of an overall program including civil works, station refurbishing and other investments expected to take place over 10 years and require L. 2 billion ($US 3.4 bb).

The new Network Management Center system will integrate the processes of signaling control, electrification control and customer service management. It will also provide key planning and support functions to improve Railtrack's asset utilization, and provide computer-based analysis of train delays to enable significant improvements in train performance. The new system will interface with existing interlocking and control systems, avoiding the need for extensive infrastructure modifications. A significant beneficiary of the new system will be Wisconsin Central's English Welsh & Scottish Railway freight franchise. (WIR does not follow ASIGF as it trades under $5.)

Westinghouse Air Brake has completed its purchase of the Railroad Electronics subsidiary of Rockwell International Corporation. The acquisition will enhance WAB's competitive position in the development of freight car electronic brake and positive train separation market segments. These new technologies will decrease freight train braking response time and allow less time-separation between trains, thus increasing capacity on any given track segment.

MotivePower Industries saw record earrings for 3Q98 amounting to $7.7 mm on sales of $87.4 mm, an 18% increase. Diluted per share earnings were 41 cents, up 41% from 3Q97. This was the company's ninth consecutive quarter of reporting record profits. MPO Chairman Jack Pope expects "to grow earnings per diluted share by a minimum of 15 percent annually for the foreseeable future.'' The company attributed its record results in the quarter primarily to higher sales and operating income in the Locomotive Group. For more detail, see

Trinity Industries increased fiscal 2Q99 income 23% over the prior year period, hitting $44.8 million, or $1.02 a diluted share, on revenues of $717.4 mm. For the six months ended Sept. 30, 1998, net income before extraordinary items was $102.6 mm, or $2.33 a diluted share, up 46%, on revenues of $1.43 billion. TRN has more orders in house than a year ago and "anticipates continuing strong activity in the railcar market in future periods." Interested readers may want to check out the details at

By way of background, investors will note TRN ranks 4th of 12 in the Zacks Transportation Equipment and Leasing category, with an average recommendation of 1.8, moderate to strong buy. Competing 12th ranked carbuilder GBX gets a 2.3. JAII is not included in this group but over in Auto/Truck Original Equipment. Its lone analyst gives it a ranking of 1.0, buy. Of the three TRN is by far the leader in sales volume, doing $2.6 billion last year. JAII was second with $846 mm and GBX third at $534 mm. Market caps are $1.3 billion, $111 mm and $185 mm respectively.

One of the effects of the Conrail merger will be the change in the name of the railroad most present Conrail train and engine (T&E) employees will work for even as job assignments and locations remain pretty much the same. However, according to a Conrail employee newsletter, "In about a dozen geographic areas operations will be divided among two or three railroads: CSX, NS and the Conrail Shared Assets Organization (CSAO)." To ease the transition the three successor companies and the respective unions will introduce a "white paper" on exercise of seniority prior to split date.

Says Conrail, "This process should eliminate much of the needless physical movement from job to job. The organizations and the railroads believe the program will give employees as much time as possible in advance of split date to decide where and for which railroad they would like to continue their careers, and help make the transition a smooth one for everyone involved. Locations where there will be employees of more than one of the three railroads are Ashtabula, Benning, Buffalo, Chicago, Cleveland, Columbus, Crestline, Detroit, Indianapolis, North Jersey, South Jersey/Philadelphia, and Toledo."

Thursday the STB concluded that the ASLRRA request regarding shortline access and other issues (see "Industry Agreement," WIR 9/26) should be considered in the Ex Parte No. 628 proceeding. Comments on the matter are due on October 30, 1998, with replies due on November 7, 1998. Readers will recall this process is an offshoot of the STB proceeding in Review of Rail Access and Competition Issues, STB Ex Parte No. 575, issued last spring.

Correction: Last week's Review incorrectly reported that insiders own 98% of GNWR's total 5.5 mm shares of stock. It should have noted insiders own 98% of the 846,000 shares of class B stock. Insiders own 12% of the 4.5 mm shares of common stock. Another 39% is held by three financial institutions. The total shares issued would be more accurately stated as 5.3 mm.

--Roy Blanchard

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