The Railroad Week in Review:
Wisconsin Central appears to be doing all the right things but the stock just won't get moving. So I decided to recheck the fundamentals and the picture has changed quite a bit. We know 1997's growth was helped along by acquisitions. There were none in 1998 and none are on the horizon in 1999. As a result, the double-digit revenue growth seen in 1997 will likely slow to single digits over two-plus years. WC had a net of $77 mm in 1997; the 1998 estimate is $79 mm, up 2%. The 1999 net estimate is $87 mm, up another 6%. By comparison, Zacks' Rail industry averages are for 15% and 17% growth in 1998 and 1999 respectively.
Earnings, which jumped to $1.51 a share in 1997 from $0.98 the prior year will come in at just $1.54 for 1998 and about a buck-seventy in 1999. True, WC/ North America will show improvements in certain traffic levels and good expense containment, but S&P thinks the UK and New Zealand could be a real drag. S&P says "investors may have overreacted" to problems here, however, like many of us, sees little opportunity for more barn-burning performance near term. Now if WC could hit $2.00 a share in 2000, it would be a 17% year- to-year increase and warrant at least a 15 multiple. Could we see $30 again? (What a slogan: Two dollars in two thousand!)
Meanwhile, Wisconsin Central will lose its spot on the Nasdaq 100 list on 12/21/98 as the components of the index and their market share of the index are rebalanced. According to NASD, the Index will change to a modified market- capitalization weighted index from a market-capitalization weighted index. The change is in advance of a new product, a derivative of the index, to be introduced in the first quarter of 1999. For a more detailed description of the re-weighting, visit the Nasdaq-100 News Menu at http://www.nasdaqtrader.com.
Not long ago Rip Watson, writing in Journal of Commerce, offered up some thoughts on the pending APL sale. In case you missed it, Watson posited that APL might fetch $400 mm for its $600 mm (sales) business. Interested players include APL founder Don Orris and his Pacer International group, NS, CP, CSX, and maybe even GE Capital. Each has its benefits and warts, but imagine if you will NS and CP joining up to off-set CSX/Sea-Land and CN-IC. Since the APL network is essentially in place, and assuming no significant STB hurdles, APL earnings might be accretive to parental earnings fairly quickly. (Disclaimer: There is no rumor on the street to this effect that I know of; this is purely me musing - RHB.)
Reader Larry DeYoung writes that CSX has published new freight schedules between Chicago and NY, replacing Conrail's "TV" trains with its own "Q" trains. Schedules are in the 28-30 hour range. Trucks do it in 18 hours. Putting things in perspective, the Erie railroad had a 28- hour schedule for BOXCAR traffic from cutoff on the pier in Manhattan to delivery at the freight house in Chicago in 1949, under steam with changes of power at every second division point. Recall also that Larry noted (WIR 11/7/98) a combined Santa Fe-Erie perishables schedule that put today's premium service to shame. Makes you wonder how many of the AAR Town Hall meeting participants know what was commonplace for the rails years ago.
Kansas City Southern has a new website, www.kcsi.com, largely, says KCS, to support its growing Transportation Division. The opening screen presents clickable logos of the five KCS railroads and segues automatically into a home page with the usual menu. The theme is KCS as 'The NAFTA Railway" and currently features two car tracing applications with a commitment to ad many new transactions throughout 1999. In addition to customer service links, there are sites for investors, the media, and "Employees & Friends." There is also a weekly company newsletter and a special section on KCS' Southern Belle passenger train.
Cleveland Redux. Recall the huge hoo-rah in Cleveland about NS and CSX railroad tracks and the neighborhoods. Weighing in on the proposed CN-IC merger, Chicago Mayor Richard Daley wants the I-C to take out the short elevated St. Charles Line. Until that happens, Daley is urging federal officials to hold up the merger. City officials say the merger will create more train traffic on the tracks, which could obstruct development and access to parks. It's estimated that demolishing the tracks and building an alternate route would cost about $42 mm. Hmmm. Isn't more train traffic and less road traffic part of what all this is about?
The BNSF National Operations Center in Fort Worth is not being "busted up." BNSF's Dick Russack writes, "There are locations where have a joint dispatching facility or a regional facility, such as Spring, Texas, provides many benefits for customers and efficiencies for the railroads. Southern California is one of those locations, hence, the bulleting for potential positions. The NOC is not being busted up." This is corroborated by other sources within BNSF.
This thread does feed, however, the span of control theme we had last month or so. The fellow who triggered the NOC-bustup thread notes that dispatchers are being asked to take on pieces of railroad they have never seen. Zeta-Tech's Randy Resor writes, "It can be argued that the Dufford Center (CSX) and Harriman (UP) were both mistakes because they relied only on existing information sources (signal indications and voice radio).
These sources, plus a not-to-scale schematic of the territory controlled, are enough information for a dispatcher intimately familiar with his territory. They are NOT enough for somebody who has never ridden a train over the track he's dispatching (and somehow the promised 'familiarization tours' never get taken -- not enough time or money)." The good news is that my class 1 railroad sources acknowledge a training problem and are working mightily to resolve it. The result might just add a point or two to the OR and thus to earnings.
According to International Railway Journal, Canada's pols are considering franchising out the Via Rail passenger operation by 2000. The plan would see Via Rail as the overseer, much as the Britain's Rail Regulator oversees passenger franchises there. Regional franchises would run 15 to 20 years, with the Canadian government continuing its annual Via Rail subsidies of $US 110 mm with the level of subsidy subject to review every two years. Likely franchises are Atlantic Region, Quebec-Windsor, and Western.
United Press this week reported that Union Pacific has told the STB that its Texas service is "back to normal" and that the Board should "reject calls from the state, shippers and other railroads to allow more competition." UP attorney Arvid Roach said "Service is back and...I don't really hear anyone challenge that." However, critics say crisis could recur unless steps are taken to lessen UP's presence in the Houston market.
Chemical Manufacturers Association (CMA) spokesman Randy Speight told the United Press that Union Pacific "had retained most of the traffic during the crisis" despite the STB's emergency order that had allowed alternative service by the Texas Mexican Railway and BNSF. The CMA adds that while UP service has improved since the depths of last summer's crisis it's still not what it was in pre-merger days.
So it was timely that this week Union Pacific Railroad reported it has begun construction on a $4 mm, five-track expansion of its storage-in-transit (SIT) rail yard in Spring, Texas to support the chemical business along the Gulf Coast. SIT yards are small rail yards where the railroad stores covered hopper rail cars loaded with a customer's plastic pellets.
The present 39-track Spring SIT yard was built in phases between 1981 to 1984 and has a storage capacity of 1,442 rail cars. Following the construction of the five additional tracks, storage capacity will increase to 1,640. The project is scheduled to be completed in late-February, 1999. UP recently opened a $3.5 million, seven-track 260-car SIT yard in Longview, Texas to support the chemical business in the Longview area, as well as the Gulf Coast.
In its letter accompanying the Week 60 STB service report, UP notes, "UP is once again posting its best operating results since before the service crisis. UP's percentage of on-time train arrivals reached its highest level since May 1997. The data we present for the last two weeks reflect UP's partial shutdown during the Thanksgiving holiday, when many shippers also temporarily ceased shipping. Even so, several UP service measurements reached their highest levels in a year and a half." For the complete report, go to www.uprr.com.
Week in Review will be called off for Christmas and New Year's weekends, however look for a year-end wrap on 12/31. Best wishes for the holidays from all of us to all of you.
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