Blanchard Railroad Week in Review, First Quarter 2017

The Railroad Week in Review:
First Quarter 2017

Current Issues. Available in Adobe Acrobat format only. You will need the free Adobe Acrobat reader.

Week ending March 24
The AAR reports North American revenue units through March 17 increased 3.2%; backing out coal, auto, and intermodal, merch carloads enjoyed a 3.9% increase. CSX observations. Economic measures for the week ending March 17 were a mixed bag. Auto loans a red flag for the merch carload biz? CN launches "Grain Insight" podcast. Notes on the NS Annual Report.

Week ending March 17
GWR North America revenue units for Feb 2017 increased 0.8% over Feb 2016; same-railroad revenue units slip a point. Economist Lacy Hunt on the state of the economy; my conclusions on how what he says could affect railroad revenue unit volumes. The Mexican Economic Competition Commission has released a preliminary report on its findings; KCS objects. Why railroad traffic growth rates track GDP.

Week ending March 10
Hunter Harrison starts at CSX; "Precision Railroading" as defined by Hunter's book, How we Work and Why: Running a Precision Railroad. The winning of customers vs meeting internal targets conundrum continues; how customer costs can work against the railroad. Tim Tierney tapped Conrail President effective April 1 following Ron Batory's 12-year run.

Week ending March 3
BNSF results for 2016 are now available in the Berkshire Hathaway Annual Report, www.berkshirehathaway.com. (BNSF 10-k just out with roughly the same results, though not covered here); industrial products sector does poorly. Excerpts from Warren Buffett Chairman's Letter concerning railroad accounting and reporting practices; we both take the same dim view of share repurchases, non-GAAP numbers, and EBITDA.

Week ending February 24
Ward, Gooden to retire from CSX May 31, Eliasson named president; odds are Hunter Harrison becomes CEO. The 27th Annual CSX Short Line Workshop runs Mar 5-7 at the World Golf Village just off I-95 north of St Augustine; questions to ask given the preceding. Why Mexico lags the world economy; why I think KCS is well-positioned to weather the present malaise.

Week ending February 17
Why I worry about railroad share prices vs. the compound annual growth rate of railroad carloads; my definition of Fair Value. Number of railroad employees and RTMs generated. True Story: what happens when marketing is measured on margins and the operating department is measured on train length.

Week ending February 10
Digital disruption in the freight transportation and logistics industry is here, and service providers ignore the implications at their peril. The oil boom in the Permian Basin continues; how short lines can benefit. Genesee & Wyoming reports Q4 and fiscal 2016 earnings Wednesday, special attention given to North America trends; why I shun non-GAAP numbers.

Week ending February 3
Case history on theme of short lines' superior business development skills and results. Why car builder production trends provide an excellent preview of railroad transportation demand going toward; table. Frank Wilner: "Three STB Members have voluntarily surrendered the distinction of the STB as an independent regulatory agency not subject to Executive Branch control." Why I think there's less than meets the eye re Hunter's eye on CSX.

Week ending January 27
Earnings season concludes. Kansas City Southern reports Q4 flat revenues, flat carloads, ops income down 3.7%, net income down 7.0%, and takes 137 basis points out of the OR in the bargain. Canadian National Q4 sees RTMs up 4.2%, best in class, while revenue units gained 3.3%, even though freight revs gained only 1.2% as RPU was off on mix. Norfolk Southern total revenue slips 1.1% to $2.5 billion on 1.8 million revenue units, up 2.0%. Operating income rose to $761 million, up a whopping 18.5%. Stifel's John Larkin on why the railroads need to change their game plans; invokes shortline model.

Week ending January 20
Earnings season starts w CSX, UP, CP. Two common threads. CSX revs up 9% on 4% more loads; most carload commodity groups gain. UP revs off but ops income gains 3%; how running a better railroad enhances revenue. CP Q4 revenue off three points to C$1.6 billion on unchanged revenue units; all six key CP operating measurements shows improvements.

Week ending January 13
Further developments along the Silk Rail Road and China; can containers by train replace containers by sea? Map. Why short lines serving the oil and gas exploration business had best count laterals, not rigs. Watching the MLPs for clues as to the next plays.

Week ending January 6
China is a railroad force to reckon with; why their national strategic imperative has the potential of affecting NA carloads. Why it's time to be upbeat about frac sand and drilling supplies again; rig-counts can be misleading. UP buys Railex; offensive or defensive move? A reasonable set of rail-related 2017 rail outlooks from Legg Mason; uncertainty will rule, however.

THE BLANCHARD COMPANY
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Roy Blanchard, rblanchard@rblanchard.com
Laura Blanchard, lblanchard@rblanchard.com