Blanchard Railroad Week in Review, Fourth Quarter 2003

The Railroad Week in Review:
Fourth Quarter 2004

Current Issues

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Week Ending 10/1/2004
NS taps Wick Moorman President, reporting to David Goode who retains Chairman and CEO titles. Six others move up -- all of them excellent calls. RailAmerica cuts annual interest payments by $20 mm by paying down, eliminating and rearranging some very expensive debt. RRA takes $12 mm write down for E&N on Vancouver Island; looks to close sale in 1H02. No suitors named. Why greater transparency is still needed non-public shortline financial reporting. Finger Lakes' Mike Smith rebuts my aggregates commentary. Kel McKavanagh on covering coast of capital by commodity lane.
Week Ending 10/8/2004
Cost of Capital continues to loom large on the railway scene. Even as the DJIA shed about 2% to close at 10,055 on Friday the rail group continued to outperform. Observations from this week's the fall meeting of the North East Association of Rail Shippers (NEARS). BNSF sheds 288 miles of branchlines in Illinois and New Mexico to two shortline operators. GWR selects RMI's RailConnect for the three ex-Georgia Pacific railroads. KCS gains authority from Mexico's FIC to acquire TMM's interest in the TFM. North Shore Rail Group land a big one. Kaufman continues the thread on cost of capital.
Week Ending 10/15/2004
Shortlines win $3,500 per mile per year tax credit for track maintenance and improvement. Infamous 4.3-cent per gallon fuel tax reduced two cents this year and eliminated in Jan 2007. September AAR carloads up 4%; RRA and GWR do better on a percentage basis, but are shortlines losing share? Some observations on track maintenance accounting practices from a shortline pro. How a shipper shunning one railroad for poor service can impact all other railroads regardless of service quality.
Week Ending 10/22/2004
NSC was first up for Earnings Week and set a very upbeat tone. UNP came out second with a less exciting story but with much meat behind the curtain. A first-hand, in-depth look at RailAmerica. Shortlines and investors please pay particular attention to the shortline elements in the NSC and UNP results couched in terms of the RRA processes and outlook.
Week Ending 10/29/2004
Third quarter results: BNSF operating income up 31% to $565 mm; CN increases freight revenues by 21% while holding operating expense to a 17% gain. RRA reports loss of $30.6 mm from continuing operations. CSX operating revenues up 6% on no change in volume. KCS reported sales up 12% on 7% more volume with all commodities ex-coal up double-digits. Highlights from the BNSF shortline meeting.
Week Ending 11/5/2004
CP's Fred Green to EVP and Chief Operating Officer. CP Q3 sales up 9.4%, with five of seven commodity groups reporting double-digit revenue gains. GWR operating income up 43.4% yoy.FEC Florida East Coast Railway (FECR) really got hammered by the consecutive hurricanes. Going into Sep railway revenues were up 11% yoy yet the quarter revenue closed up a mere 3.4% to $46.3 mm. Table comparing all Big Six Class Is' third quarter performance with the usual emphasis on merchandise carload revenues.
Week Ending 11/12/2004
Rail stocks beat the market YTD. A visit to KCS and a guided tour of their forward-looking Management Control System. BNSF hosts annual Financial Analysts meeting in KC. RRA and Railinc debut web-based TMS in North Carolina.
Week Ending 11/19/2004
The Canadian Class Ones have structured three new network initiatives that will improve railway transit times and asset utilization in British Columbia, Alberta and Ontario. Notes on the new NS-CP-CN arrangement improving rail service between Eastern Canada and the US Northeast. CSX on track to deliver the best returns in five years. Jason Seidl of Avondale Partners opened his coverage of RailAmerica with a Market Outperform rating. Table of Regional Railroad and shortline holding company comps for 3Q04.
Week Ending 11/26/2004
Thanksgiving week. No Week in Review. As you bow your heads for the table grace on Thursday, please give thanks for the good life we lead and pray for the health and safety of those less fortunate than we.
Week Ending 12/3/2004
Former ASLRRA President Bill Loftus passes away at 74. KCS won the needed STB approval for control of the Tex-Mex. Some thoughts from CP's Rob Ritchie on taxation vs. infrastructure investment. How cost of capital and ROIC drive infrastructure decisions. Real-life examples from BNSF and the UP.
Week Ending 12/10/2004
The land was awash in property sales this week as CSX and RailAmerica sold off non-core enterprises. Class 1 growth continues, writes Bear Stearns analyst Tom Wadewitz. Morgan Stanley's Jim Valentine reports that truck rates continue to climb. CN and UP have identified alternate interchange routes that avoid Chicago. The official publication of the Railway Association of Canada (RAC), has always been very pro-shortline and the Fall 2004 number is no exception. Railroading in the abstract. Third World comparisons redux.
Week Ending 12/17/2004
Look for more churning in shortline ownership in 2005. There is no argument that railroad shipment volumes are up; interpreting STB Performance Measures. More on the shortline tax credit. November carloads up at GWR and RRA. GATX Rail acquires the remaining interest in Locomotive Leasing Partners from EMD. Canadian Pacific wins step one in Elk River coal arbitration. KCS to acquire TMM's 51% voting interest in the TFM Railroad.
Week Ending 12/24/2004
Union Pacific (NYSE: UNP) gapped up $2 at the open Tuesday and closed up $3.55, 5.6%, for the day. But maybe it's time to dust off some of the Fallen Flag play-books just the same. Barron's: "Burlington Northern's on the Right Track." Norfolk Southern led the rails in shrinking its shorts. Providence & Worcester's unique approach to property sales; where's the free cash flow? Relative importance of the Big Six North American Railroads' single-car commodity revenues. Table.

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Laura Blanchard, email preferred lblanchard@rblanchard.com