Railroads, enjoying record profits, say they will invest $12 billion in improving their track and operations in 2011, a significant increase over the $10.7 billion spent on capital improvements in 2010.
Additionally, the railroads say they will hire some 10,000 employees in 2011 — and more than 70,000 new workers over the next five years — but many will be to replace those retiring. Specific figures by railroad, or as to new hires versus replacement workers, were not provided by the Association of American Railroads (AAR), which made the announcement on capital spending and hiring March 9.
More than half of the $12 billion in new capital investment, or almost $7 billion total, will be spent together by BNSF and Union Pacific, while CSX and NS combined will invest about $3.7 billion in 2011. No figure was provided for Kansas City Southern.
Canadian National and Canadian Pacific are expected to invest near $3 billion combined beyond the $12 billion total of BNSF, CSX, Kansas City Southern, Norfolk Southern and Union Pacific.
Meanwhile, Bloomberg financial news reports that BNSF, which is privately held and no longer reports its earnings, has paid sole owner Berkshire Hathaway $2.25 billion in dividends since Berkshire acquired BNSF 13 months ago. Bloomberg said the dividends recently paid by BNSF are “nearly three times” the BNSF dividends over a similar time period prior to its being taken private.
The publicly traded railroads also have ratcheted up their dividend payouts during the past year, reflecting the record 2010 profits of most.
Reviewing their calendar-year and fourth-quarter profit statements, one wouldn’t know they were operating in the midst of a nationwide recession.
Profits soared, stock dividends were raised and operating ratios improved. (Operating ratio — a railroad’s operating expenses expressed as a percentage of operating revenue — is considered by economists to be the basic measure of carrier profitability.)
Wall Street analyst Ed Wolfe reports the level of freight car and intermodal loadings for the year registered “the best” year-over-year growth in more than 50 years.
Wolfe and other analysts also point to the railroads’ pricing strength — the ability to raise rates on shippers with limited effective alternatives to railroad transportation. Many long-term contracts for hauling coal are expiring, and substantial rate increases on that traffic already are reflected in new contracts.
Indeed, railroad CEOs are predicting another strongly profitable year in 2011, which was reflected in year-end railroad stock prices, which were flirting with record highs.
Following are profit reports from the major railroads:
Fourth-quarter profit increased 19 percent.
Calendar-year 2010 profit increased 13.5 percent.
Operating ratio improved four percentage points to 63.6.
The stock dividend was raised 20 percent.
The year-end stock price was up 38 percent. Analysts predict CN’s stock price will rise another 4 percent in 2011.
Fourth-quarter profit increased 34 percent.
Calendar-year 2010 profit increased 39 percent.
Operating ratio improved four percentage points to 77.6.
The stock dividend was raised 9 percent.
The year-end stock price was up 45 percent. Analysts predict CP’s stock price will rise another 8 percent in 2011.
Fourth-quarter profit increased 46 percent.
Calendar-year 2010 profit increased 35 percent.
Operating ratio improved four percentage points to 71.1.
The stock dividend was raised 26 percent.
The year-end stock price was up 62 percent. Analysts predict CSX’s stock price will rise another 6 percent in 2011.
Kansas City Southern:
Fourth-quarter profit increased 47 percent.
Calendar-year 2010 profit increased 82 percent.
Operating ratio improved 8.8 percentage points to 73.2.
The year-end stock price was up 74 percent. Analysts predict KCS’s stock price will rise another 7 percent in 2011.
Fourth-quarter profit increased 31 percent.
Calendar-year 2010 profit increased 45 percent.
Operating ratio improved 5 percentage points to 71.9.
The stock dividend was raised 11 percent.
The year-end stock price was up 41 percent. Analysts predict NS’s stock price will rise another 8 percent in 2011.
Fourth-quarter profit increased 31 percent.
Calendar-year 2010 profit increased 47 percent. UP Chairman Jim Young said 2010 was the “most profitable year in Union Pacific’s nearly 150-year history.”
Operating ratio improved 5.5 percentage points to 70.6.
The stock dividend was raised 40 percent.
The year-end stock price was up 60 percent. Analysts predict UP’s stock price will rise another 8 percent in 2011.
As BNSF is now privately held, it no longer reports detailed financial data.
On the same day (Jan. 20) Union Pacific reported record fourth quarter and record calendar year 2010 profits, UP Chairman Jim Young said he is headed to Washington to meet with President Obama’s economic advisers to oppose a congressional mandate that railroads implement crash-avoidance positive train control by year-end 2015.
UP told investors its 2010 fourth quarter earnings had soared by 31 percent from the same quarter in 2009, and that its calendar year 2010 profit rose by 47 percent to a record $2.8 billion.
Twice during 2010, Union Pacific raised its common stock dividend, raising the dividend by 40 percent in 2010. Since 2001, the Union Pacific common stock dividend rate has been raised by 280 percent, for an average of 28 percent annually.
Young called 2010 the “most profitable year in Union Pacific’s nearly 150-year history.
“Economic indicators point to growth [in 2011], and if jobs improve, there will be even greater strength,” said Young, according to progressiverailroading.com. “The bar is raised, and last year the floor was set. We’re setting our sights even higher.”
UP repeated a previous announcement that it will increase its workforce by more than 4,000 in 2011 — an increase of almost 10 percent in its workforce — while bringing back the remainder of furloughed workers.
As for the Washington trip, in which Young said he will be joined by executives from other railroads, the Journal of Commerce reported that Young “strongly complained about the heavy expense of developing and deploying positive train control technology, which means outfitting locomotives with automated braking gear and tying it into trackside warning devices and other remote control systems.”
The railroads’ opposition to PTC — that its costs outweigh benefits — is disputed by independent studies, some commissioned by the Federal Railroad Administration.
The National Transportation Safety Board has long advocated implementation of PTC as a necessary safety overlay. The UTU and other rail labor organizations similarly support implementation of PTC.
It was one a pretty good year in 2010 for freight railroads.
Although freight volume trailed pre-recession 2008 figures, the nation’s major railroads reported a healthy 7.3 percent jump in carload traffic and a 14.2 percent increase in intermodal (trailers and containers on flat cars).
AAR officials called the 52-week figures “a positive development.”
Carload traffic remains about 10 percent below pre-recession levels, but its rate of growth continues to increase.
Union Pacific earnings for the third quarter 2010 soared by 51 percent from the third quarter 2009, the railroad told investors Oct. 21.
UP told Wall Street analysts it was the company’s most profitable quarter ever.
In reporting the record earnings, UP Chairman Jim Young told Wall Street analysts that the railroad had put some 1,100 furloughed employees back to work during the third quarter 2010, and that all furloughed workers likely would be back on the job in coming months.Young also told analysts that UP likely will hire additional employees in 2011, assuming the economy remains strong.
UP credited increased rail traffic (up 14 percent for the third quarter versus third quarter 2009), the ability to extract higher freight rates from shippers, and improved productivity as the reasons for the record profits.
Per share earnings for UP jumped from 1.01 in the third quarter 2009 to 1.56 per share in the third quarter 2010. This exceeded estimates of Wall Street firms.
UP reported a record operating ratio of 68.2 percent. Operating ratio is the railroad’s operating expenses expressed as a percentage of operating revenue, and is considered by economists as a basic measure of carrier profitability.
CSX earlier reported that its third quarter earnings soared by 43 percent.
Kansas City Southern reports third quarter earnings Oct. 26, and Norfolk Southern reports Oct. 27. As BNSF is now privately held, it does not report earnings separately.