GLG News by Mr. Toby Kolstad, President
GLG News is now G+ Insights
-
G+ is a community for professionals, academics and entrepreneurs to connect through online discussions and in-person meetings. You will continue to see G+ Insights (formerly GLG News) here as well as on the G+ website, where you can share and discuss the G+ Insights you read.
-
Railroad “pricing power” may be driving off railroad business
August 17, 2007
Diversions from rail and rates on the rise | www.progressiverailroading.com
A recent Bank of America survey of railroad shippers revealed that 66% of them were contemplating diverting some of their railroad traffic to other modes of transportation. In reporting the results of the study, a bank analyst commented that railroads that are “pulling too hard on the pricing lever” might be driving off business — perhaps permanently. In justifying past rate increases, railroad have commented on the competition they faced from other modes when they seemed to have a monopoly on rail transport. Maybe they should listen to their own advice.
-
August 15, 2007
American Railcar Industries sets revenue, rail-car delivery records | www.progressiverailroading.com
Although they had record revenues and railcar delivery totals, American Railcar was not able to increase their profits much above the same period in 2006 when they shipped 18% fewer railcars. Management explained that their production facility at Paragould Arkansas, which produces covered hopper railcars, was operating at less than full capacity, and that the types of tank cars, which are built in Marmaduke, Arkansas, were different than in the past and that the margins were lower on the recent mix of cars. The railcar market in the future looks less promising than the recent past and some cost cutting may be necessary to get margins back to past levels.
-
Watch out for the hype on Freightcar America
August 13, 2007
The Long Case for Freightcar America | biz.yahoo.com
Freightcar America is suffering from a dearth of coal car orders that is likely to last at least a few more quarters. After averaging over 6,500 cars per quarter during 2005, a downward trend in demand for coal equipment started during the first quarter of 2006 and has averaged less than 2,800 cars per quarter for the last seven periods. Industry production backlogs have steadily fallen as deliveries outpace demand for new cars. The situation will eventually improve for the builders, but not because demand for coal will suddenly jump or a surge in 25-year-old cars will have to be replaced. Demand for new cars will resume when the surplus of cars created during the past few years Is efficiently absorbed into the system.
-
New railcar plant to rekindle competition
July 31, 2007
National Steel Car to construct plant in Alabama | www.progressiverailroading.com
National Steel Car Ltd has been producing railcars in Canada for many years, and has enjoyed the support of the two Canadian Class I carriers. Although it has a US sales force, orders from US customers have been hampered by the location of the plant in Hamilton, Ontario, high Canadian labor costs, and recently, a strengthening Canadian dollar. National has produced most car types and has competed with all US railcar builders, although not very successfully. All that may change with the opening of its new plant in Alabama in 2009; the “friendly” railcar competitors in the US will have to admit a not-so-friendly rival from up North.
-
Pricing is propelling CSX profit gains
July 18, 2007
CSX profit falls 17% | www.marketwatch.com
Notwithstanding the misleading headline, CSX reported exceptionally strong earnings for the second quarter compared to both the second quarter of 2006 and the first quarter of this year. Both carload and intermodal traffic volumes were less than reported for the same quarter in 2006, but they did not decline as much as they did in the first quarter comparisons. Once again, the increase in revenue due to freight rate increases exceeded the decrease in revenue resulting from lower traffic volumes. Once again it can be asked how long the increases in freight rates can continue.
-
Quarterly data is sometimes misleading for railcar companies
July 12, 2007
Greenbrier Whistles A Happy Tune | www.forbes.com
Greenbrier says that its attention to costs allowed it to reverse the $0.38 loss in its second quarter with a $0.81 per share profit in its third quarter, bringing its fiscal year income out of the red and up to a $0.55 per share profit. Management always wants to be seen as being in “control”, mitigating bad developments, and capitalizing on market opportunities as they happen; but perception is not always reality, especially in the case of Greenbrier, and to a lesser degree, the other railcar companies. The problem lies in the relatively short time of a reporting quarter and the large sums involved in individual railcar transactions.
-
Railroad ethanol traffic is growing faster than expected while grain traffic slows
July 6, 2007
Riding the Rails With Ethanol | www.businessweek.com
Ethanol production has been increasing at an exponential rate during the past 12 months, surpassing forecasts of just six months ago. Industry capacity now exceeds 6.3 billion gallons and another 6.1 billion gallons of capacity is under construction. At 12 billion gallons per year, the railroad industry should handle almost 400,000 carloads of ethanol, up from less than 50,000 carloads in 2003 when only 2.8 billion gallons of ethanol were produced. Carloads of corn have not declined during the last few years because there was enough surplus grain in stock to handle the increase in demand from ethanol producers. This year’s expected bumper crop of corn should be just enough to meet all orders, but the demands of the ethanol industry will soon double, and there may not be enough corn to meet the demands of both the exporters and domestic users.
-
Freightcar America adds some sugar to make bad news more tasteful
June 27, 2007
FreightCar America Estimates Earnings Per Share for Second Quarter, Receives Purchase Commitment for Hopper Railcars | www.freightcaramerica.com
Freightcar America’s announcement that its second quarter earnings will be only half of what was earned during the first quarter, down to 30% of the 2Q06 earnings, and 25% below recent estimates of $1.20/share were included with an announcement of a commitment by a company to order 1,900 new hopper cars as replacements for older cars in 2008. Very few orders for new aluminum coal cars are expected this year, and the announcement that a large fleet owner plans to replace some of its older hopper cars could not have come at a better time. Moreover, the order may signal that the recent (2006-2007) trend to replace the old open top hopper fleet with manually operated gates will continue into 2008 and that perhaps the 88,000 car fleet will not disappear by 2015 as past trends might have suggested.
-
Railcar repair and rehabilitation shops temporarily meeting “new car needs”
June 13, 2007
CSXT, BNSF order ballast-unloading systems from Georgetown Rail | www.rtands.com
Georgetown Rail Equipment Co. (GREX, a privately held railroad equipment supplier) has won orders for over 475 automatic ballast unloading systems to be installed on existing ballast cars in the CSX and BNSF company material hopper fleets. GREX has grown in recent years to be a major supplier of automatic ballast unloading systems, both modifying old coal and ballast cars and selling kits to new car manufactures. Based on the information released to date for 2007, the used car business might be outpacing the new car orders, but in the years to come, that situation might change.
-
So what’s new about this, railroads have been loosing autoparts business for years
June 7, 2007
Railroads feel profit pinch as U.S. automakers trim production | www.stltoday.com
In a recent article from Bloomberg News, it was reported that Norfolk Southern will loose autoparts traffic when a Norfolk VA Ford F-150 assembly plant closes so that production can be consolidated in a Michigan Plant. The article is very accurate in presenting the details of how the railroads have handled light highway vehicles and parts in the past, but it omits some of the background facts and recent trends that have affected the numbers more than the relocation of production facilities and the declining market share of the Big Three.
-
Early estimate of Second Quarter ’07 Railroad carloads
June 5, 2007
Rail Freight Traffic Trails Year Ago Week | www.aar.org
Enough weeks have passed in the second quarter to make a guess of how the second quarter’s carload statistics of each of the US railroads might look. Although car loadings for the year are down 4.5%, not all railroads did this badly. Some have done better than their reported performance during the first quarter, but some have done worse; and it can’t be as easily explained from geography as it was back in April. The continued growth in the market share of Western coal has helped carriers in that region, but not enough to overcome some of the other traffic losses out West.
-
Rail operating managers will do better, provided….
May 30, 2007
Icahn joins Buffett for a ride on the rails | www.marketwatch.com
Everyone seems to be buying railroad stocks, from short term hedge funds looking for a turnaround in management performance and financial strategy, to long term value investors like Buffet and Icahn who see promising business prospects and well positioned companies. Both groups seem to have “found” the railroad industry after most of the railroad companies had posted impressive profit gains and stock performances for two straight years. The word “renaissance” has been used extensively during this period to suggest that a new era had begun for the railroad industry. But this phrase was actually first coined 15 years ago when the railroads were outshining most other industrial companies and their stocks were outperforming the Dow Jones Industrial Average. It was what happened then and what probably won’t happen now that makes these stocks now so attractive to savvy investors.
-
Will newly trained employees leave the railroads?
May 16, 2007
Burlington Northern idles more than 400 employees | money.cnn.com
The layoffs by the Class I railroads that have recently been reported were well received by Wall Street and the prices of their stocks increased. The report of the layoffs was old news however, to most of the crewman affected, since railroad traffic has been below last year’s level since the start of the year. Through May 5, carload traffic was down 4.3% from last year and intermodal traffic, as measure by the count of the containers and trailers, was off almost 1%. Traffic for the most recently reported week showed similar comparisons to the traffic levels in 2006 for the same period. Railroads have traditionally responded quicker than most industries to declining business levels, but layoffs do cut expenses quite as fast as revenue is lost.
-
LBO or private equity takeover of railroad has little upside
May 10, 2007
Private Equity Takes To The Rails | www.forbes.com
-
Investing in the future sometimes hurts present earnings (TRN)
May 7, 2007
Trinty Industries annouces first quarter earnings | biz.yahoo.com
Trinity Industries reported 1st quarter earnings of $0.74 per share, compared to their best quarterly earnings from ongoing operations of $0.71 in the fourth quarter of 2006. Moreover, their backlog of unfilled orders increased to an all time high of 37,790 cars, which represented almost 50% of the total backlog for the car building industry. However, they also announced that the will be building cars for their own lease fleet during the second quarter and for the remainder of the year. This will reduce their manufactures earnings since they are not allowed to report a profit on cars sold to another division.
-
Bifurcation of railcar builders into haves and have nots
April 22, 2007
Car orders, deliveries and backlog fall in first quarter, ARCI says | www.progressiverailroading.com
The ARCI announced that during the first quarter, the North American railcar builders delivered over 17,000 new railcars but received orders for just more than half that total. As a result, the backlog of unfilled orders fell from roughly 85,000 to 79,000, which is still more than will be built in 2007. The backlog is heavily weighted with cars associated with the ethanol industry, namely the tank and jumbo covered hopper cars. Those builders who fabricate these car types are looking at backlogs extending well into 2008, while builders of other car types don’t have enough orders backlogged to keep production going at the current rate past September.
-
Union Pacific Profits fall 20% in spite of increased freight rates
April 22, 2007
Union Pacific Profit Surges 24 Percent | biz.yahoo.com
The market hype is the UP profits surged 24% in the first quarter in spite of a 5% decline in traffic. Evidently, the market was looking to see if the railroad still had any pricing power and was cheered by their report which showed that increased freight rates had allowed them to raise freight rates on coal traffic by 3% over the fourth quarter rates and 1% on all other commodities. Rates on intermodal shipments decreased from the last quarter. Nevertheless, railroad officials were predicting that earnings would grow by 15% and that per share earning would be around $1.44. Why are investors cheering the fact that the UP will most likely, by their own estimates, only match their 2006 earnings per share?
-
CSX still has Pricing Power that is keeping earnings up; but are industry trends being overlooked?
April 19, 2007
CSX up 4 pct as 1st-qtr profit well received despite miss | yahoo.reuters.com
CSX announced first quarter earnings that were only 2% less than those reported for the first quarter of 2006 even though their carload traffic was down 5% and their intermodal traffic was off 1%. Increases in freight rates helped CSX to actually increase their freight revenue by 4% in spite of the traffic loses; increased cost drove their operating ratio, a broad measure of railroad efficiency, up from 79% to 80%. After the report was released, the price of CSX common stock rose 3.5%. The crowd on Wall Street be encouraged by the continued ability of the rail sector to raise their freight rates, but they should recognize that there will be a limit to these increases. Investors should not overlook the underlying trends of declining traffic and stagnant operating ratios for CSX and the other railroad companies.
-
Not all railroads are like BNSF, and the railroads are still in a cyclical industry
April 11, 2007
Is Burlington Northern A Smart Buy? | www.forbes.com
Berkshire Hathaway’s decision that there is value in Burlington Northern Santa Fe Railroad seems to have convinced many investors that the railroad industry is not going to be subject to cyclical swings anymore, or at least of the near future. That would be good news if it were true, but notwithstanding all the reports of a railroad renaissance, the factors that drive this industry have not changed in recent years and downturns might be in store for some companies in the months ahead. We’ll know more after all the 1st quarter numbers are out, but with carload traffic down almost 5% and intermodal traffic up only an anemic 0.2% for the year, it will take a lot of rate hikes to significantly improve on last year’s revenue numbers.
-
It will all be downhill at Greenbrier for while
April 5, 2007
Greenbrier Posts 2Q Loss, Sales Flat | biz.yahoo.com
Greenbrier (GBX) announced today that it lost $0.38 per share during its second quarter after a disappointing profit of $0.12 per share during its first quarter. Analysts had expected $0.54 per share in both quarters prior to the earnings announcements. The railcar models for which Greenbrier is best known have been in surplus supply for several months and the end of this situation is not in sight. Railcar production facilities that are not running near capacity can be big drains on corporate cash and that is why most plants are built to only produce around 3,000 cars per year. There was no business in sight for the
- Subscribe to Updates
-
Leading institutions connect with Toby Kolstad through GLG
Most Popular Energy & Industrials News
-
Chesapeake Energy bites the natural gas bullet
January 25, 2012
-
Flurry of newbuild drilling rig deliveries in 2012 may dampen rig rates
January 20, 2012
-
Talisman joins the ranks of cautious E&P companies
January 12, 2012
-
Early signs of caution begin to cloud frontier exploration and production
January 4, 2012
-
Two global energy pipeline projects deserve attention
November 15, 2011
Gerson Lehrman Group, Inc. connects communities with knowledge through two distinct, yet complementary offerings: GLG Research and G+.