GLG News by Railcar Leasing Experts

Toby KolstadPresidentRail Theory Forecasts

Railroads plan to build through the downturn

February 9, 2009

Analysis of:AAR: Traffic down, investment strong | www.railwayage.com

Railcar loadings were down 17% during January and intermodal traffic decreased 16% compared to the first month of 2008. Railroad executives however are counting on increasing freight rates and rising traffic in the second half of the year to keep revenues stable enough to fund capex programs comparable to 2008. It will be a neat trick if they can do it, but don’t bet the ranch on the spending. Railroad revenues should fall in 2009, and capex funding has always tracked revenues for this industry.

Toby KolstadPresidentRail Theory Forecasts

Trinity will do better than most car builders in 2009

February 4, 2009

Analysis of:Trinity's Q1 EPS view disappoints, idles plants | www.reuters.com

Trinity reduced its first quarter guidance for earnings per share to only 60% of what analyst had expected. The surprise was not the reduction, but that the analysts had not anticipated it. Railcar deliveries were forecasted in December to fall from around 60,000 cars in 2008 to near 30,000 cars in 2009. Moreover, wind power plant installations were also expected to fall from the 9 gigawatts of new power that came online in 2008 to something less in 2009, due both to funding problems and to the current economic contraction. Why these forecasts were ignored is the real mystery, not the expected delay in the company’s guidance releases.

Toby KolstadPresidentRail Theory Forecasts

Wabtec will try to hold its ground in soft market without price increases

January 28, 2009

Analysis of:Wabtec sees '09 revenue flat to slightly down | www.reuters.com

The railroad industry and its suppliers will be in for a rough ride in 2009. Railroad traffic is forecasted to fall back to a level not seen since the last recession in 2002 and many suppliers are looking for a 50% reduction in deliveries this year. Railroad executives are promising that they will raise their freight rates and cut costs enough to offset the revenue shortfalls from lost traffic, but their record on cost reduction is not encouraging and there are political forces gathering to stop any large rate increases. Railcar builders are bracing for a tough year, and locomotive manufacturers are also expecting hard slogging. Of all the companies in this industry, Wabtec has the best chance of not sliding backwards. So how will Wabtec hold its own in this rough environment?

Toby KolstadPresidentRail Theory Forecasts

CSX is thinking wishfully on rising freight rates offsetting falling traffic

January 23, 2009

Analysis of:CSX sees higher prices offsetting lower shipments | finance.yahoo.com

CSX reported fourth quarter earnings of $0.22 per share compared to $0.15 in 2007. More importantly, they managed to lower their operating ratio to 74.7%, the lowest quarterly performance in recent years and more than 2% lower than the 76.9% achieved during the fourth quarter of 2007. Freight volumes fell, but rate increases continued to offset the lost revenue. Management says that with 80% of the freight contracts for 2009 already in place, they can see a 5 to 6% revenue per car increases offsetting expected losses in freight volumes. With volumes expected to fall in the first quarter and perhaps first half of 2009 in the double digit range, this will be a neat trick. Obviously CSX thinks freight volumes in the second half will recover enough to offset first half losses.

Toby KolstadPresidentRail Theory Forecasts

Greenbrier faces continued losses as demand for its main products looks dormant through 2010

January 12, 2009

Analysis of:Greenbrier swings to fiscal 1Q loss | finance.yahoo.com

Greenbrier reported a quarterly loss of $3.3 million, with deliveries amounting to only 800 units in its first quarter which ended in November, compared to 1,800 deliveries in the previous quarter, and the delivery total in this quarter may be the high water mark for their fiscal year which ends next August. During the last recession, Greenbrier’s share of the railcar market rose to 35% when its main car types, boxcars, all types of flatcars, and intermodal cars were in demand and the car types produced by the other builders were out of favor. This time around, the tables have been turned and any real demand for Greenbrier’s car types is not even on the horizon; its market share may plunge to under 10%. Moreover, Greenbrier’s efforts to enter the tank car market will be more difficult due to the problems in the ethanol industry and reductions in general tank car demand.  

Toby KolstadPresidentRail Theory Forecasts

Railroads can’t have their cake and eat it too!

January 5, 2009

Analysis of:Rail Shippers Ask Congress to Regulate Freight Prices | online.wsj.com

A public relations battle is brewing between railroad shippers who want public sympathy and congressional help against railroad freight rate increases, and the railroad companies who want a share of the economic stimulus money to be doled out by Congress 2009. It has been interesting to listen to railroad executives plead for public money one day to help them modernize and expand their rail networks, and then the next day to hear them boast of their financial gains and increasing future profits. In today’ tight economy, they may not be able to have it both ways.

Toby KolstadPresidentRail Theory Forecasts

GATX keeps investing in railcars and its future

December 19, 2008

Analysis of:GATX buys railcars from Allco Finance Group | biz.yahoo.com

GATX reported that it recently purchased 3,650 freight cars from an Australian finance company, increasing its leased fleet by about 3%. The cars had an average age of only 2 years and the purchase price indicated the average price per car was $59,452. It takes some fortitude and good intelligence to make long term capital investments in these times, but for a company that has been in the same business for over 100 years, these are both proven virtues.

Toby KolstadPresidentRail Theory Forecasts

American Railcar (ARII) consolidating production in Marmaduke

December 16, 2008

Analysis of:Railcar maker: Work should stay until Christmas | biz.yahoo.com

With orders dwindling and backlogs falling, American Railcar decided to consolidate production at the Marmaduke Ark facilities in 2009 rather than continue production at two locations. The 2008 expansion of the Marmaduke made the consolidation possible, since the original plant at that location could only handle tank car production. The second plant that was opened in early 2008 when ARII was contemplating other markets, and it was built to handle all types of railcars.

Toby KolstadPresidentRail Theory Forecasts

Berkshire Hathaway Bet on BNSF is a bet on coal and imports

December 12, 2008

Analysis of:Warren Buffett's Burlington Northern Stake Rises To Almost 20% After Options-Related Stock Buy | www.fool.com

For the past ten years, the BNSF railroad franchise was arguably not only the best in the west but the best in the country.  From the ATSF, it had the quickest overland route from Los Angeles to Chicago, truck or rail, and enjoyed the highest rates and largest volume of traffic from the busiest container port in the country. From the BN, it had the lion’s share of the low sulfur coal mined in the Powder River Basin. However, the future for these two traffic segments does not look as strong as it did in the past, and the franchise may not be as valuable as it once was.

Toby KolstadPresidentRail Theory Forecasts

Good news or bad? Railroad fuel costs are coming down

December 9, 2008

Analysis of:BNSF drops planned fuel surcharge change | biz.yahoo.com

Before the double digit increases in freight rates in 2008, fuel surcharges accounted for almost 25% of the railroad freight rates for many commodities. Today the percentage is probably much higher. As fuel costs rose after 2004, railroads protected themselves against losses by adding the fuel surcharge to their freight rates. Shippers argued that the surcharges, based on published facts and formulas, gave the railroads more revenue than was justified by the rising fuel prices. If so, then the freight rates will fall in the future faster than the fuel prices. We’ll just have to wait and see since at least one railroad, BNSF, will not change the old rate formula based on $1.25/gallon diesel fuel.

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