GLG News by Railcar Market Experts (EU)

Toby KolstadPresidentRail Theory Forecasts

Intermodal traffic gains may be problematic: too much too fast

July 14, 2010

Analysis of:Intermodal Rail Posts Highest Year-Over-Year Monthly Gain in 20 Years | www.truckinginfo.com

Intermodal loadings are surging faster than had been expected and are rising faster than they did during the first quarter when real GDP was expected to grow over 3% in 2010. It now appears as though 2010 intermodal loads will exceed those of 2008 but fall short of the record number of shipments recorded in 2006. Much of today’s movements are for retailers stocking up for the holiday shopping season; the Christmas rush begins early in the transportation sector.

Toby KolstadPresidentRail Theory Forecasts

More troubles for railroad coal traffic

July 9, 2010

Analysis of:EPA proposes tougher air rules on power plants | af.reuters.com

The EPA has proposed rules that would force utilities in the East to significantly reduce pollutants in 2012. This will lead to the early closure of many old coal fired electric utility plants and higher utility bills for consumers in that part of the country. None of the new, more efficient and less polluting coal fired plants scheduled to start operating in the near future are in the East. For Eastern railroads, it will mean less coal traffic as utilities switch to alternate fuels in coming years.

Toby KolstadPresidentRail Theory Forecasts

UP profits should set records even with slow economic growth

July 5, 2010

Analysis of:Union Pacific railroad builds U.S. economy | money.cnn.com

Like many of its North American railroad cousins, the UP reacted swiftly to the precipitous fall in traffic in 2009 by cutting costs and capital spending. With the help of some small rate increases, it maintained its hard won operating ratio of 76% and waited for traffic to increase. Traffic had fallen more than the economic contraction seemed to warrant, and it was a good bet that it would increase swiftly, even if it did not return to pre-recession levels.

Toby KolstadPresidentRail Theory Forecasts

Kansas City Southern Railway Company is a case of permanent potential

June 24, 2010

Analysis of:Standard & Poor’s raises Kansas City Southern’s bond rating | kansascity.bizjournals.com

The recent Kansas City Southern Railway Company (KSU) swap of equity for debt was made possible not only by the company’s currently strong operating performance and recent traffic gains, but also by the perennial optimism of its shareholders. This small regional railroad has enjoyed the PE ratio of a high growth company long after it divested its highly profitable non-rail divisions several years ago. The future earnings needed to justify this PE ratio seem to be out of reach and out of sight.

Toby KolstadPresidentRail Theory Forecasts

A no brainer: railroad profits to climb in the second quarter

June 15, 2010

Analysis of:Analyst says rails headed for strong 2Q earnings | finance.yahoo.com

Unlike many companies and industries, railroads report traffic levels by company and by commodity on a weekly basis to the American Association of Railroads (AAR). It is not too hard to extrapolate carloads to revenue and profits; from the data through the 22nd week of the year and halfway through the second quarter, the railroads are on pace to record a 2.3% gain over the first quarter and a 13% gain over the second quarter of 2009. Some companies like Norfolk Southern Corporation will do even better.

Toby KolstadPresidentRail Theory Forecasts

Stock sale may signal something amiss at Trinity Industries

June 10, 2010

Analysis of:Trinity Industries CEO's $2.6 Million Sale | online.barrons.com

Timothy R. Wallace, CEO of Trinity Industries, made a wise move when he bought over 15,000 shares of his company in March of 2009 when it was selling for $7.18 per share. He should have bought more. He was one of many smart executives who bought shares in their companies when the stock market was crashing and pricing companies at less than their book value. He probably was also acting wisely when he sold over 100,000 shares recently at $23.65.

Toby KolstadPresidentRail Theory Forecasts

Greenbrier hides shrinking marine backlog behind political smokescreen

June 4, 2010

Analysis of:Gunderson slashes marine production | www.bizjournals.com

The Greenbrier Companies recently tried to blame the city of Portland’s recent passage of an environmental plan for the Willamette River for its cutback of barge construction at its Gunderson Marine Division. CEO William Furman also blamed the soft barge market on the oil spill in the Gulf of Mexico. The only logical reason for the decision to lower the production rate is a declining backlog and the possibility of a total shutdown before another order is booked. Why all the hype?

Toby KolstadPresidentRail Theory Forecasts

Railcar market continues to be misunderstood

May 26, 2010

Analysis of:Wilbur Ross mulls rail, real estate, casino investments | www.reuters.com

Wilbur Ross’s private equity firm recently purchased 4,000 railcars for around $230M and gave the management contract for the cars to Greenbrier, its rail industry partner. In a press release, Ross said that last year one third of all railcars were idle and that this year that figure has been cut in half. He is partially mistaken. While the real numbers may look better, the situation is much worse and a recovery in the leasing market for most car types is a long way off.

Toby KolstadPresidentRail Theory Forecasts

Rail Traffic is signalling a “new normal”

May 18, 2010

Analysis of:Rail Traffic Recovery Continues | www.thestreet.com

Rail traffic fell so far during the second quarter of 2009 that record year-over-year gains were expected for the second quarter of 2010 even if traffic did not continue to increase beyond the levels recorded during the first quarter. During the past few weeks that is unfortunately what seems to be developing as rail traffic settles to the “new normal” levels for the economy. However, weekly postings by the AAR are expected to continue to show record levels of improvement, at least until June.

Toby KolstadPresidentRail Theory Forecasts

New railcar delivery forecast may be too optimistic

May 11, 2010

Analysis of:Freight-car deliveries to gradually increase during next two years, EPA says | www.progressiverailroading.com

Some forecasters are predicting that new railcar production will climb back to normal levels within a few years. That is a hopeful goal, but the problems affecting two major car types that historically have accounted for 60% of the new railcar market may put it out of reach. Demand for coal and imported goods (not including oil) may take a little longer to recover than the forecasts envision.

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