BNSF's 2016 earnings hit by decline in coal, crude oil volumes

BNSF Railway Co. reported fourth-quarter 2016 revenue, operating income and net income all declined compared with the same quarter in 2015.

In 2016, total revenue slipped 2 percent to $5.3 billion, operating income fell 8 percent to $1.8 billion and net income decreased 8 percent to $993 million compared with the previous year's quarter, BNSF said in a financial performance statement.

For the full year, the Class I's total revenue dipped 10 percent to $19.8 billion, operating income tumbled 13 percent to $6.7 billion, and net income plummeted 16 percent to $3.6 billion compared with 2015's results.

BNSF attributed the decrease in earnings for the quarter and full year to "continued decline in demand, in particular in coal and crude oil businesses."

The drop in total revenue for the quarter and full year was due to "a flat unit volume for the fourth quarter and a decrease in full year 2016 unit volume of 5 percent, respectively, compared with the same periods in 2015, as well as business mix changes and the impact of lower fuel prices on our fuel surcharge revenues."

The railroad also reported an operating ratio of 65.1 percent for Q4 2016 compared with 62.6 percent for Q4 2015, and 65.5 percent for full-year 2016 compared with 64 percent in 2015.

Among the business unit highlights for fourth-quarter and full-year 2016:
• Higher domestic intermodal volumes and the addition of a new automotive customer helped boost consumer product volumes 3 percent and 1 percent for Q4 and full year, respectively, compared with the same periods in 2015.
• Industrial products volumes fell 9 percent and 8 percent for Q4 and full year, respectively, compared with the same results in 2015. The primary cause was lower petroleum products, reflecting pipeline displacement of U.S. crude rail traffic and lower U.S. oil production. In addition, there was lower demand for steel and taconite. The full year volume decrease was partially offset by increased plastics products volume.
• Higher corn, soybean and wheat exports helped lift agricultural products volumes, which rose 5 percent and 6 percent for Q4 and full year, respectively, compared with 2015's volumes.
• Coal volumes were down 4 percent for Q4 and 21 percent for the full year compared with 2015 levels. The Q4 decline was primarily due to coal retirement and high coal stockpiles, while the full year decline was due to those factors as well as lower demand driven by reduced energy consumption and low natural gas prices during the first half of 2016.

BNSF's operating expenses rose 2 percent in Q4 2016, but fell 8 percent for the full year compared with expenses in the previous year.

The railroad spent $3.9 billion on capital expenditures in 2016, the largest component of which supported maintenance and replacement of BNSF's core network and related assets.

BNSF has committed $3.4 billion for its 2017 capital expenditures. The capex program will continue to focus on maintenance and replacement of the network and related assets to ensure a safe and reliable network. In 2017, that component is expected to cost $2.4 billion. Those funds will primarily go toward replacing and upgrading rail, rail ties and ballast, as well as maintaining rolling stock.

The company plans to spend $400 million on expansion projects, $100 million for continued implementation of positive train control and $400 million for locomotives, freight cars and other equipment acquisitions.