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A softening economy, brutal winter storms, decreasing traffic — there were plenty of reasons the Class Is could have reported weak financial performance in the first quarter. But only two posted revenue and income declines.

Canadian National Railway Co. couldn’t overcome the double whammy of a contentious United Transportation Union-Canada strike (see page 8) and several severe storms. The Class I’s net income fell 10 percent to $289.1 million, operating expenses increased 6 percent to $1.2 billion, operating ratio climbed 3.5 points to 70.6 and revenue remained essentially flat compared with first-quarter 2006.

Norfolk Southern Corp. also felt the sting of strong winter storms, as well as a weakening economy. Operating revenue decreased 2 percent to $2.2 billion, income from railway operations declined 4.2 percent to $528 million, net income dropped 7 percent to $285 million and the railroad’s operating ratio worsened 0.4 points to 76.5.

The other five Class Is fared better. Kansas City Southern increased revenue 6 percent to $411.3 million, more than doubled net income to $17 million, boosted operating income 18.1 percent to $72.4 million and improved its operating ratio 1.8 points year-over-year to 82.4.

Posting progress
Union Pacific Railroad made strides with its quarterly operating ratio, too — it improved 2.4 points to 81.3. UP also set three first-quarter records: revenue at $3.8 billion, up 4 percent; net income at $386 million, up 24 percent; and operating income at $719 million, up 19 percent.

CSX Corp. also set a first-quarter revenue record at $2.4 billion — up 4 percent year over year — even though traffic volume decreased 4 percent to 1.8 million units. However, surface transportation operating income (excluding insurance recoveries) decreased 4 percent to $469 million and CSX’s surface transportation operating ratio worsened 0.8 points to 79.9.

Add BNSF Railway Co. to the list of revenue record setters. The Class I’s freight revenue increased 5 percent to an all-time first-quarter high of $3.5 billion.

But an $81 million environmental and technology charge and fuel headwinds of $60 million reduced operating income from $793 million in first-quarter 2006 to $694 million in first-quarter 2007. And BNSF’s operating expenses jumped 10.5 percent to $2.95 billion.

At Canadian Pacific Railway, cost-control measures paid off. Operating expenses increased only 0.3 percent to $789.7 million. In addition, revenue rose 2.2 percent to $1.1 billion and net income jumped 10 percent to $114.8 million. Plus, CPR’s operating ratio improved slightly to 79.5.