Class I Q1 Financials: Crunching the numbers

The financial performance buzz words bandied about most often by Class Is last month were “fuel” and “weather.” High fuel costs and severe winter storms helped drive up expenses and operating ratios. But overall, Class I CEOs were satisfied with their respective railroad’s results given the sluggish economy.

Count CSX Corp. Chairman, President and CEO Michael Ward among the highly satisfied. The Class I’s revenue totaled $2.7 billion, up 12 percent compared with first-quarter 2007’s total. In addition, operating income rose 29 percent to a record $626 million, net income increased 46 percent to $351 million and CSX’s operating ratio improved 3.7 points to a record 77.

“From a shareholder perspective, this is the best test: ‘Is it working?’ By every key measure, the answer is, ‘Yes,’” said Ward during an April 16 earnings conference, underlining what he called “top-tier” performance.

However, CSX’s fuel costs shot up 55 percent, causing operating expenses to rise 7 percent to $2.1 billion.

Norfolk Southern Corp.’s fuel costs soared, too, increasing 63 percent to $404 million. As a result, railway operating expenses jumped 12 percent to $1.9 billion. In addition, a lawsuit settlement related to the 2005 Graniteville, S.C., train accident reduced earnings by 2 cents per share and helped elevate NS’ operating ratio 0.4 points to 76.9.

On the plus side, operating revenue increased 11 percent to a record $2.5 billion, income from railway operations rose 9 percent to $578 million and net income went up 2 percent to $291 million.

“It was another strong performance in the face of some headwinds,” said Chairman, President and CEO Wick Moorman during an April 23 conference.

Muddying the waters

In the West, Union Pacific Corp. for the most part overcame high fuel costs and a rain-induced mudslide in Oregon. Net income rose 15 percent to $443 million, operating income went up 10 percent to $788 million and UP’s operating ratio rose only 0.2 points to 81.5.

Freight revenue increased 11 percent to a record $4.1 billion because all six business groups set first-quarter records and three — agricultural, chemical and energy — hit all-time highs. But operating expenses increased 11 percent to $3.5 billion primarily because fuel costs jumped 45 percent to $957 million and mudslide-related expenses totaled $20 million.

Meanwhile, Burlington Northern Santa Fe Corp. established two unwanted fuel-related benchmarks: Costs surpassed $1 billion and fuel became the largest expense category for the first time. Fuel costs accounted for 30 percent of total operating expenses, which rose 15 percent to $3.4 billion.

Although earnings rose 18 percent to a record $1.30 per diluted share, fuel cut earnings by 11 cents per share, said BNSF Chairman, President and CEO Matt Rose during an April 29 conference.

Freight revenue increased 17 percent to $4.1 billion, driven by BNSF’s diverse traffic base, said Rose. Operating income increased 13 percent to $875 million and the operating ratio decreased 1.5 points to 78.9 (although it would have been 75 excluding fuel’s impact).

Kansas City Southern also faced high fuel costs, as well as severe winter weather in the quarter. Yet, revenue rose 9.6 percent to $450.6 million, operating income increased 15 percent to $83.4 million and the operating ratio dropped 0.9 points to 81.5.

“Tighter operating discipline” contributed to KCS’ performance, said Chairman and CEO Mike Haverty in an April 24 statement.

However, operating expenses rose 8.4 percent to $367.2 million primarily because fuel expenses jumped 24.6 percent to $77.9 million.

Piling up

High fuel costs, the worst winter weather in decades, a strong Canadian dollar and weak housing market did a number on Canadian National Railway Co.’s results. Although revenue rose 1 percent to $1.9 billion and diluted earnings per share increased 2 percent to 64 cents, net income fell 4 percent to $311 million, operating income dropped 7 percent to $523 million, the operating ratio rose 2.3 points to 72.9 and operating expenses increased 4 percent to $1.4 billion.

The Canadian dollar’s exchange rate reduced net income by $30 million, and extreme cold and snow “put crews, cars and locomotives out of cycle,” said CN President and CEO E. Hunter Harrison in an April 21 statement.

Ditto for Canadian Pacific Railway: “We had a difficult winter with prolonged cold spells and record snowfall, which affected the entire supply chain,” said President and CEO Fred Green on April 22.

Although revenue increased 3 percent to $1.15 billion, CPR’s net income dropped 29 percent to $91 million, income decreased 5 percent to $116 million and operating ratio rose 3.2 points to 82.7. In addition, operating expenses jumped 13 percent to $948.7 million primarily because fuel costs rose 34 percent to $230.2 million.