Shares in US railroads are trading near all-time highs after a trio of America’s largest train operators steamrollered earnings forecasts this week, backed by higher shipping rates.
Union Pacific, CSX and Kansas City Southern cheered investors with first-quarter results that benefited from price hikes and cost efficiencies, which offset the financial impact of disruptive winter storms and record Midwest flooding that caused billions of dollars in damage in the region.
Omaha, Nebraska-based Union Pacific kept the rally train moving on Thursday, revealing net income grew 6 per cent year-over-year to $1.39bn as rate increases helped the company overcome weaker volume. On an adjusted basis, earnings of $1.93 a share topped analysts’ average estimate by four cents, even as revenue of $5.4bn, down from $5.5bn, fell short.
The company’s stock surged 4.5 per cent to $176.90 in intraday trade, higher than its previous closing high of $171.33 set on February 19.
The Dow Jones US Railroads Index, up 2.6 per cent on Thursday, was also trading at an all-time high.
Meanwhile, the Dow Jones Transportation Average — a closely watched index seen as a gauge of the US economy — was tracking toward its highest close in more than 6 months with a gain of 1.7 per cent to 11,007.09.
CFRA analyst Jim Corridore, who raised his price targets for all three companies this week, said CSX and Kansas City Southern have improved profitability with a shift to scheduled railroading — when trains depart at a set time as opposed to waiting for a certain number of cars.
“CSX’s shift to scheduled railroading has driven declines in headcount, fuel costs and most other cost categories, and these benefits are likely to continue through 2019,” he wrote to clients.
Mr Corridore remained concerned about carload declines at Union Pacific, saying it would likely lag behind other railroads on its operating ratio while it rolls out an improvement plan. The company’s operating ratio, a key industry measure of profitability, improved 1 percentage point to 63.6 per cent last quarter. CSX’s operating ratio was a first-quarter record for the group at 59.5 per cent. A lower number indicates stronger profitability.
CSX booked revenue growth of 5 per cent in the March quarter on “broad-based pricing gains” and increased shipping volume in merchandise. Its net earnings expanded by 20 per cent.
First-quarter revenues at Kansas City Southern rose 6 per cent amid strong gains in chemicals and petroleum shipments, while net earnings, which fell 29 per cent, were knocked by restructuring charges. Excluding one-time costs, adjusted earnings per share rose 18 per cent.
Kansas City Southern shares jumped 1.5 per cent to $124.71, about 1 per cent from its closing high and setting a pace to wrap trading at its best level since November 2014. CSX ticked fractionally lower during the session after setting a record high on Wednesday.
Not to be left out, Norfolk Southern, which will report first-quarter results next week, rose 1.2 per cent and eyed a fresh record high on its peers’ upbeat views.
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