“You must keep learning if you want to become a great investor. When the world changes, you must change ... Warren and I hated Railroad Stocks for decades, but the world changed (Editor – the Railroad Renaissance) and finally, the country had four huge railroads of vital importance to the American economy. We were slow to recognize the change (editor: yes) but better late than never.”
/Warren Buffett quoting Charlie Munger in his Annual Letter to Berkshire Hathaway shareholders
BNSF earnings reflected the industry’s doldrums over the past few quarters – and, ironically they under-performed western rival UP by a fair margin. UP outgrew them in revenue (8% to 5%) volume (an increase of 1% versus a 9% decline), expense inflation (14% to 17%), and operating earnings (a decline of only 1% to BNSF’s 15%). BNSF’s OR jumped 780bps to 67.8% while UP posted 61% (+360bps).
Unit growth also underperformed. Consumer (IM + Autos) fell 10% (UP was up 3%); Industrial Products dropped 11%, Ag dropped 4% (-2%), and Coal fell 8% (to UP’s flat volumes). The primary reason cited was “network service challenges” showing the volume/revenue impact of the crew shortages and the backed-up networks, as well as BNSF’s dependence on IM.
With no webcast, and reporting late, BNSF didn’t have to suffer the slings and arrows of analysts after trying to talk down economic/volume expectations, as Union Pacific, the industry’s “lead-off hitter” did way back in January. UP seemed to exit the quarter with some confidence – predicting it would outperform Industrial Production and onboarding two major BNSF IM customers but faced investor wrath from their webcast. What would have happened if the positions were reversed? Interesting….Meanwhile, I will hear more from BNSF over the course of the shipper meetings (NARS, etc) and EXPO, and I expect they will right their course with crews in the field and JBHT taking up all of the available intermodal capacity and then some that Schneider and Knight/Swift made available …