Transportation
Will Drop in Railroad Traffic Hurt Berkshire Hathaway?
Published:
BNSF is the railroad Berkshire Hathaway Inc. (NYSE: BRK-B) owns. Warren Buffett was the company’s largest shareholder when he bought the 77.5% he did not already own for $26.5 billion a year ago. Now, it is Berkshire Hathaway’s largest wholly owned company. Recent trends in railroad traffic indicate that Buffett may not have gotten a good deal, at least short term.
Total U.S. railroad traffic through the first 40 weeks of the year totaled 21.8 million carloads, down 1.2% from the same period last year, according to the Association of American Railroads. That is not much of a drop — unless a company is in the railroad business. Across the industry, grain shipments are up 5.6% to 886,000 carloads. Dragging shipment numbers down, coal railway car traffic is off 9.3% to 4.1 million carloads. Coal represents the largest product railroads ship.
A proxy for how well, or poorly, BNSF is doing is the stock price of peer Norfolk Southern Corp. (NYSE: NSC). Its shares trade at $78.84, in a 52-week range of $117.64 to $72.10. Wall Street does not think much of the railroad business. In the most recent quarter reported, revenue fell from $3.0 billion in 2014 to $2.7 billion. Net income was down from $562 million to $433 million over the same period.
When the company announced those results, management commented:
“While we face short-term pressure, particularly as we clear fuel surcharge revenue and coal headwinds, Norfolk Southern is well positioned to continue improving service, which will reduce costs and add value to our customers,” said CEO James A. Squires. “Growth within the intermodal franchise, consumer spending, housing-related momentum and improved manufacturing activity all support an optimistic longer-term outlook. We have a strong legacy of success, and we are taking the right steps to continue value creation for our customers, the communities we serve, our employees, and our shareholders.”
Long term means too far out to do more than guess.
It is hard to prove whether BNSF was a good investment for Buffett. Signs point to the fact that it was not.
ALSO READ: 5 Big Oil and Gas Stocks Analysts Want You to Buy Now
Want to Retire Early? Start Here (Sponsor)
Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?
Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.
Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.
Have questions about retirement or personal finance? Email us at [email protected]!
By emailing your questions to 24/7 Wall St., you agree to have them published anonymously on a673b.bigscoots-temp.com.
By submitting your story, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
