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Researched by Industrial Info Resources (Sugar Land, Texas)--Most North American rail operators expressed disappointment in third-quarter earnings results, which were almost universally down compared to the same period last year. Rail operators including CSX Corporation (NASDAQ:CSX) (Jacksonville, Florida), Union Pacific Corporation (NYSE:UNP) (Omaha, Nebraska) and Kansas City Southern (NYSE:KSU) (Kansas City, Missouri) reported profits that were lower than the previous year and declining freight volumes, particularly for coal. However, as operators continue to face these challenges, some operators expressed optimism about continued shipments in the automotive sector.
Coal's declining use in the U.S. as environmental mandates are implemented and power plant operators burn increasing amounts of natural gas mean that rail operators are shipping less of the fuel than ever before. Union Pacific, for example, reported a 19% year-over-year decline in coal revenue and 14% decrease in volume, although overall coal tonnage had picked up from the second quarter of this year. Similarly, CSX's coal volumes declined 21%, and Norfolk Southern Corporation (NYSE:NSC) (Norfolk, Virginia), one of the few companies that did show an increase in year-over-year profits, reported a 15% decline in coal volumes and 18% decline in coal revenues.
While rail operators come to terms with these new realities in their shipping figures, at least two rail operators remained optimistic about the future of automotive shipments. "Automotive is again expected to grow as light vehicle production remains strong and new business continues to ramp up," said CSX Chief Financial Officer Frank Lenegro, in a conference call regarding the company's earnings.
Kansas City Southern saw its automotive volumes increase 14% year-over-year. The company is clearly taking aim at the Mexican automotive manufacturing build-out. "The automotive business is expected to grow as our customers continue to ask us to do more in creating solutions to support their global manufacturing footprint. As we've mentioned before, by 2020 Mexico will produce over 5.3 million vehicles and import another 900,000," said chief marketing officer Brian Hancock. "We're investing in those projects that will enhance the fluidity and capacity to effectively service this important segment." For more information, see October 19, 2016, article - Kansas City Southern Earnings Fall, Aims for Mexico's Auto Market.
Other operators remain guardedly cautious about the future of auto shipments. "Light vehicle sales are forecasted to finish 2016 at $17.4 million, down less than 0.5% from the 2015 record rate of $17.5 million," said Union Pacific Chief Marketing Officer Eric Butler in his company's third-quarter results conference call. "We remain cautious with respect to auto sales sustaining at these levels."
"Though automotive volume for the full year is expected to exceed North American vehicle production growth of 1%, fourth quarter shipments will decline as compared to last year," said Norfolk Southern Chief Marketing Officer Alan Shaw.
Capital and maintenance spending remains strong in the freight rail sector. One of the largest of these projects is Union Pacific's planned grassroot classification railyard near Red Rock, Arizona, which entails the construction of a 6-mile-long switching yard that will allow for greater capacity and efficiency throughout the state. Construction on the $300 million project is set to kick off in the third quarter of next year and be completed in the summer of 2019.
Other projects involve intermodal rail terminals, such as CSX's $272.6 million intermodal rail terminal near Rocky Mount, North Carolina. The 55-acre intermodal terminal will handle 270,000 container moves per year and will become a major East Coast hub for containerized cargo that travels by ship, truck and rail. Construction of the project is set to begin in mid-2018 and be completed in the spring of 2020.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Coal's declining use in the U.S. as environmental mandates are implemented and power plant operators burn increasing amounts of natural gas mean that rail operators are shipping less of the fuel than ever before. Union Pacific, for example, reported a 19% year-over-year decline in coal revenue and 14% decrease in volume, although overall coal tonnage had picked up from the second quarter of this year. Similarly, CSX's coal volumes declined 21%, and Norfolk Southern Corporation (NYSE:NSC) (Norfolk, Virginia), one of the few companies that did show an increase in year-over-year profits, reported a 15% decline in coal volumes and 18% decline in coal revenues.
While rail operators come to terms with these new realities in their shipping figures, at least two rail operators remained optimistic about the future of automotive shipments. "Automotive is again expected to grow as light vehicle production remains strong and new business continues to ramp up," said CSX Chief Financial Officer Frank Lenegro, in a conference call regarding the company's earnings.
Kansas City Southern saw its automotive volumes increase 14% year-over-year. The company is clearly taking aim at the Mexican automotive manufacturing build-out. "The automotive business is expected to grow as our customers continue to ask us to do more in creating solutions to support their global manufacturing footprint. As we've mentioned before, by 2020 Mexico will produce over 5.3 million vehicles and import another 900,000," said chief marketing officer Brian Hancock. "We're investing in those projects that will enhance the fluidity and capacity to effectively service this important segment." For more information, see October 19, 2016, article - Kansas City Southern Earnings Fall, Aims for Mexico's Auto Market.
Other operators remain guardedly cautious about the future of auto shipments. "Light vehicle sales are forecasted to finish 2016 at $17.4 million, down less than 0.5% from the 2015 record rate of $17.5 million," said Union Pacific Chief Marketing Officer Eric Butler in his company's third-quarter results conference call. "We remain cautious with respect to auto sales sustaining at these levels."
"Though automotive volume for the full year is expected to exceed North American vehicle production growth of 1%, fourth quarter shipments will decline as compared to last year," said Norfolk Southern Chief Marketing Officer Alan Shaw.
Capital and maintenance spending remains strong in the freight rail sector. One of the largest of these projects is Union Pacific's planned grassroot classification railyard near Red Rock, Arizona, which entails the construction of a 6-mile-long switching yard that will allow for greater capacity and efficiency throughout the state. Construction on the $300 million project is set to kick off in the third quarter of next year and be completed in the summer of 2019.
Other projects involve intermodal rail terminals, such as CSX's $272.6 million intermodal rail terminal near Rocky Mount, North Carolina. The 55-acre intermodal terminal will handle 270,000 container moves per year and will become a major East Coast hub for containerized cargo that travels by ship, truck and rail. Construction of the project is set to begin in mid-2018 and be completed in the spring of 2020.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
