Wall Street expects higher Class I railroad earnings despite U.S. traffic slump NEWSWIRE

Class I railroads will announce their second quarter earnings results over the next two weeks against a backdrop of declining traffic in the U.S. and indications that economic growth is slowing.

But a combination of rate increases, efficiency gains, cost-cutting, and share buyback programs is expected to offset the impact of traffic volume declines at the U.S. railroads.

Wall Street analysts expect earnings at the six publicly traded Class I railroads to rise an average of 13% compared to the second quarter of 2018, according to I/B/E/S.

The average sinks to 9%, however, when Canadian Pacific is excluded. CP’s earnings are expected to rise 32%, according to consensus estimates. CP is an outlier largely because last year’s second quarter earnings took a hit from brief strike-related shutdowns.

Railroads may ratchet down their full-year outlooks in light of the traffic downturn, says independent analyst Anthony B. Hatch.

In the first quarter, railroad executives said the year was off to a slow start due to trade uncertainties and harsh weather but reiterated their optimistic outlooks for the full year, Hatch says.

“That will not be the theme in the second quarter,” he says.

CP will lead off the quarterly earnings reports on the morning of July 16. Its traffic rose 6% in the second quarter.

CSX is scheduled to announce its results after the stock market closes on July 16. Its earnings are expected to rise 10% despite a 4% decline in traffic for the quarter.

Union Pacific, which faced significant operational hurdles in the quarter from flooding in the Midwest, will release its results on July 18. Earnings are expected to rise 8% despite a 4% decline in traffic volume, according to the I/B/E/S survey of analysts.

UP executives are expected to provide an update on the railroad’s progress implementing Precision Scheduled Railroading, including confirmation that the hump has been idled at Proviso Yard in Chicago.

Kansas City Southern, which is also implementing PSR, will report its financial results on July 19. The smallest Class I railroad’s earnings are expected to be up by 4.5%, according to I/B/E/S.

Canadian National, whose traffic rose 1% in the quarter, will announce its results on July 23. Wall and Bay street analysts expect CN’s earnings to rise 9%, according to I/B/E/S.

Norfolk Southern will wrap up railroad earnings calls on July 24. Despite a 4% decline in traffic, NS earnings are expected to climb 12%, according to I/B/E/S.

NS executives are expected to provide details about the railroad’s new PSR-based TOP21 operating plan, which went into effect on July 1. NS is running longer, but fewer, trains and has increased its use of distributed power.

BNSF Railway, a unit of Berkshire Hathaway, is expected to report its quarterly results alongside its parent company on Aug. 2.

Genesee & Wyoming, the largest operator of short line railroads, will be missing-in-action as railroads hold earnings calls. The company, which is being taken private in an $8.4-billion deal with Brookfield Infrastructure and GIC, has suspended quarterly conference calls.

It will, however, file a quarterly earnings report with federal regulators by Aug. 9.

CORRECTION: An earlier version of this report incorrectly stated the date of Canadian Pacific and CSX Transportation announcements. They are expected on July 16. July 16, 2019 7:57 a.m. Central time.