Quick comments on UP�s just-released Q4 report:
This is a home run. With the bases loaded ! A stunning report for the Fourth Quarter.
Q4 Carload volume up 0.9% from 2005.
Operating margin was 20.4% - - up 5.7 points from 2005, and up 1.5 points from Q3, and all-importantly - - on sequential-Quarter price increases averaging 1.8% over Q3, equaling BNI�s excellent pricing performance.
Operating margin of 20.4% edged ahead of CSX�s 20.0% - - we�ve now got a four-way horse race among the US Big Four !
UP is back, if these kinds of financial numbers can be sustained in coming Quarters.
This is a magnificent report !
Re: "according to railfax data it appears UNP took market share away from BNI. The primary area appears to be intermodal and chemicals."
How do you figger? The data I see say that BNI ate UP's lunch (again ! ), ***particularly*** in chemicals.
At the bottom of the railfax "Individual Carriers" data where market share is shown (data I've never understood, since they add to 124% toal market share), BNI is shown gaining 1.1%, while UNP gained 0.2% - - whatever that means. On the individual rails' year-end carloading reports (and on the 8-K's filed this week), BNI's Q4 volume went up 3.7% versus UP's 0.9%. For the year, BNI's volume went up 6.1% versus UP's 3.2%. These data indicate that BNI gained 0.7% of market share (versus UP) in both Q4 and the full year.
In intermodal, BNI's Q4 volume was up 2.4% versus UP's 1.6%, and BNI's full-year was up 6.5% versus UP's 5.8%.
In chemicals, BNI's Q4 was up 16.6% versus UP's 0.9% decline, while for the year BNI was up 7.9% versus UP's 1.8% decline.
Where are you getting your data?
Here are further comments on UP�s Q4 results:
Q4 operating margin of 20.4% was up 2.1 points (from 18.3%, excluding insurance recoveries) in Q3 - - in spite of the slowdown in the economy - - principally reflecting the strong 1.8% (at constant intermodal mix) sequential-Quarter pricing gain. Operating margin for the year was 18.5%, up 5.3 points from 2005, principally on the strength of industry pricing increases. UP still has several additional percentage points of margin gains available as it continues to attack its still-excessive operating costs.
Excluding fuel, UP�s carload costs (constant intermodal mix) increased about 2.2% in 2006 - - perhaps a bit better than the rate of inflation. It appears that UP�s excessive costs may have begun to come down, in part reflecting increased fluidity in UP�s network. But there�s still ***lots*** of room for improvement on the cost side, with significant further increases in network fluidity, and reductions in car count, still available. My guess is that whittling costs to competitive levels could add about 15%-20% (3-4 percentage points) to UP�s operating margin and EPS, perhaps over the next 1 � to 2 years.
ROE in Q4 was 12.4%, bettering CSX�s 12.0%. UP�s ROE for the year was 10.9%, trailing BNI�s 18.6%, NSC�s 15.2%, and CSX�s 12% (all excluding unusual items.)
I believe the most significant result for the Quarter was the pricing discipline that was apparently exercised by BNI, UNP, and CSX in the face of softening volume. NSC appeared to �blink� in the face of slowing demand - - NSC had a 0% sequential-Quarter price increases over Q3, compared to 1.8% for BNI and UNP, and 1.4% for CSX, all adjusted to constant intermodal mix). Maintaining pricing resolve is critical to the industry�s approaching a reasonable return on its capital invested. The industry is still not there, so there�s still upside.
Except for NSC, the rails turned in an excellent performance for such a soft quarter in the economy. Weather problems have gotten Q1 off to a slow start, but when the economy gets back on track, results for all four of the major rails should surge.
Thanks for your quick analysis.
"there�s still ***lots*** of room for improvement on the cost side, with significant further increases in network fluidity, and reductions in car count, still available"
I totally agree with you on this. I see things almost every day that UP could do to improve service and velocity. Of course just about everything that needs to be done costs money. I was very happy to see CEO Young say that they will spend 3.2 billion this year in capital improvements. He also said that pricing would stay even if the economy and volume decreased. With the stock market today now feeling that the economy is now and in the future even stronger than what most expected, this should not be a problem.
Is it your impression that UNP, CSX, and BNI handle the carload cost side about the same, or did you believe that UNP is having a little bit worse of a cost capability this period? I have not followed UNP, and do not the history of background that most here have. Thanks, Super, and anyone.
I just noticed what has happened in the stock market and today was a little bit disappointing.
Re: "Does UNP get a lot of business from the auto sector. I'm just wondering what has offset any decline in autos if any?"
Autos biz was 8.5% of UP�s carloads in Q4 of 2006, off only marginally from 8.6% in Q4 of 2005, with auto carload volume virtually unchanged. Strength in coal (up 10%) and grain (up 4%) offset Q4 declines in UP�s other business categories.
The Western rails' auto business has held up much better than that of the Eastern rails. While UP�s 8.5% mix of auto business was unchanged from 2005, and BNI�s 2% mix was off 2% - - in the East, NSC�s 6.5% mix declined 16% from 2005, and CSX�s 6.2% auto mix was off 10%.