Capital Spending BNSF vs UP

Trains Magazine General Discussion
1

Interesting Article by Forbes Magazine:

https://www.forbes.com/sites/erikkobayashisolomon/2017/12/01/better-investor-union-pacific-bnsf/#72d17035abb8

2

Macro-financial BS, IMHO.

Ignores that UP has needed to double-track its Southern TransCon, while BNSF doesn’t have that need.

Also ignores the effect of PTC spending, and some other factors unique to each line.

On the other hand, UP may indeed be under-investing. I could agree with that conclusion, but not the superficial analysis.

  • PDN.

(I also wonder about a guy named Kobayashi - see the movie “The Usual Suspects”, esp. the Kevin Spacey character . . . )

3

I’d say it’s option 2 in the article. I don’t know if they are spending too little, but I do think they are trying to please activist investor(s).

Jeff

4

I was thinking more along the lines of the Kobayashi Maru space battle simulator at Star Fleet HQ.

5

Another factor not discusssed is efficiency (cost per tie, cost per mile, cost per man hour, ties per man hour, etc.). I know that when I left the UP they were heavily invoved in increasing the efficiency of the maintenance forces. The dispatch side was focused on giving the the gangs the required time at the correct times and minimizing operational impact, the engineering forces were responsible for giving the production scheduled for the project in the time scheduled for the project.

If it a railroad can give the gangs the scheduled time and the gangs can give the scheduled production in the scheduled time, they can do more with less money.

Not saying that it is, but if the BNSF is not as efficient as the UP, they might be spending more, but getting less production. We can’t tell that from the analysis, because there is no measure of the results presented.

6

BNSF has been investing heavily in its Northern Transcon over the last 6-7 years while simultaneously eliminating expensive bottlenecks on the Southern Transcon such as double track in Abo Canyon and a second Fort Sumner Bridge.

On the Southern Transcon, if memory serves me correctly, BNSF has only a second bridge and associatied approach ramps over the Missouri River at Sibley to complete double track on the Southern Transcon, but that will be a very expensive project to finish and will take a while.

Berkshire Hathway seems content to have net profits in the range of 16%-20% of gross revenue falling to the bottom line of the parent company.

For the last five years, BNSF has had the following financial performance in billions:

Revenue Net Income NI % of Rev Op Ratio

2012 $20,835 $3,372 16.2% 70.7

2013 $22,014 $3,793 17.2% 69.1

2014 $23,236 $3,869 16.7% 69.2

2015 $21,967 $4,248 19.3% 64.0

2016 $19,829 $3,569 18.0% 65.5

It looks like BNSF will have revenues bumping back up over $20 billion for 2017 with profits in the $3.8 billion range.

BNSF is competing hard to get as much intermodal revenue as possible to replace lost coal loads - traffic is up but overall revenue per load will likely be lower because of intermodal revenue per load being lower th

7

kgbw49:

Thanks for the excellent analysis of BNSF’s revenues, net income, net income as a percent of revenues, and operating ratio. One year does not make a trend. I am glad to see that you have presented five years of financial data.

8

I love the irony. Wall Street Trash whining and bawling that the railroad should have invested more in plant rather than pumping out dividends. (the Berkshire Hathaway investment style/ taking BNSF private vs regular Wall Street)

9

“+1” I wish I could figure out a way to make some $ from their ignorance . . . [:-,]

  • PDN.
10

Paul,

There is a way assuming you have a substantial bank account. But shares in Berkshire Hathaway and wait for them to grow.

Just kidding. I know those share are far above what most of us can afford. [;)]

11

There are the Berkshire Hathaway Class B shares at about $196.

https://www.marketwatch.com/investing/stock/brk.b

Check out the 3 Year history and the All history in the pull down tab.

12

Even if you are a modest investor, you can get a piece of Berkshire Hathaway through an Index Fund, i.e. S&P 500 Fund or a Total Market Fund. There may be others.

Index funds have had a better long term outcome than most actively managed funds, and I suspect that they do better than most individuals over the long run. In this case the long run is 20 years. No less an investor than Warren Buffett has said that index funds are the way to go for most people.

13

I did have some shares in BNSF, but then Warren Buffet bought me out . . .

Any Berkshire Hathaway shares now have a only highly diluted fraction of BNSF in them.

But a good suggestion nevertheless.

  • PDN.