The nation’s major freight railroads had a good financial year in 2010. The average return on sales for the roads headquartered in the United States was 15.1%. This compares to an average return on sales for the S&P 500 of 4.9%. The average return on assets was 4.9% whilst the average return on shareholder’s equity was 12.3%.
Return on sales or revenues tells us how much each customer, on average, contributed to the carrier’s net income. The return on equity, which is the most important number for the shareholders, indicates how much they realized on average.
The numbers do not include the Canadian National and the Canadian Pacific. They are Canadian companies and are not listed in the S&P 500. However, I included the numbers for the Kansas City Southern. It is not an S&P 500 company, but it is usually listed as a major U.S. railroad. I also included the results for the Burlington Northern Santa Fe, although it is now part of Berkshire Hathaway. Had the results for the Canadian National and Canadian Pacific been included in the numbers, the averages would have been a tad better.
It is gratifying to a free market enthusiast to see how well the freight railroads are doing. They are a free market success story. Part of their success can be attributed to the deregulation that occurred decades ago. Other factors include effective management teams, outstanding employees, a recovering economy and, as always, a bit of good luck.