Interview of Matt Rose who is retiring next year from BNSF.
Jeff
As you read this think about what other RR’s are talking about or doing. Being free from the investment community creats different opportunities; but perhaps not all “others” would share the Warren Buffet philosophy.
A really interesting interview. Rose is kind of an anti-EHH.
I especially like the part where Buffett told him to run it like he was going to own it for 100 years.
An interesting insite was the the EHH “cut to fit” style is likely to wind up causing regulatory push back.
So many nuggets of wisdom in that interview. I hope to hell that other RR CEO’s learn from it and ignore the Hedge funds path to doom.
BNSF is not influenced directly by the investment community. But Berkshire Hathway’s stock is listed on the New York Stock Exchange. It is influenced by the investment community and, therefore, would have some flow impact on BNSF’s behavior. Tracing the cause and effect, however, would be nearly impossible for an outsider.
Hedge Fund railroading is about Hoovering as much money out of the operation in as short a time as possible and then moving on to the next ‘business’ opportunity with the Hedge Fund’s profits intact, and no cares about the skeleton of the business that was left behind. All in the name of ‘shareholder value’.
Of the Class 1 Railroads headquartered in the U.S., excluding BNSF, an average of 79.93 percent of their common shares are owned by pension funds, mutual funds, insurers (annunities), institutional investors, etc.
Most of the beneficiaries of the funds are middle class Americans, i.e. public servants, small business owners, bakers, candlestick makers, etc.
The hedge funds own less than three percent of the common shares of the railroads. BNSF is 100 percent owned by Berkshire Hathaway. I have never heard it described as a hedge fund.
Fund managers have a vested interest in the long-term viability of the company’s they invest in. Stripping them is not in their best interest.
Sure seems like CP and CSX had a lot of stuff sucked out by the vampires…
CSX was pretty inefficient railroad back in the 1990s compared with CP. If you ask me they were distracted by coal traffic to the detriment of everything else. I used to live in Elizabethtown, KY a while back near the former L&N mainline and CSX trains would either outlaw or park in Elizabethtown sometimes days at a time waiting to thread their way through that single track to Louisville which was rather terrain challenged in areas. Also, when I lived in Michigain would see CSX yard jobs at automotive plants with the switch crew inside sleeping waiting for their next assignment (next to Ford River Rouge plant)…sometimes for hours just sitting in one place waiting. Maybe this is just me misinterpreting normal railroad operation. However using CP in Wisconsin as comparison. Never saw CP park a train for more than maybe 3-4 hours and that was rare. CP yard crews in Milwaukee, either they are on the locomotive and it is moving or the locomotive is parked and shut off with no crew onboard.
Also, seem to remember the derailments on the L&N line South of Louisville were fairly frequent as well. I always wondered what they shelled out yearly in derailment cleanup or traffic disruption on that line.
Prior to the formation of CSX in 1980 - the L&N seemed intent on blowing up the South with all the HAZMAT derailments they were having.
There were times when Yard Jobs were under the supervision of the Industry they were assigned to work. The Yard Jobs would wait on the industry to tell them the moves to be made.&n
They don’t have to be in the majority, they just have to have the right people’s ears, which they did with EHH. I’m sure those investors who are in it for the long term weren’t big fans.
What stuff? At look a CSX’s financials shows that it has been performing pretty well.
From January 1, 2014 through today – December 13, 2018 - CSX common shares have increase from $28.32 to $68.84 or 143%. Over the same period the S&P 500 increased a tad over 50.1 percent.
Lots of investors benefit from the increase in the company’s common stock, including retirees or those who will retire. The company’s pension plan probably holds some of the company’s stock.
Of the 13 analysts to rate the stock since December 1, 2018, nine give it a buy or outperform; two rate it neutral, one rates it underperform, and one says sell it. Analyst’s opinions should be viewed with a degree of skepticism, but enough of them are recommending buy that it probably is good advice. Moreover, with a Trailing Twelve-Month (TTM) PE Ratio of 9.23 and a PEG Ratio of .40, the stock appears to be undervalued.
The company’s key profit margins look pretty solid. Warren Buffett’s favorite is the TTM pre-tax margin, which for CXS was 35 percent. The TTM Return on Equity was 46.5%; Return on Assets was 17.9%,
Greedy investors are such good judges of quality - think ENRON and Credit Default Swaps. When the numbers are ‘too good’ to be real, they aren’t real.
What does Enron and credit default swaps have to do with CSX?
Are you able to saying anything about finance other than meaningless one-line quips? Why do you insist on demonstrating your ignorance?
In case you have not figured it out, you might want to review the organization chart for CSX or any large organization. You will find that the Chief Financial Officer is one of the top five members of the executive team. There is a reason for it.
Like it or not, finance is a major variable in the success or failure of a business enterprise. It is not the only variable, to be sure, but it is pretty important.
I don’t trust your analysis nor do I trust CSX numbers - I didn’t trust them under Michael Ward and they are even more suspect now!
The only CSX numbers I ever trusted were those on my pay check and I only trusted them to the extent that the check didn’t bounce (like Penn Central checks did - back in the day).
And going back a couple of years, I noticed that during EHH’s time at CPR, the CFO was being replaced on almost an annual basis. I have no idea why, but a repeating pattern, especially when it is the senior financial person, caused me to wonder. Especially when it was well known among railroaders that train performance metrics were sometimes enhanced by various subterfuges.
Indeed - and if you’re looking for return tomorrow then you’re a vulture capitalist. That has been the general impression folks seem to have had of those backing EHH.
I would offer the opinion that EHH “left” CSX at an opportune time. He was there long enough to improve things a bit, but not long enough to reach the point of bleeding the railroad dry.
Based on information seen after EHH first stepped in to CSX, the customers became a secondary concern. Maybe cooler heads have since prevailed and that has been remedied.
Every place EHH has been has undone some of his practices. Not so much his “PSR”, using the assets better, but liquidating assets made surplus and curtailing investment to grow the business. (I liked Fred Frailey’s blog on EHH laughing from the grave about the same time the cover article in Railway Age about CN unplugging itself from some of EHH practices.) Sure he got short term gain, but was his total package sustainable over time? I doubt it. His strategy reminded me of one somewhat advocated by J.G.Kneiling once in his column many years ago. Stop investing in the business and use up the assets, getting as much money out of them as possible. Only difference was JGK was talking about using up the current conventional loose-car network and building a new one built on integral trains of intermodal and bulk commodities.
But large investors don’t care about long term. Pump and dump, going on to the next opprotunity.
Jeff
It is not possible to run a undertaking that requires long term investment which also has long term payback when you are dancing with Wall Streets infatuation with max profit NOW - tomorrow be damned. EHH was great at damning tomorrow.
The Wall Street people failed that experiment when offered one marshmallow or waiting and gettineg two marshmallows. They all ate it immediately.