BNSF Railway’s profit tumbles in 2016 as traffic falls

Declines in coal and crude oil shipments dented revenue
RELATED TOPICS: BNSF | WEST | FINANCIALS
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FORT WORTH, Texas – BNSF Railway’s net income tumbled 16 percent and revenue declined nearly 10 percent amid a slump in traffic last year, the railroad’s parent, Berkshire Hathaway, reported on Saturday.

BNSF hauled 5 percent fewer carloads and intermodal units last year, led by declines in shipments of coal and crude oil.

BNSF reported net earnings of $3.5 billion on revenue of $19.8 billion for 2016, down from $4.2 billion and $21.9 billion, respectively, in 2015. The railroad cut expenses by 8 percent. Its operating ratio climbed 1.4 points, to 66.3 percent.

The railway’s coal revenue fell nearly 27 percent, to $3.4 billion in 2016, reflecting a 21-percent decline in volumes and lower average rates per car, BNSF said in its regulatory filing.

“Demand for coal has declined due to reduced energy consumption, coal unit retirements, high coal stockpiles, and low natural gas prices,” railroad officials wrote.

Managers didn’t expect improvement in coal this year — or over the longer term.

“While natural gas prices and the amount of electricity burn will affect the demand for coal in 2017, our long-term demand outlook for U.S. and global coal consumption is lower,” BNSF managers wrote.

Freight revenues from consumer products were $6.5 billion in 2016, a decline of nearly 1 percent despite a volume increase of 1 percent. Consumer products volumes increased primarily due to higher domestic intermodal volumes and the addition of a new automotive customer, BNSF said. International intermodal volume declined due to lower consumer spending and excess retail inventories.

Freight revenues from industrial products were $4.8 billion in 2016, a decline of 14.2 percent. The decrease reflects lower volumes, primarily for petroleum products as crude production fell and what was pumped moved to pipelines. In addition, there was lower demand for steel and taconite, partially offset by increased plastics products volume.

“We expect low oil production and pipeline displacement will continue to negatively impact the demand for crude oil shipments in 2017,” BNSF said.

Freight revenues from agricultural products remained relatively flat at $4.2 billion. Agricultural product volume increased by 6.3 percent, however, primarily due to higher corn, soybean, and wheat exports.

Berkshire Hathaway Chairman Warren Buffett continued to extol the virtues of the railroad in his annual letter to shareholders.

“BNSF, like other Class I railroads, uses only a single gallon of diesel fuel to move a ton of freight almost 500 miles,” Buffett wrote. “Those economics make railroads four times as fuel-efficient as trucks! Furthermore, railroads alleviate highway congestion – and the taxpayer-funded maintenance expenditures that come with heavier traffic – in a major way.”

He also told Berkshire investors to catch a glimpse of a BNSF model railroad layout that will be on display at the company’s annual meeting in Omaha on May 6.

“Be sure to view the terrific BNSF railroad layout that salutes all of our companies,” he wrote. “Your children (and you!) will be enchanted with it.”

NEWSWIRETrains News Wire

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