Capital Spending BNSF vs UP

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Capital Spending BNSF vs UP
Posted by CMStPnP on Monday, December 04, 2017 7:20 PM
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Posted by Paul_D_North_Jr on Monday, December 04, 2017 8:41 PM

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 . . . ) 

"This Fascinating Railroad Business" (title of 1943 book by Robert Selph Henry of the AAR)
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Posted by jeffhergert on Tuesday, December 05, 2017 9:52 PM

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

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Posted by zardoz on Saturday, December 09, 2017 6:07 PM

Paul_D_North_Jr

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

 

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

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Posted by dehusman on Sunday, December 10, 2017 8:07 AM

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.

Dave H. Painted side goes up.

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Posted by kgbw49 on Sunday, December 10, 2017 8:24 AM

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 than coal revenue per load.

BNSF has been working to extend its intermodal reach via the deal with KCS to route traffic from Mexico to its service territory with interchange in Robstown, TX and the implementation of an intermodal schedule from Dallas through Denver to Seattle.

BNSF's capital investment in the Northern Transcon is critical to its speed of delivery for intermodal delivered to BNSF at Seattle and Tacoma, WA in order to compete with the expanding intermodal ports at Prince Rupert and Vancouver, BC.

It also would not be surprising to see BNSF extend its intermodal reach to sectors of the eastern US via haulage rights or trackage rights, similar to its successful venture to reach Atlanta via haulage rights from Birmingham, AL to Atlanta, GA.          

 

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Posted by JPS1 on Sunday, December 10, 2017 9:57 AM

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.

Rio Grande Valley, CFI,CFII

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Posted by mudchicken on Sunday, December 10, 2017 10:45 AM

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)

Mudchicken Nothing is worth taking the risk of losing a life over. Come home tonight in the same condition that you left home this morning in. Safety begins with ME.... cinscocom-west
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Posted by Paul_D_North_Jr on Sunday, December 10, 2017 2:08 PM

"+1"  I wish I could figure out a way to make some $ from their ignorance . . . Mischief 

- PDN. 

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Posted by Norm48327 on Sunday, December 10, 2017 2:17 PM

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. Wink

Norm


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Posted by kgbw49 on Sunday, December 10, 2017 2:32 PM

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.

 

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Posted by JPS1 on Sunday, December 10, 2017 5:58 PM

Norm48327
 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. Wink 

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. 

Rio Grande Valley, CFI,CFII

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Posted by Paul_D_North_Jr on Sunday, December 10, 2017 6:05 PM

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.

"This Fascinating Railroad Business" (title of 1943 book by Robert Selph Henry of the AAR)

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