zugmann oltmannd You can't grow volume without a top-performing product. That means all parts have to work well together. Managment's prime job is to facilitate work that supports the product. Wick Moorman tried 10 years ago with NS. Problem is there was no buy-in from just about every manager below him. And if the mngmt doesn't buy into it, what hope is there for the labor? Decades and decades of mistrust aren't going to be erased overnight. And with the last contract process, we're still a long way away from harmony.
oltmannd You can't grow volume without a top-performing product. That means all parts have to work well together. Managment's prime job is to facilitate work that supports the product.
Wick Moorman tried 10 years ago with NS. Problem is there was no buy-in from just about every manager below him. And if the mngmt doesn't buy into it, what hope is there for the labor?
Decades and decades of mistrust aren't going to be erased overnight. And with the last contract process, we're still a long way away from harmony.
Things went quite a ways backward after Conrail dissolved. Perhaps if Wick was followed by someone less scattershot than Squires...
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
Many loans to business may have various interest esculator clauses. A very partial list can include: How much long term debt, debt increases or decreases, profit and loss changes, overal business trends ( ex buggy whip builders ), war, US FED and other similar countries actions, accidents (NS ), ec.
kgbw49... That happens only one way - take net income from future years by borrowing to pay out the borrowed cash now as share buybacks and pay the interest out of future operating income. That works until it doesn't. It is a great ride while it does. Higher interest rates are most likely to have an impact when debt needs to be rolled over. The current management will be long gone and a future generation of management will be left to deal with it.
That happens only one way - take net income from future years by borrowing to pay out the borrowed cash now as share buybacks and pay the interest out of future operating income.
That works until it doesn't. It is a great ride while it does. Higher interest rates are most likely to have an impact when debt needs to be rolled over. The current management will be long gone and a future generation of management will be left to deal with it.
Standard 'up and commer' modis operandi. Create a mess, rape the funds and leave. Someone else will have to clean the mess and make things operational.
Never too old to have a happy childhood!
If one gets a chance, take a look at UP and their annual reports since 2008.
Track the long term debt.
They have been touting for years that they have been returning more than 100% of net earnings to shareholders.
Financial structure of a corporation consists of debt and equity, as it does on our personal lives. How the structure is built depends on a number of factors but I will try to keep this simple.
What can a company do with cash generated? Pretty simple...three choices. Return to owners in form of dividends, reduce the number of shares (buybacks), or invest in the company. This cash which is generated is not necessarily the net income. A more accurate accounting is the Cash Flow statement. Often that statement is examined before the net income statement.
Full disclosure, I own one of the major railroads and have since 1994. I pay attention to their quarterly and annual reports.
Last year the railroad (CN) generated $6.667B in cash. Of that they invested a net of $2510 in their company in the form of equipment and capital improvements...lots of capacity improvements in Western Canada and other locations. They returned $2.0B to owners in form of dividends. They also purchased $4.7B in shares (a big chunk!). They also took on an additional $1.9B in debt, increasing their overall LT debt to $14.3B. Their equity stands at $21.3B.
CN has a healthy balance sheet. They took advantage of low interest rates and borrowed wisely. They generate enough cash that this debt can adequately be serviced.
Their dividends have steadily increased over the years, typically in the 6-10% range. In the last 3 years their number of shares has dropped from 712 million to 671 million.
Perhaps the era of PSR is evolving. It is unknow as I am not employed by rails, nor do I have access to ask the CEO or board members. The comments and actions lately seem to point to that with the actions of CSX and NS (other than their E. Palestine derailment they seem to be setting a new course).
Ed
kgbw49Lots of railroad debt will need to be refinanced later in this decade.
Help me to understand this.
Someone (in this case a RR) borrows money during a low interest rate period. Let's say, $1,000,000 at 3% interest, with a 10 year repayment period. Three years in, interest rates go up. Why wouldn't the RR simply continue paying back the loan at the original 3% interest for the balance of the 10 years? Why would they refinance the debt at a higher interest rate? Or are the types of loans taken out by RRs more akin to a variable rate mortage, where the interest rates fluxuate with the market?
Yes dividend increases are not tied to share buybacks. It is what gets frozen or cut if capital is tight and an entity is over-leveraged.
Like the commercial real estate market situation, it will not be something that happens next week or next quarter.
It will happen when they have to start rolling over the debt they issued at low rates that will have to be renewed at double or triple the former rate, or more.
If volume is not up enough to provide operating income to make the higher interest rate payments, that is when the bite comes.
Lots of railroad debt will need to be refinanced later in this decade.
Until then, let the good times roll, pile up the debt for share buybacks, limit capital reinvestment, and take whatever cash you can out of the company.
Every financial strategy works until it doesn't. Even Bernie Madoff's. Even the Federal Government's.
The current financial strategy of a lot of companies was built on artificially low interest rates engineered by The Fed for the better part of a decade. They did it way longer than they should have.
That paradigm is shifting. When that cheap debt needs to be refinanced, that is when we will see if the piper is paid.
I don't think the big players, those that are short term players, care as much about dividends. They want to see rises in the price per share. The bigger the better.
That Soroban Capital that wants Jim Vena in charge at UP mentioned that he could get the stock price to $400. I don't think they care about the long term future of the railroad.
Jeff
kgbw49 Bit it is not less paid out to shareholders if they increase the dividend per share. Correct share buybacks are not unique to railroads. But they have proliferated based on the artificially low interest rates of the last approximatsly 14 years. Railroads are just part of the party. Several of them have tripled their debt outstanding from 2008. Whike they can afford the interest payments now, as they rollover at higher interest rates, their interest burden will increase correspondingly. If you don't have increased volume to help generate revenue to support the increased interest load, that is when the debt burden really starts to bite. You will know an entity is being squeezed when it starts cutting its dividend. You are going to see this on steroids in the commercial real estate segment of the economy over the next three years. Debt coming due that needs to be refinanced. Refinancing at much higher interest rates. Not enough tenant revenue to pay that higher interest expense. Declare bankruptcy and turn the keys over to the bank. Then the bank will take a haircut and if cash reserves are too low, it could be bye bye bank. Watch the dividends of the Big 5.
Bit it is not less paid out to shareholders if they increase the dividend per share. Correct share buybacks are not unique to railroads. But they have proliferated based on the artificially low interest rates of the last approximatsly 14 years. Railroads are just part of the party. Several of them have tripled their debt outstanding from 2008. Whike they can afford the interest payments now, as they rollover at higher interest rates, their interest burden will increase correspondingly. If you don't have increased volume to help generate revenue to support the increased interest load, that is when the debt burden really starts to bite.
You will know an entity is being squeezed when it starts cutting its dividend.
You are going to see this on steroids in the commercial real estate segment of the economy over the next three years.
Debt coming due that needs to be refinanced. Refinancing at much higher interest rates. Not enough tenant revenue to pay that higher interest expense. Declare bankruptcy and turn the keys over to the bank. Then the bank will take a haircut and if cash reserves are too low, it could be bye bye bank.
Watch the dividends of the Big 5.
I have yet to see a dividend increase tied to a share buyback. Usually dividend increases are announced just before some bad news.. to soften the blow of, say, missed earnings or worse overall performance than anticipated. Companies do this so that shareholders don't leave in droves, driving down the value of the stock. So when I hear an announcment of a share dividend increase I think to myself.. oh oh.. brace yourself for some bad news. And I view a higher than average dividend yield with a great deal of skepicism.. it's not as if companies want to be generous with their shareholders for no reason.
Cue the U.S. of A.
Ulrich PJS1 oltmannd It should NEVER have been about profit margins and OR. It's net that matters. Or more precisely, the net present value of all future net profits. Spot on! I worked with many financial analysts, including some from Wall Street investment banks, during my 41-year accounting and finance career with Fortune 200 corporations. None of them focused on just one financial metric. It would be so easy if the OR was all that mattered. Just wait for that ONE super duper high paying load.. only move that load and then do nothing else. The OR drops to 1%.. (so what if total sales for the year are only 20K).
PJS1 oltmannd It should NEVER have been about profit margins and OR. It's net that matters. Or more precisely, the net present value of all future net profits. Spot on! I worked with many financial analysts, including some from Wall Street investment banks, during my 41-year accounting and finance career with Fortune 200 corporations. None of them focused on just one financial metric.
oltmannd It should NEVER have been about profit margins and OR. It's net that matters. Or more precisely, the net present value of all future net profits.
Spot on!
I worked with many financial analysts, including some from Wall Street investment banks, during my 41-year accounting and finance career with Fortune 200 corporations. None of them focused on just one financial metric.
It would be so easy if the OR was all that mattered. Just wait for that ONE super duper high paying load.. only move that load and then do nothing else. The OR drops to 1%.. (so what if total sales for the year are only 20K).
For years our company's strategy seemed to be to drive off all the customers but one. Then charge the heck out of that one remaining customer.
BaltACDI read a report recently that East Palestine was caused by the HBD that detected the trending failure not being connected to the communication network properly and they trending warning was not sent to either the train or the NS office charged with the headquarters functional response. A small mistake, a BIG incident
If we are going to rely on 'point' detector locations, some have argued, they should contain multiple "modalities" -- end-on bearing scan, WILD, DED, ultrasonic and sound-spectrum analysis, low-light high-resolution camera -- and this is perfectly sensible. But expecting a human, however well paid (and you can almost bet they would not be...) to track and coordinate trends in subcritical sensor-fused data relative to train speed, OAT, and other variables, without the corresponding false-positive correlation rate that stops trains needlessly on the road, would be extremely difficult if not impossible... and you'd still have black-swan, holes-in-the-cheese, insert clever terms as required, events that didn't quite get recognized in time.
A large part of the difficulty is addressed, as perhaps in the report noted, when the AI/ES system detects a combination of magnitude and trend and 'kicks it out for human attention'. The problem is that the issue at East Palestine appeared to develop with anomalous speed at almost the worst possible place on the railroad where detection is concerned. By the time the trend was recognized, extrapolated, flagged and reported -- and note, this is before issues of communicating fully with the train crew about the right thing to do in response would have to be undertaken -- all the incident tracking in the world might not have prevented the accident (but might have moved the accident site somewhat... likely, at random).
We'll see what sense comes out of critical thinking about how data trends will be implemented without developing intermediate storage or forms that could be harvested for 'business intelligence' -- the same sort of concerns that made mapping train head-end and rear locations for 'smart crossing management' apps such a consternation.
tree68 Ulrich Your example assumes that the total divdend payout remains constant regardless of the number of shares outstanding. Yes, it does.
Ulrich Your example assumes that the total divdend payout remains constant regardless of the number of shares outstanding.
Yes, it does.
Railroading is a enterprise that requires a vast amount of investment in equipment, facilities, manpower and maintencance of the plant on a continuing basis.
The financial sharp shooters can decrease/eliminate those expenditures on a three to five year short term and rape the profits out of the undertaking. In doing so, after the five year mark - that lack of investment into everything it takes to make the enterprise operate AS IT SHOULD has the enterprise failing in small but catastrophic incidents - incidents that shouldn't be happening.
I read a report recently that East Palestine was caused by the HBD that detected the trending failure not being connected to the communication network properly and they trending warning was not sent to either the train or the NS office charged with the headquarter functional response. A small mistake, a BIG incident.
UlrichYour example assumes that the total divdend payout remains constant regardless of the number of shares outstanding.
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
tree68 Ulrich And fewer shares outstanding means a lower dividend payout as well.. i.e. if the quarterly dividend is $.79/ share (CN Rail) then obviously the total amount to be paid out is less if there are fewer shares outstanding. This results in LESS money out to shareholders every quarter.. hmmm.. I should hear clapping.. If I've got ten bucks to give away, and the number of people I have to give it away to is reduced from five to four, everybody gets fifty cents more...
Ulrich And fewer shares outstanding means a lower dividend payout as well.. i.e. if the quarterly dividend is $.79/ share (CN Rail) then obviously the total amount to be paid out is less if there are fewer shares outstanding. This results in LESS money out to shareholders every quarter.. hmmm.. I should hear clapping..
If I've got ten bucks to give away, and the number of people I have to give it away to is reduced from five to four, everybody gets fifty cents more...
If you give 2 dollars to each relative and you have ten relatives then you're giving away 20 dollars. If two of those relatives die off you're left with eight relatives, and now you're only giving out 16 dollars.
Your example assumes that the total divdend payout remains constant regardless of the number of shares outstanding.
Rio Grande Valley, CFI,CFII
UlrichAnd fewer shares outstanding means a lower dividend payout as well.. i.e. if the quarterly dividend is $.79/ share (CN Rail) then obviously the total amount to be paid out is less if there are fewer shares outstanding. This results in LESS money out to shareholders every quarter.. hmmm.. I should hear clapping..
Share buybacks are not unique to railroads.. alot of companies do it. It can be viewed as a vote of confidence in the business. Are railroad share prices artifically high due to demand created by share repurchases? I doubt it.. And fewer shares outstanding means a lower dividend payout as well.. i.e. if the quarterly dividend is $.79/ share (CN Rail) then obviously the total amount to be paid out is less if there are fewer shares outstanding. This results in LESS money out to shareholders every quarter.. hmmm.. I should hear clapping..
kgbw49With interest rates climbing maybe we will see an end to the loading up on almost-permanent long-term debt to buy shares back to artificially drive up stock prices. The carrying cost of all that debt loaded on over the last 13-or-so years as it rolls over will most certainly impact future profits and dividends.
Good thing "I" am getting out while the stock is high... Isn't that what it's all about?
Disclaimer: I don't own any railroad stock...
The railroads have lost so much talent and insitutional knowledge the past few years at all levels.
It's going to take a long time to build that back up.
It's been fun. But it isn't much fun anymore. Signing off for now.
The opinions expressed here represent my own and not those of my employer, any other railroad, company, or person.t fun any
With interest rates climbing maybe we will see an end to the loading up on almost-permanent long-term debt to buy shares back to artificially drive up stock prices. The carrying cost of all that debt loaded on over the last 13-or-so years as it rolls over will most certainly impact future profits and dividends.
Overmod is right - ultimately over the long term it is about the total net income.
Better to have a larger pool of net income at year end from more volume and a higher operating ratio than a smaller pool of net income from less volume and a lower operating ratio.
diningcar 'most investors' ?? Pension funds and trust funds are the "most investors". We individuals have very little influence because our numbers are so small when compared.
'most investors' ??
Pension funds and trust funds are the "most investors". We individuals have very little influence because our numbers are so small when compared.
I should have said most retail investors, but even the institutional investors seem to go along with the hedge funds.
I think most investors don't have a clue about rail, so OR was sold as a way to demystify railroads. A single number for comparison made it a no-brainer.
The worship of the low OR is over.. some CEOs and others have openly stated as much. And Wall Street and Bay Street are onside as well..there are good examples of transportation companies with relatively high ORs that have outperformed the rails. Investors.. at least the intelligent ones.. don't look at just one number.. we look at the business in its entirety and make our decisions based on a wide range of factors that point to the overall quality of the business. The OR is only one number and far from the most important one at that.
UlrichHopefully Hinrich is able to get his team behind him..
I'm sure his team will do just fine. He's got to have the backing of his board against Wall Street or he'll be gone in no time if the OR goes up...
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