Nonsense..how are shareholders sucking money out of the company? Dividend yields are generally not that great for railroads... less than 1% for CP and less than 2.1% for the others..NS is the only one over 2% recently. And if I own shares in a railroad and the share price goes from 20 dollars to 70 dollars , how exactly have I "sucked money" out of the company?
kgbw49 Group, I am not expressing an opinion one way or the other. I just looked up the data because I was interested to see what it was based on the discussion. One thing that concerns me looking at it from a financial standpoint is that it seems that under PSR the debt of the company starts growing very quickly because it seems they often tend to tout the fact that they are returning "over 100% of earnings" to shareholders. That tells me they are borrowing long term debt to fund a dividend or shareholder buyback today. If the economy slows, or carloads flatten and pricing power wanes, it sure seems that they are going to be saddled with a lot of annual interest payments. If you look back at these companies' annual reports, you can track the increase in outstanding long term debt on a year over year basis. It makes sense to borrow long term debt for capital projects because theoretically you invest the cash in long term assets - new rail, new sidings, new locomotives, etc. so the life of the debt somewhat matches the life of the asset acquired with it, and theoretically those things will help you maintain and grow the business and earn a return on invested capital. But long term debt to pay for shareholder buybacks kind of seems to be like getting a mortgage to pay the monthly electric bill. Maybe I am wrong about that, but it sure seems that way. From what I have been looking at, it seems like some - not all, but some (a pretty sizable chunk) of the increase in long term debt has not been to fund the capital plan of the railroad but instead to buy back shares. One has to wonder where the limit is. Overloading on debt has brought down many a company. That to me seems to be a significant negative for the long term health of the company. Time will tell, I guess, as nobody has done PSR for the long term yet. Or maybe I am missing something - that is possible also.
Group, I am not expressing an opinion one way or the other. I just looked up the data because I was interested to see what it was based on the discussion.
One thing that concerns me looking at it from a financial standpoint is that it seems that under PSR the debt of the company starts growing very quickly because it seems they often tend to tout the fact that they are returning "over 100% of earnings" to shareholders. That tells me they are borrowing long term debt to fund a dividend or shareholder buyback today. If the economy slows, or carloads flatten and pricing power wanes, it sure seems that they are going to be saddled with a lot of annual interest payments.
If you look back at these companies' annual reports, you can track the increase in outstanding long term debt on a year over year basis.
It makes sense to borrow long term debt for capital projects because theoretically you invest the cash in long term assets - new rail, new sidings, new locomotives, etc. so the life of the debt somewhat matches the life of the asset acquired with it, and theoretically those things will help you maintain and grow the business and earn a return on invested capital.
But long term debt to pay for shareholder buybacks kind of seems to be like getting a mortgage to pay the monthly electric bill. Maybe I am wrong about that, but it sure seems that way.
From what I have been looking at, it seems like some - not all, but some (a pretty sizable chunk) of the increase in long term debt has not been to fund the capital plan of the railroad but instead to buy back shares.
One has to wonder where the limit is. Overloading on debt has brought down many a company. That to me seems to be a significant negative for the long term health of the company. Time will tell, I guess, as nobody has done PSR for the long term yet. Or maybe I am missing something - that is possible also.
Hear that, it's the sound of shareholders and hedge funds sucking money out of a company!
Greetings from Alberta
-an Articulate Malcontent
The railroads are lucky to have so many captive customers, or those who cannot easily ship via other modes (trucks are even more expensive than the higher rates).
Imagine what would happen if BNSF suddenly told UPS they had to ship a equal number of trailers every single day, or drastically hiked their rate!
Not long after Hunter took over at CP a couple big intermodal shippers switched quite a bit of traffic to CN.
Of course, CN's congestion and CP's "excess capacity" of the past couple years have resulted in CP winning back some traffic.
It is a publicly traded stock. As such, the owners are the shareholders and the management has primary responsibility to them. The rates might have increased but efficiencies more so judging by the increase in profits. Others have claimed cusomers fled in droves which would result in fewer carloadings. Didn't happen.
Revenue up 17%, operating income up 28%, but carloadings up 4.2%, looks like someone's been raising rates!
PSR is great if you look at things solely from a distant shareholder's point of view. For customers and employees it has been the opposite.
CSX carloads 2018 6482 thousand; 2017 6400 thousand, a 1% increase.
SD70: kgb49 did the research for you. you can draw your own conclusions from the data. But my impression is that both roads are doing well. PSR does work and is apparently being adopted by all the rails.
CP carloads 2018 2,739.8 thousand 2017 2,634.2 thousand, a 4.2% increase.
Carload data for CP for 2018 and 2017 is on the bottom of page 14 of 21 of the linked report:
https://s21.q4cdn.com/736796105/files/doc_financials/quarterly-report/2018/Q4/Ex-99.1-Q4-2018-Earnings-Release-r168.pdf
Carload data for CSX for 2018 and 2017 is on page 9 of the Financial Report that can be accessed at the following link:
http://phx.corporate-ir.net/phoenix.zhtml?c=92932&p=quarterlyearnings
charlie hebdo Their actual numbers do not correspond with your suggestion of an empty mainline. The 4th quarter for 2018 shows revenue up 17% over the previous year's 4th quarter. Operating income up 28% and operating ratio is 56.5%.
Their actual numbers do not correspond with your suggestion of an empty mainline.
The 4th quarter for 2018 shows revenue up 17% over the previous year's 4th quarter. Operating income up 28% and operating ratio is 56.5%.
Those numbers can be manipulated solely by increasing rates and cutting costs.
How much have carloadings actually increased, especially in comparison to the other Class I's? And how do those carloadings break down between coal & potash (both affected by export markets and world price), grain (every crop year is different), intermodal and other general freight carloadings (more service dependent).
The economy as a whole has been doing well, so I would expect some increase in traffic over the past couple years, regardless of who has been in charge.
Cut the muscle and intellegence from a company and the customers and remaining employees pay the price.
Never too old to have a happy childhood!
The employees who kept their jobs at all these railroads also endured, and continue to endure a lot of pain, stress and harrassment, but I guess that's just the price of success, right?
Because of the directional running co-production zones we at CN have access to the CP mainline CTC overviews. Their mainline has been pretty empty for the past few years, and what trains they do have are often quite short. Hunter and Creel's dedication to customer service is quite visible.
But Creel knows how to work the PR angle, and was touting CP's extra capacity and "room to grow" at last year's shareholder meeting, in comparison to CN's congestion with too much traffic.
Mantle Ridge likely disagrees with this assessment. They've brought about some major changes that have left CSX on a trajectory for long term growth and profitability.. my opinion supported by what the numbers show. Everyone said the same about Perishing Square and CP.. they were going to come in and gut the company, leaving nothing but a shell in its place. Thus far that hasn't happened.. instead CP is now an industry leader headed by one of the best operations people in the biz .. nolonger the industry laggard it was for the better part of three decades. Same story at CN although no activist investor involved there. I'm not saying its perfect.. alot of pain felt by people who lost their jobs or customers who had to put up with service disruptions. Both CSX and CP have excellent people at the top, and that bodes well for the future. Those people wouldn't be there if the goal was simply to loot the property. Personally I wouldn't hestitate to invest in either company. That an activist investor sells out after the job is done doesn't reflect badly on the company... its just what they do... they're not in it for the longhaul. In the same way you could ask a home builder.. if the houses you build are so good then why are you selling them? It's the business they're in.. they don't want to tie up their capital for the longterm when they could use that capital more profitably by building more houses. In the same way Mantle Ridge likely wants to place their large but limited available capital in some other high yielding turn around opportunity instead of leaving it passively at CSX for a much lower return.
UlrichInteresting but not all that surprising given that they're activist investors. Their startegy is to buy enough stock to gain control.. improve the business... and then sellout. It's much like someone who buys old houses, spruces them up and then sells them at a profit. I expect Mantle Ridge to sell off all their holdings in CSX shortly...just as Perishing Square sold their shares in CP when the "turn around"was done. They're not passive investors like most of us are who make our money on the long term appreciation of the value of the companies we invest in. BTW.. there are lots of other reasons to sell a stock that have nothing to do with how the business is doing.. and everyone has to sell eventually in order to realize profit..
Mantle Ridge's interest has not been in improving the business - it has been about hoovering all the available cash that could be pryed loose from the company and then cashing out - hedge funds don't care about the condition of the company they loot as long as they get their 'profits' out if the company.
Interesting but not all that surprising given that they're activist investors. Their startegy is to buy enough stock to gain control.. improve the business... and then sellout. It's much like someone who buys old houses, spruces them up and then sells them at a profit. I expect Mantle Ridge to sell off all their holdings in CSX shortly...just as Perishing Square sold their shares in CP when the "turn around"was done. They're not passive investors like most of us are who make our money on the long term appreciation of the value of the companies we invest in. BTW.. there are lots of other reasons to sell a stock that have nothing to do with how the business is doing.. and everyone has to sell eventually in order to realize profit..
Interesting.....
https://www.barrons.com/articles/csx-hedge-fund-mantle-ridge-sells-stock-51548435665?fbclid=IwAR3Kq2RO9M9JF7qJtdXtTeognidGEKtY6fIeiw3LRbXAxKv0_VkJ8XjcuTw
Ben Graham (who was one of Warren Buffett's mentors) famously stated that over the short term the stock market is a voting machine while over the long term its a weighing machine. What he meant is that over the long term the share prices reflect the true value of the company... on the other hand short term price fluctuations are often governed by emotion and fear. Best thing to do if you're nervous about the shares you own is to read up on the company.. If you feel it is doing ok then don't worry about it. If you feel the company is in trouble then by all means sell your shares... kinda how it should work.
CSSHEGEWISCH The rise in the share price doesn't do anything for the financial health of the firm in question. It just shows what speculators, day traders and other lowlifes are willing to pay for the shares.
The rise in the share price doesn't do anything for the financial health of the firm in question. It just shows what speculators, day traders and other lowlifes are willing to pay for the shares.
Day-to-day and intraday prices may be the work of arbitrageurs and daytraders. A one-year trend is a reflection of what long-term investors think about the health of a company.
1/23/18 $57.10. Today 1/23/19 $65.08. 13.98% growth is not spectacular, but hardly down the toilet.
n012944 BaltACD Wall Street didn't relish the news - CSX lost 29 cents a share today. Although on Friday it shot up $2.27, so Wall Street much not have been to upset. Odd that you did not report that after being so quick to point out the loss.....
BaltACD Wall Street didn't relish the news - CSX lost 29 cents a share today.
Wall Street didn't relish the news - CSX lost 29 cents a share today.
Although on Friday it shot up $2.27, so Wall Street much not have been to upset. Odd that you did not report that after being so quick to point out the loss.....
Been down the last two trading days since the upward blip.
An "expensive model collector"
One suggestion is to watch the amount of long term debt reported on the financial statements over time. If they are returning amounts more than their annual Net Income to shareholders - i.e. dividends and buybacks exceeding their Net Income each year, then odds are that they are borrowing long term debt to return cash to shareholders.
For example, the last three years UP has paid out more than 100% of their net income as a result of dividends and share buybacks. In order to do this while still maintaining their capital program they have had to increase their long term debt. See slides 26, 27 and 28:
https://www.up.com/cs/groups/public/@uprr/@investor/documents/investordocuments/4q17_er_slides.pdf
In order to sustain that over the long term they will have to grow revenues and cut expenses enough to free up sufficient cash to cover the additional interest expense on the long term debt, and hope that interest rates will stay low when it is time to refinance their debt. (Most corporations do not retire debt, but rather refinance and extend it instead.)
It will be interesting to see how long railroads will be able to return more than 100% of Net Income each year to shareholders.
tree68That can go both ways -
Not to mention that those having their hands closest to your pockets are likely to be among the first to call you paranoid.
zardozHard to believe that a corporation would use "Creative Accounting"; after all, isn't the business world known for its fair play and honesty?
+1
I think it's smartest to never under estimate anyone who might have motive.
Euclid“Guilt by association” could just be a matter of seeing what one wants to see, based on their beliefs and prejudices.
That can go both ways - those who believe everything is on the up and up, and those who believe there's skullduggery afoot.
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...
Euclid tree68 charlie hebdo These constant and thinly veiled accusations that CSX or any other railroads are "cooking the books" are pretty specious, since so far nobody has offered any demonstrable proof of that. And no one has offered any proof that they aren't. Call it guilt by association - vulture capitalists such as Mantle Ridge have a history of looting companies - why should anyone assume that isn't occurring with CSX? “Guilt by association” could just be a matter of seeing what one wants to see, based on their beliefs and prejudices. So why not be sure, and make the case by solid proof? If it is really happening, the proof ought to be obvious and easy.
tree68 charlie hebdo These constant and thinly veiled accusations that CSX or any other railroads are "cooking the books" are pretty specious, since so far nobody has offered any demonstrable proof of that. And no one has offered any proof that they aren't. Call it guilt by association - vulture capitalists such as Mantle Ridge have a history of looting companies - why should anyone assume that isn't occurring with CSX?
charlie hebdo These constant and thinly veiled accusations that CSX or any other railroads are "cooking the books" are pretty specious, since so far nobody has offered any demonstrable proof of that.
And no one has offered any proof that they aren't.
Call it guilt by association - vulture capitalists such as Mantle Ridge have a history of looting companies - why should anyone assume that isn't occurring with CSX?
“Guilt by association” could just be a matter of seeing what one wants to see, based on their beliefs and prejudices. So why not be sure, and make the case by solid proof? If it is really happening, the proof ought to be obvious and easy.
One word - ENRON
decievers never make it obvious and easy. Obfuscation is their stock in trade.
Apply your line of reasoning to other areas beyond accounting and CSX and you have an important precondition for becoming an authoritarian state. Ike said it well in a letter in 1959: "Dictatorial systems make one contribution to their people which leads them to tend to support such systems — freedom from the necessity of informing themselves and making up their own minds concerning these tremendous complex and difficult questions.”
Our community is FREE to join. To participate you must either login or register for an account.