How Did Burlington Northern Santa Fe Perform in 1Q16?

(Continued from Prior Part)

BNSF’s industrial products freight revenues

Previously, we discussed the rise in Burlington Northern Santa Fe’s (BRK-B) consumer products freight revenues in 1Q16. Now, let’s dig into BNSF’s industrial products freight revenues in the same quarter. The company’s industrial products freight revenues went down to $1.2 billion in 1Q16 from $1.4 billion in the corresponding quarter of last year. This translates into a fall of 17.9% on a year-over-year basis.

Volumes in 1Q16

In 1Q16, BNSF’s industrial product freight volumes declined by 9.2%. From 0.46 million carloads in 1Q15, the volumes went down to 0.42 million carloads in the first quarter of 2016. Lower volumes of petroleum products and the reduced hauling of fractionating sand due to weakness in the oil and gas industry impacted the overall industrial products’ volumes in 1Q16. Reduced shipments of taconite and steel products contributed to the fall in volumes in the same quarter.

The average revenue per car in the industrial products segment was $2,778 versus $3,073 in the corresponding quarter last year. This represents a decline of 9.6% on a year-over-year basis.

Management outlook for 2016

With oil at current low prices, BNSF anticipates lower volumes in these commodity groups for the remainder of 2016. The industrial products freight segment accounted for approximately 27% of freight revenues in fiscal 2015. This segment consists of five business areas: construction products, petroleum products, building products, chemicals and plastics products, and food and beverages.

Peer group segmentation

The industrial products components differ from one railroad to another. Thus, this segment for BNSF’s peer group is not directly comparable. BNSF reports freight revenues in four segments. On the other hand, its prime competitor, Union Pacific (UNP), reports freight revenues in six commodity groups. The smallest US class I railroad, Kansas City Southern (KSU), also discloses freight revenues in six verticals.

Major Eastern US rail carrier Norfolk Southern (NSC) reports freight revenues in three segments as does its rival CSX (CSX). The US’s largest short-line operator Genesee and Wyoming (GWR) also operates in Europe and Australia. Thus, the company reports geography-wise revenues.

Investors opting for exposure in the transportation and logistics sector can invest in the iShares Transportation Average ETF (IYT). Major US originated railroads make up 23.5% of IYT.

In the subsequent article, we’ll discuss BNSF’s coal revenues in 1Q16. This freight commodity group has turned into a weak spot for almost all US Class I railroads in recent quarters.