Yahoo Finance Norfolk Southern Reported Improved Operating Margins in 1Q16
How Did Major US Railroads Perform in 1Q16?
Operating margins in 1Q16
Earlier in this series, we looked at the change in volumes of major US railroads in 1Q16. Now, we’ll go through the most crucial aspect of a railroad’s financials—operating margins. Norfolk Southern’s (NSC) operating margins in 1Q16 were 29.9%—up 630 basis points from 23.6% in the same quarter last year. Although the company’s revenues fell by 5.7% in 1Q16, the operating expenses fell by 13.5% during the same time. The major share was born by fuel expenses falling 43.6% and materials and other expenses falling 21.1%.
CSX’s (CSX) operating margins fell by roughly 1% on a YoY (year-over-year) basis. They settled at 26.9% in 1Q16. This was mainly due to CSX’s 13.5% decline in revenues. It was higher than the fall in operating expenses at 12.4% in the reported quarter—compared to 1Q15.
In the Western US, the dominant rail carrier was Union Pacific (UNP). Its 1Q16 operating margins fell by 30 basis points at 34.9%. The major reason behind Union Pacific’s decline in operating margins was an 8% decline in volumes that weren’t offset by pricing growth and productivity improvements. Also, the company’s revenues in 1Q16 fell by 14%. An equal fall in operating expenses failed to lift up the operating margins.
Union Pacific’s main competitor is Burlington Northern Santa Fe. Its operating margin was 31.6%—down 220 basis points in 1Q16. It’s important to note that the company’s revenues in the same quarter fell by ~15%. However, the operating expenses only fell by 12%. This shows that the fall in volumes outweighed the productivity improvement and pricing gains.
For Canada’s largest freight rail, Canadian National (CNI), its 1Q16 operating margin was 680 basis points higher at 41.1% on a year-over-year basis. A comparison between its revenues and operating expenses reveals that the revenues fell by 4.3%. The operating expenses tanked by 14.2% in the reported quarter of 2016.
CNI’s prime competitor is Canadian Pacific (CP). It also recorded a rise of 420 basis points YoY in operating margins at 41% in 1Q16. The company was able to reduce its operating expenses by nearly 11% against a revenue decline of 4.4% in the same quarter.
The WisdomTree Earnings 500 Fund (EPS) is a growth ETF. The prominent transportation and logistics companies included in this ETF are Union Pacific, United Parcel Service (UPS), and Delta Air Lines (DAL).
Railroads’ operating margins
All of the railroads shifted their focus from the top line to cost cutting amid weak industry sentiments. In such circumstances, operating margins gained footage. It brings out management’s ability to drive earnings in rough weather. In the next part of the series, we’ll focus on these railroads’ capital expenditure and percentage of revenues.
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