Cowen and Company’s 8th Annual Global Transportation Conference featured presentations by publicly traded U.S. railroads as well as a panel discussion on the railcar industry. In general, traffic levels appear to be recovering in several sectors, with modest growth expected in 2015’s second half and into 2016.
“CSX expressed some caution about its ability to achieve third-quarter 2015 earnings per share in line with last year, while Norfolk Southern and Kansas City Southern appeared confident they can grow volumes in 2016,” said Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “While CSX did not officially lower its outlook in line with last year, it indicated that achieving such a target will be challenging given weaker than expected volumes, which are down 2% in the quarter so far, with the merchandise and domestic coal markets tracking slightly below the company’s original expectations. Due to third-quarter traffic weakness and continuing coal challenges, the company now expects full-year EPS growth in the mid-single digits, from mid-to-high single digits previously. The consensus estimate at the time of CSX’s presentation reflected roughly 5% growth. Despite coal challenges, CSX still expects to achieve full-year margin expansion via network rightsizing and solid pricing, which is partly driven by improving service.”
NS “perhaps had the most positive tone among the railroads, indicating, in response to a question we posed to it and the remaining presenting railroads, that it would be surprised if didn’t achieve traffic growth in 2016,” said Seidl. “NS’s answer appeared to be the most direct among the carriers. KCS expressed some optimism about the second half of 2015 relative to the first half. The company is beginning to see some service improvement in Mexico and noted that service should be near normal levels late in fourth-quarter 2015 or early next year. Genesee & Wyoming’s quarter-to-date traffic levels appear to be largely consistent with guidance as both North American and Australian traffic have been slightly better than expectations, while Europe is slightly below expectations. Although year-over-year traffic declines are on track to continue in this year’s second half, Genesee & Wyoming appeared confident that the second half will represent a sequential improvement from the first half. North American traffic should be aided by construction and agricultural products, while peak season should aid intermodal growth in Australia and Europe.”
The railcar panel “focused largely on the softening demand for railcars in the oil industry, and the implementation of new technology moving forward,” noted Seidl. “Spot leasing rates have declined approximately 33% from this time a year ago, with lead times for additional capacity essentially erased.”