Why Berkshire Hathaway Saw a Subdued 2Q17

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Part 2
Why Berkshire Hathaway Saw a Subdued 2Q17 PART 2 OF 9

Berkshire’s BNSF Grows on Coal, Agriculture, Consumer Shipments

BNSF rise in shipments

Berkshire Hathaway’s (BRK.B) BNSF Railway, a railroad giant, posted 14.5% growth in revenues to $5.3 billion in 2Q17 compared to $4.6 billion in the prior year. In 1H17, the company saw a 4.1% rise in average revenue per car unit and a 7.6% rise in volumes. The management expects volume growth to be moderate in the second half of 2017. BNSF managed a 24% rise in earnings before taxes to $1.54 billion in 2Q17, compared to $1.24 billion in 2Q16. The rise in earnings was mainly due to fuel surcharges, higher volumes, and lower spending. The division also saw a rise in revenues as well as earnings before taxes sequentially, reflecting higher volumes.

Berkshire&#8217;s BNSF Grows on Coal, Agriculture, Consumer Shipments

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BNSF is benefitting from the Trump administration’s favorable policies for domestic manufacturing, which could result in higher shipments across various sectors. Buffett has been investing heavily over the past few quarters to improve the efficiency of BNSF’s operations and compete with major players like Union Pacific (UNP).

BNSF’s peers have reported the following revenue growth:

  • Canadian National Railway (CNI): 15%
  • Kansas City Southern (KSU): 9%
  • Union Pacific: 9%

Together, these companies make up 6.9% of the Industrial Select Sector SPDR ETF (XLI).

Coal shipments rise

The coal shipments across the US and in Europe have risen in the recent months on a hike in natural gas prices. In 2Q17, BNSF managed a 39.2% rise in coal freight revenues to $912 million and a 30.5% rise in 1H17 to $1.9 billion. The rise in revenues was helped by a 20.7% increase in volumes as well as higher average revenue per car/unit.

BNSF operates in 28 US states and three Canadian provinces. In 2Q17, BNSF’s freight revenues from consumer and industrial products rose 8.4% and 7.4%, respectively. The trend is expected to improve in the remaining quarters of 2017. The freight for agricultural products rose 18% to $1.1 billion helped by higher average revenue per car and a volume increase of 14.5%.


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