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How Did Burlington Northern Santa Fe Perform in 2Q17?

PART:
1 2 3 4 5 6 7
Part 7
How Did Burlington Northern Santa Fe Perform in 2Q17? PART 7 OF 7

Burlington Northern Santa Fe’s Elevated Operating Margins in 2Q17

Operating margin

Previously, we looked at Burlington Northern Santa Fe’s (or BNSF) (BRK.B) coal revenues in 2Q17. In this final part of the series, we’ll take a close look at BNSF’s operating margins in 2Q17.

In 2Q17, BNSF’s revenues rose 14.5%, and its operating expenses rose 11.8%. Note that the pace of the rise in revenues was higher than its operating expenses. Its operating margin was 34.0%, a 1.6% rise from 32.4% in the corresponding quarter of 2016.

Burlington Northern Santa Fe’s Elevated Operating Margins in 2Q17

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BNSF’s operating margin in 2Q17

In 2Q17, BNSF’s compensation and benefits expense rose 9.5%, mainly due to labor inflation, increased health and welfare costs, and higher volumes. The purchased services expense rose 3.4% to $609.0 million in 2Q17 from $589.0 million in 2Q16. Its fuel expense rose 33.9% to $577.0 million from $431.0 million, driven by increased average fuel prices and higher volumes. Depreciation expense rose to $592.0 million in 2Q17 from $530.0 million in the same quarter last year.

Peer group’s operating margins

Much of the rise in Class I railroads’ operating margins was attributed to pricing gains. With a rise in energy-related commodities prices, railroads’ pricing power improved. Higher fuel costs also led to increased fuel surcharge revenues for these railroads. Almost all the Class I railroads reported better operating margins in 2Q17 compared to 2Q16. Let’s take a look.

  • Union Pacific (UNP): 38.2% compared to 36.5%
  • Kansas City Southern (KSU): 36.5% compared to 35.1%
  • Genesee & Wyoming (GWR): 18.8% compared to 17.4%
  • Canadian National Railway (CNI): 44.9% compared to 45.5%
  • Canadian Pacific Railway (CP): 41.9% compared to 41.0%
  • Norfolk Southern (NSC): 33.7% compared to 31.4%
  • CSX (CSX): 32.7% compared to 29.6%

Investors wanting exposure to the logistics sector can invest in the iShares Transportation Average (IYT). All major US-originated railroads make up 24.3% of IYT’s portfolio holdings.

To compare these results with BNSF’s Class I peers, be sure to visit Market Realist’s Railroads page.

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