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How Did Burlington Northern Santa Fe Perform in 2Q17?

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

Higher Volumes and Burlington Northern Santa Fe’s Coal Revenues

BNSF’s coal revenues

Previously, we looked at Burlington Northern Santa Fe’s (or BNSF) (BRK.B) agricultural revenues. Now let’s look at the performance of BNSF’s Coal segment in 2Q17. BNSF’s coal revenues in 2Q17 were $912.0 million, a 39.2% rise from $655.0 million in the same quarter last year.

Higher Volumes and Burlington Northern Santa Fe&#8217;s Coal Revenues

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In the above graph, you can see that 2Q16 saw the lowest coal revenues for BNSF in the last 16 quarters. The situation has improved, but coal revenues remain well below the levels in 2014.

Volumes in 2Q17

In 2Q17, BNSF registered a double-digit (20.7%) rise in coal shipments. Shipments increased to 437,000 carloads against 362,000 railcars on a year-over-year basis. The average revenue per coal car rose 9.3% to $2,053 in the reported quarter from $1,879 in 2Q16. Coal volumes rose due to mild winter weather in 1Q16 and higher natural gas prices in the first half of 2017. The hike in natural gas prices resulted in higher utility coal usage. However, it was partially offset by the effects of unit retirements of coal power plants.

Outlook

According to the EIA (U.S. Energy Information Administration), “Coal exports for the first five months of 2017 were 37 million short tons (MMst), which was 60% higher than coal exports over the same period last year. EIA expects growth in coal exports to slow in the coming months, with exports for all of 2017 forecast at 70 MMst, 17% above the 2016 level. The increase in coal exports contributes to an expected 58 MMst (8%) increase in coal production in 2017. In 2018, coal production is forecast to increase by 10 MMst (1%).”

Peer group coal business

Coal remains the single largest commodity hauled by all the US Class I railroads. With coal (UNG) prices increasing, the 1Q17 results were promising. However, coal prices hold the key to the increase in coal production. Recently, seaborne coal prices were slashed more than $25.

Railroads such as Union Pacific (UNP), CSX (CSX), and Norfolk Southern (NSC) will be more affected by coal dynamics than their Canadian counterparts. Canadian railroads (CNI) have less exposure to coal in terms of volume and revenue than their US peers.

In the next and final part of this series on BNSF’s 2Q17 earnings, we’ll look at the company’s operating margins.

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