Berkshire Hathaway or the S&P 500 over the Next Decade?

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Part 3
Berkshire Hathaway or the S&P 500 over the Next Decade? PART 3 OF 11

How Berkshire’s BNSF Could Benefit from Trump’s Manufacturing Push

Manufacturing key for next growth leg

Berkshire Hathaway’s (BRK.B) BNSF Railway has seen stable growth over the past few quarters after continued investments in the company. The investments have led to improved infrastructure and efficiency in operations. A lot will depend upon how much manufacturing finds a boost, however, once we start to see how the US growth story turns out under the new administration.

How Berkshire&#8217;s BNSF Could Benefit from Trump&#8217;s Manufacturing Push

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BNSF’s performance is driven by coal shipments rather than by the consumption of natural gas for power stations. Initiatives such as road-to-rail could also help the industry (XLI) see a revival in the upcoming years.

In 2Q17, BNSF posted growth of 14.5% in revenues to $5.3 billion, compared with $4.6 billion in 2Q16. In the first half of 2017, the company saw a 4.1% rise in average revenue per car unit and a 7.6% rise in volumes. It also saw a 24% rise in EBT (earnings before taxes) to $1.54 billion, compared with $1.24 billion previously. The rise was mainly due to fuel higher volumes, surcharges, and lower spending. BNSF is currently operating in 28 US states and three Canadian provinces.

BNSF’s peers have reported the following revenue growth:

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

Coal shipments key

Meanwhile, coal shipments across the US and Europe for BNSF have risen in recent months, mainly due to the hike in natural gas prices. In 2Q17, BNSF managed a 39.2% rise in coal freight revenues and a 30.5% rise in 1H17. The rise in revenues was helped by a 20.7% increase in volumes and higher average revenue per unit.

In 2Q17, BNSF’s freight revenues grew by 8.4% and 7.4% for its consumer and industrial products, respectively. The trend is expected to improve in coming years. The freight for agricultural products also grew 18% to $1.1 billion, mainly due to a volume increase of 14.5%.


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