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Berkshire’s BNSF Riding on Rebound in Manufacturing and Coal

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BNSF performance

Berkshire Hathaway’s (BRK.B) BNSF Railway, a railroad giant, has seen strong performance over the past three quarters due to agriculture, rising manufacturing, and higher coal shipments. In 1Q17, BNSF’s revenues rose to $5.2 billion compared to $4.8 billion in the same quarter last year, mainly due to consumer, industrial, agricultural products, and coal shipments. However, sequentially, revenues fell marginally on lower industrial revenues. The division reported $1.35 billion in net income, which was higher than $1.26 billion in 1Q16.

BNSF

BNSF saw a 23.2% rise in coal freight revenues to $960.0 million in 1Q17, helped by higher natural gas prices. BNSF operates in 28 US states and three Canadian provinces. Berkshire purchased the railroad giant’s remaining stake of 77.4% for $26.0 billion in 2009. It competes primarily with Union Pacific (UNP) in the Western United States. UNP has a market share of ~49.0%.

BNSF also competes with most other major railroad players. Its competitors reported the following revenue rises:

  • Kansas City Southern (KSU): 9.0%
  • Union Pacific: 9.0%
  • Canadian National Railway (CNI): 15.0%

Together, these companies make up 7.4% of the Industrial Select Sector SPDR ETF (XLI).

Manufacturing, consumer

The boost in domestic manufacturing due to the Trump administration’s reforms could help raise BNSF’s shipments over time. In 1Q17, BNSF’s freight revenues from consumer and industrial products rose 8.8% and 3.3%, respectively, on a year-over-year basis. The trend is expected to improve or remain the same in the remaining quarters of 2017. The freight for agricultural products rose 5.7% to $1.1 billion mainly due to a higher average revenue per card and a volume increase of 1.8%.

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