BNSF’s Industrial Products segment in 3Q17

In the previous part of this series, we analyzed the revenue changes for Burlington Northern Santa Fe’s (or BNSF) (BRK.B) Consumer Products segment. Now let’s look at its Industrial Products segment. In 3Q17, the segment’s revenues rose 4% to ~$1.3 billion compared to $1.2 billion in 3Q16. The segment’s contribution to BNSF’s total revenues expanded marginally to 23.9% in the quarter from 23.6% on a year-over-year basis.

Why Burlington Northern’s Industrial Products’ 3Q17 Revenues Rose

Volumes in 3Q17

BNSF’s Industrial Products’ shipments expanded 2% in 3Q17. From 450,000 railcars in 3Q16, shipments increased to 459,000 units in 3Q17. The segment’s average revenue rose 2.8% to $2,817 per railcar in the first nine months of 2017 compared to $2,739 per unit in 3Q16.

The segment’s shipments rose mainly due to increased sand and other commodities that support drilling. In addition, expansion in the industrial sector fueled demand for taconite and steel. However, higher volumes were unfavorably impacted by reduced shipments of petroleum products. Pipeline displacement of crude rail traffic in the United States and lower volumes of plastics and aggregates lowered the segment’s shipments in 3Q17.

US industrial production

Industrial production in the United States has been on the rise in recent months. That was also corroborated by the September 2017 US jobs data. Although US industrial production rose, the rate of growth was slower in the past few months. The Purchasing Managers’ Index released by the Institute for Supply Management fell 2.1% sequentially to 58.7 in October 2017. Even the new orders index fell 1.2% to 63.4 that month compared to September 2017.

If you want to invest indirectly in transport stocks, you can opt for the iShares Transportation Average (IYT). All the key US-originated railroads (UNP) (CSX) make up 24.4% of the portfolio holdings of IYT.

In the next section, let’s look at BNSF’s Agricultural Products segment’s 3Q17 revenues.

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