BNSF earnings continue to contract in 2016

Berkshire Hathaway-owned BNSF Railway Co. reported a net income of $772 million in the second quarter of 2016 and $1.56 billion in the first half of the year, decreases of 19.8 percent and 22.5 percent, respectively, from the previous year.    BNSF Railway Co. saw its second quarter 2016 net income fall 19.8 percent to $772 million compared with the second quarter of 2015, according to the company’s most recent financial statements.
   The Fort Worth, Texas-based Class I freight railroad, a wholly-owned merger subsidiary of billionaire investor Warren Buffett’s Berkshire Hathaway, reported total revenues of $4.59 billion for the quarter, down 14.6 percent from the previous year.
   For the first six months of the year, BNSF posted a net income of $1.56 billion on $9.35 billion in revenues, year-over-year declines of 22.5 percent and 14.8 percent, respectively, from first half 2015.
   The railway attributed the lower earnings for the second quarter and first half of 2016 primarily to a continued decline in demand for coal, energy-related commodities and certain other industrial products categories, as well as lower volumes of consumer products.
   Total unit volumes slipped 9 percent for the quarter and 7 percent for the first six months of 2016 compared with the prior year.
   Coal volumes plummeted 34 percent in the second quarter, while shipments of industrial and consumer products fell 5 percent and 3 percent, respectively, from the second quarter of 2015.
   BNSF said declining coal demand was driven by reduced energy consumption and low natural gas prices; lower volumes of petroleum products and commodities that support drilling resulted from pipeline displacement of U.S. crude traffic along with lower production; and falling intermodal cargo levels, which were partially offset by increased automotive volumes, could be attributed to soft economic activity and inflated retail inventories.
   Second quarter revenues from the railway’s coal unit dropped 41.6 percent to $655 million, while industrial product revenues fell 14.3 percent to $1.19 billion and consumer product revenues were down 5.3 percent to $1.61 billion.
   Agricultural product revenues slipped 1.7 percent to $910 million despite volumes jumping 6 percent year-over-year for the quarter thanks to higher grain exports.
   The railway also managed to cut operating expenses 13.9 percent to $3.1 billion in second quarter and 13 percent to $6.36 billion for the first half compared with the same 2015 period.
   BNSF forecasts capital expenditures of $4.15 billion for the full year in 2016, down 28.4 percent from $5.8 billion the previous year.
   Of the projected $4.15 billion in 2016 capex, the company expects to invest $2.8 billion for maintenance of existing network assets and infrastructure including upgrading rail, ties and ballast. In addition, BNSF will spend $300 million for continued implementation of positive train control, $600 million on acquiring new locomotives, freight cars and other equipment, and $500 million on capacity expansion projects, most of which began in 2015.