BNSF Q3 profits slip again amid coal, energy decline

Berkshire Hathaway-owned BNSF Railway Co. reported a net income of $1.02 billion in the third quarter of 2016 and $2.58 billion in the first nine months of the year, decreases of 11.8 percent and 18.6 percent, respectively, from the previous year.    BNSF Railway Co. saw its third quarter 2016 net income fall 11.8 percent to $1.02 billion compared with the third 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 $5.17 billion for the quarter, down 7.7 percent from the previous year.
   For the first nine months of the year, BNSF posted a net income of $2.58 billion on $16.57 billion in revenues, year-over-year declines of 18.6 percent and 12.4 percent, respectively, from the same 2015 period.
   The railway attributed the lower earnings and revenues in 2016 primarily to a continued decline in demand for coal, energy-related commodities and certain other industrial product categories, as well as lower volumes of consumer products.
   Total unit volumes slipped 5 percent for the quarter and 7 percent for the first nine months compared with the same periods a year prior.
   Coal volumes dropped another 13 percent in the third quarter, while shipments of industrial and consumer products fell 8 percent and 4 percent, respectively, from the second quarter of 2015. BNSF said declining coal demand was driven by reduced energy consumption and low natural gas prices, as well as coal unit retirements and elevated inventories.
   As a result of the volume declines, third quarter revenues from the railway’s coal unit dropped 19 percent to $953 million, while industrial product revenues fell 15 percent to $1.22 billion and consumer product revenues were down 3 percent to $1.67 billion compared with third quarter 2015.
   Shipments of agricultural products, on the other hand, jumped 13 percent year-over-year in the third quarter thanks to increased corn, soybean, and wheat exports, helping agricultural product revenues grow 8 percent to $1.1 billion.
   The railway also managed to cut operating expenses 6 percent to $3.29 billion during the quarter and 11 percent to $9.65 billion for the first nine months compared with the same 2015 periods.
   BNSF reduced its capital expenditures forecast by $100 million to $4.05 billion for the full year 2016 thanks to the completion of certain projects at a lower than expected cost. If the company’s updated projection holds true, capex would be down 30.2 percent from $5.8 billion the previous year.
   Of the projected $4.05 billion in 2016 capex, the company expects to invest $2.7 billion for maintenance of existing network assets and infrastructure including upgrading rail, ties and ballast. In addition, BNSF will spend $200 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.