Coal decline puts the brakes on BNSF profits in 2016

Berkshire Hathaway-owned BNSF Railway Co. reported a net income of $4.3 billion on $19.3 billion in revenues for the full year in 2016, decreases of 13.3 percent and 9.9 percent, respectively, from the previous year.    BNSF Railway Co. saw its full-year 2016 net income fall 13.3 percent to $4.3 billion compared with the previous year, 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 $19.3 billion for the year, down 9.9 percent from 2015.
   The railway attributed the lower earnings and revenues in 2016 primarily to a 5 percent year-over-year decline in total unit volumes and lower fuel surcharge revenues, which were driven primarily by lower fuel prices.
   Volumes of coal dropped 21.1 percent to 1.8 million carloads for the year, while shipments of industrial products fell 7.8 percent to 1.7 million carloads compared with 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. Volumes in the industrial products unit decreased primarily due to diminished demand for petroleum products caused by pipeline displacement of U.S. crude traffic, along with lower U.S. production.
   As a result of the volume declines, revenues from the railway’s coal unit plummeted 26.9 percent to $3.4 billion, while industrial product revenues fell 14.2 percent to $4.8 billion.
   Shipments of consumer and agricultural products, on the other hand, ticked up 1 percent and 6.3 percent, respectively, from the previous year thanks to higher domestic intermodal volumes, the addition of a new automotive customer, and higher corn, soybean, and wheat exports.
   Consumer revenues, however, still slipped 0.9 percent year-over-year to $6.53 billion, while agricultural revenues grew just 0.1 percent to $4.24 billion.
   The Class I railway also managed to cut operating expenses 7 percent to $12.6 billion during the year compared with 2015, thanks primarily to a reduction in headcount, productivity improvements, and lower fuel prices.
   BNSF in May eliminated 62 management jobs and restructured its operations organization from three regions to two, citing the precipitous decline in coal volumes as the impetus for the moves.
   Previously the railroad sector’s largest commodity by volume, coal shipments fell sharply across the entire industry in 2016 amid new Environmental Protection Agency regulations requiring power plants to burn it more cleanly and a drop in the price of natural gas.