• ITVI.USA
    12,371.230
    1,536.990
    14.2%
  • OTRI.USA
    15.950
    0.050
    0.3%
  • OTVI.USA
    12,358.510
    1,529.980
    14.1%
  • TLT.USA
    2.650
    -0.050
    -1.9%
  • TSTOPVRPM.ATLPHL
    2.630
    0.110
    4.4%
  • TSTOPVRPM.CHIATL
    1.910
    0.050
    2.7%
  • TSTOPVRPM.DALLAX
    1.250
    -0.060
    -4.6%
  • TSTOPVRPM.LAXDAL
    2.390
    0.130
    5.8%
  • TSTOPVRPM.PHLCHI
    1.330
    0.070
    5.6%
  • TSTOPVRPM.LAXSEA
    2.750
    0.020
    0.7%
  • WAIT.USA
    103.000
    -17.000
    -14.2%
  • ITVI.USA
    12,371.230
    1,536.990
    14.2%
  • OTRI.USA
    15.950
    0.050
    0.3%
  • OTVI.USA
    12,358.510
    1,529.980
    14.1%
  • TLT.USA
    2.650
    -0.050
    -1.9%
  • TSTOPVRPM.ATLPHL
    2.630
    0.110
    4.4%
  • TSTOPVRPM.CHIATL
    1.910
    0.050
    2.7%
  • TSTOPVRPM.DALLAX
    1.250
    -0.060
    -4.6%
  • TSTOPVRPM.LAXDAL
    2.390
    0.130
    5.8%
  • TSTOPVRPM.PHLCHI
    1.330
    0.070
    5.6%
  • TSTOPVRPM.LAXSEA
    2.750
    0.020
    0.7%
  • WAIT.USA
    103.000
    -17.000
    -14.2%
NewsRail

Rail analysts expect a tough six months

The second and third quarters could see “substantial” declines in revenue for the Class I railroads as North America rides out the coronavirus pandemic, according to Wall Street analysts’ perspectives, provided ahead of the first-quarter earnings season.

Kansas City Southern (NYSE: KSU) will announce its first-quarter earnings on April 17, followed by CSX (NASDAQ: CSX) and Union Pacific (NYSE: UNP) the following week.

“We believe the COVID fallout to the North American industrial and consumer economies will drive deeply sub-seasonal railroad volumes as customers retrench during 2Q and into 3Q,” which could lead to substantial year-over-year declines in revenue and profits for most rails, said Susquehanna Financial Partners transportation analyst Bascome Majors in a note Wednesday. 

Majors also said full-year volumes could be down 10%-20% for most of the railroads, with a sharp but not full recovery occurring in 2021. The firm looked to the recession in 2008 and 2009 to guide its view for this year.

Morgan Stanley analyst Ravi Shanker said investors will be watching how the freight transportation industry performs in the third quarter after an anticipated historic trough in the second. Truckload (TL) companies could fare better in this environment than the railroads and brokers, according to Shanker.

“We believe there will be significant focus on management tone vs. content. Given the unprecedented lack of visibility in the near-term, management teams are (understandably) unlikely to volunteer a path for the future. As such, we expect virtually every company that has issued FY guidance for the year to withdraw it,” Shanker said.

The railroads might have a harder time rebounding because they have limited tools to address costs, and there is pricing and mix pressure compared with other modes, according to Shanker. 

Even rail shippers expect a recession in the coming months as a result of COVID-19, according to a Cowen survey.

About 78% of survey respondents anticipate a recession in the next six months amid expectations that their own businesses may expand just barely, according to a Wednesday note from Cowen Transportation Director Jason Seidl. Eighty-five percent of respondents also said COVID-19 has affected their business. Meanwhile, 42% don’t expect a “return to normal” until August or later.

Rail shippers also expect rail prices to increase by 1.9% over the next six to 12 months, in contrast to an estimated 3% in the fourth quarter, with shippers speculating that the pandemic would be a factor in the slower rate of increase.

“Should pricing now be in question too, we believe that the rails implementing PSR [precision scheduled railroading] are best positioned, as PSR can help soften the double blow of lighter volumes and declining pricing power,” Seidl said.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.
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