sumisu
15 years ago
Warren Buffett: outfoxing the wise men of Wall Street? Or preparing for the Obama economy?
Railroads (freight and passenger) as part of America's infrastructure
February 8, 2010
By Wes Vernon
http://www.renewamerica.com/columns/vernon/100208
"Watch what we do, not what we say."
That helpful hint — once let slip years ago by a high government official — was meant to convey the message that we do smart things but that doesn't mean it's always smart for us to brag about them. The always cynical media interpreted it to mean that we're actually ashamed of things we do, and it's not smart for us to advertise them.
The message in quotes was uttered early-on by President Nixon's attorney general, John Mitchell. (When Watergate became a scandal a couple of years later, it appeared the media had — perhaps inadvertently — stumbled into the truth, but that's another story.)
Back to the first explanation
When Warren Buffett — America's most famous investor — bought up all the stock in Burlington Northern Santa Fe railroad (BNSF), the "wise men [and women]" of Wall Street began a figurative head-scratching exercise that continues to this day.
The latest manifestation of that puzzlement came this past week when Standard and Poor's cut its credit rating of Buffett's parent firm Berkshire-Hathaway from the honored and coveted AAA to the next wrung down the financial ratings ladder to AA+.
That may or may not be a big deal for Berkshire — at least in the short run — but it is Wall Street's way of saying the Oracle of Omaha perhaps is losing his Midas Touch.
If that does in fact reflect Wall Street's conventional wisdom, it may be ill-placed (not that this would be the first time the keepers of the "Big Board" were caught napping).
Blame BNSF?
If Wall Street is merely saying Berkshire is not perfect anymore, that's a "so what?" What entity is? Many of us earthlings thought Buffett was misguided when he backed Barack Obama for President. But, hey, it's a free country. (S&P is only the latest of the credit agencies to downgrade Berkshire. Moody's and Fitch did so early last year — months before anyone knew of Buffett's "all in" headlong dive into the railroad business).
But S&P's rating reduction reportedly is in fact a reaction to Buffett's purchase of BNSF. If that's the case, the decision-makers at S&P may be exhibiting their own imperfections.
The deal
The "street" was dumfounded at the news last November that Buffett — in his "biggest deal ever" — purchased the remaining 77.4 percent of the BNSF that he did not already own. At the time, he was quoted as saying, "It's a bet on the country, basically" and as soon as the U.S. is out the recession there will be a higher demand to move goods — which is what the freight-hauling BNSF is in business to provide.
Of course, any high-profile investor would be cutting his own throat if he were to say he made an investment because he had some deep concerns about the future. No matter how you couch those reservations in diplomatic language — if Warren Buffet actually were to utter them, many other investors would "head for the hills," and the market would likely tumble, if not crash. And since the market had not been on anything resembling a "roll" since September 2008, it is understandable that the wisest course of action is seen as putting a positive spin on the move.
Not that there are no positive reasons
The hope that the freight business will ultimately pick up big-time is not totally wishful thinking. But if that were the main or only reason for Berkshire-Hathaway's move on BNSF, Buffett could well have held onto his large minority holdings in that railroad, plus the stock he also owned — and has now sold — in Norfolk-Southern (NS) and Union Pacific (UP) — both of which are also solid, healthy railroads.
So what was he thinking?
We make no claims to special insight as to the Omaha Oracle's thought processes. If it were that easy, we could all be billionaires (in which case, the very commonality of the experience would devalue it).
So why BNSF? Well, one could cite the railroad's expenditure in double-tracking its Chicago-Southern California mainline. Wall Street — ever focused on the needs of the next quarter's earnings — didn't like that expenditure at all. But it is proving every day to have been a wise move in delivering BNSF shipments to customers in a more timely manner, thus attracting more business.
That may be one reason for Buffet's bullishness on BNSF. But the only reason? No, there has to be something else. Somehow, there's this gut feeling that a piece of the puzzle is missing. Why would a long-term investor sink all those dollars into one of America's very oldest industries?
Is this the story?
A rail-savvy friend of this column has an interesting take on that — a perspective which we found is shared by others. This school of thought says that Mr. Buffett traded tens of billions of depreciating dollars for a "hard asset" that will be worth something as dollars continue to lose value. When one owns tens of billions of them, depreciating dollars represent massive losses, and trading them now for a railroad is a wise move. Whether or not he could trade that cash for an equivalent supply of gold is doubtful. Where could one find that much gold for sale?
But then —
If Buffett is not thinking along these lines, then perhaps (1) He thinks the Obama economy will in fact turn around (as of this writing, he has not withdrawn support for the president); (2) He thinks that — as has happened in so many past crises — Washington will appoint another commission and attempt to solve the politics of the problem without actually solving the problem itself (however, the country senses that this time "Washington" has run out of wiggle room); or (3) A declining economy can take railroads with it. Then again, perhaps Berkshire-Hathaway reasons that even in the worst of times, a railroad — as "hard asset" — is still the safest bet.
On the rail's passenger side...
That enables us to segue into a discussion of the other half of railroading — passenger trains. One "green" blogger expressed the hope that Warren Buffet's interest in freight railroads would lead him into the rail passenger business, as well. Not likely. Buffet is a railfan (he reportedly has an extensive toy railroad collection in his home), but that is separate and apart from his business life. Private investment in freight rail is a good buy these days. But the passenger rail business? That is another story, and has been for years.
A conservative case can be made for support of passenger trains:
Citing such free marketers as Adam Smith and Alexander Hamilton, the late Paul M. Weyrich collaborated with his longtime associate, William S. Lind, at Free Congress Foundation (which Weyrich founded) to author the book Moving Minds. Their case is that infrastructure and defense of the nation are two legitimate functions of the central government.
The authors believe that a critical part of the nation's infrastructure — its railroads — was neglected in the Post World War II era. That is when the Interstate Highway, they contend, exacerbated a situation whereby unsubsidized railroads had to compete with subsidized highways.
By 1980, the nation's railroads — unsurprisingly — were flat on their backs. That was remedied with passage of the Staggers Act, which deregulated the railroads. That revived freight railroading, and today those Class 1 carriers make up the only mainline transportation system in the world that pays for both its operations (in this case, above the rail — the trains and their crews) and its infrastructure (in this case the "hard asset" rail tracks themselves, plus signaling and other support mechanisms that enable the trains to operate.)
The conservative case for passenger rail
That works well for freight. Rail passenger traffic is another issue. No mainline passenger train operation anywhere in the world makes a profit. The Weyrich/Lind book makes the argument that public backing for passenger trains can be justified on several fronts: (1) Infrastructure as a factor in the nation's commerce; (2) National security (reducing our oil dependence on foreign nations that hate us); and (3) Economic development: A rail passenger operation — through its tracks and stations — usually will spur commercial development that is not as easily attained by a highway or a bus line that can more easily be yanked at will. The infrastructure of tracks and stations represents a long-term commitment.
Moreover, Weyrich and Lind say the suburban sprawl that gave birth to our present-day automobile-centric culture was actually of left-wing origins, as government mandates on local building codes separated where we live from where we work and shop.
Moving Minds offers a remedy: A National Defense Public Transportation Act, which would use a system of nationally-coordinated trains and connecting buses. The aim would be to enable anyone to travel from anywhere to anywhere else in the continental United States without having to drive or fly.
As per the conservative preference for local control, the authors write that under their plan, every county in the nation could decide whether or not to participate in the program. They are that confident that it would work simply through its popularity at the ballot box or local government backing.
Bumps in the (rail)road ahead?
Infrastructure will be a big issue ahead, as it merges with the issue of joblessness in the current economy. It is not just the railroads that have infrastructure problems. Our highways are beginning to show their age, as well.
So what to do?
In mid-January, three members of President Obama's Economic Recovery Advisory Board wrote in the Wall Street Journal that our aging infrastructure (including all forms of surface transportation) would ultimately constrain our economic development. And they added, "It's time that we accept that government alone can no longer finance all the nation's infrastructure requirements."
All the more reason for this administration to admit (to itself, if not to the public) that Americans are soured on its scheme to put government between you and your doctor, as well as its cap and tax "climate change" program.
For starters, Washington instead would do well to focus on tax cuts for all job creators — not just some of them. Tax credits for the freight railroads would help them beef up their infrastructure. The Weyrich/Lind plan for better mobility through availability of passenger rail would enable construction firms to put lots of jobless people to work — lots of them.
And if the economy benefits thereby, Warren Buffett's investment in BNSF will have been justified — not just as a hedge against bad times, but for the best of times, as well.
© Wes Vernon
sumisu
15 years ago
Berkshire to Buy Burlington Northern (BNI) for $100/Share in Cash, Stock
November 3, 2009 7:51 AM EST
http://www.streetinsider.com/Mergers+and+Acquisitions/Berkshire+to+Buy+Burlington+Northern+(BNI)+for+$100Share+in+Cash,+Stock/5067520.html
[MY NOTE: Detail are bolded below.]
The boards of directors of Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) and Burlington Northern Santa Fe Corporation (NYSE: BNI) today announced a definitive agreement for Berkshire Hathaway to acquire for $100 per share in cash and stock the remaining 77.4% of outstanding BNI shares not currently owned to increase its holdings to 100%. Based on the number of outstanding BNI shares (including shares currently owned by Berkshire) on Nov. 2, 2009, the transaction is valued at approximately $44 billion, including $10 billion of outstanding BNSF debt, making it the largest acquisition in Berkshire Hathaway history.
"Our country's future prosperity depends on its having an efficient and well-maintained rail system," said Warren E. Buffett, Berkshire Hathaway chairman and chief executive officer. "Conversely, America must grow and prosper for railroads to do well. Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry.
"Most important of all, however, it's an all-in wager on the economic future of the United States," said Mr. Buffett. "I love these bets."
"We are thrilled to have the opportunity to become a part of the Berkshire Hathaway family," said Matthew K. Rose, Burlington Northern Santa Fe chairman, president and chief executive officer. "We admire Warren's leadership philosophy supporting long-term investment that will allow BNSF to focus on future needs of our railroad, our customers and the U.S. transportation infrastructure. This transaction offers compelling value to our shareholders and is in the best interests of all of our constituents including our customers and employees."
Terms of the Transaction
The definitive agreement provides that each share of BNI common stock will at the election of the shareholder be converted into the right to receive either (i) a cash payment of $100.00 or (ii) a variable number of shares of Berkshire Hathaway Class A or Class B common stock, subject to proration if the elections do not equal approximately 60 percent in cash and 40 percent in stock. The stock component of the consideration is subject to a "collar" whereby the value of each Berkshire Hathaway share received is fixed at $100.00 if the price of Berkshire Hathaway Class A stock at closing is between approximately $80,000.00 and approximately $125,000.00 per share. If the value of Berkshire Hathaway Class A stock is outside of this collar range at closing, then the number of shares received of Berkshire Hathaway Class A stock will be fixed at either 0.001253489 per BNI share for values below the collar range, or 0.000802233 per BNI share for values above the collar range. The shareholder may receive Class A or, in lieu of fractional Class A shares, equivalent economic value of Class B Berkshire Hathaway shares, subject to certain limitations as described in the definitive agreement.
[The transaction requires approval by holders of two-thirds of BNI's outstanding shares (other than shares held by Berkshire Hathaway), and customary closing conditions, including Department of Justice review. Closing is expected to occur during the first quarter of 2010.
sumisu
15 years ago
Buffet's big bet: $34B on 2nd-largest railroad
By SAMANTHA BOMKAMP, AP Transportation Writer Samantha
Bomkamp, Ap Transportation Writer – 1 hr 17 mins ago
http://news.yahoo.com/s/ap/20091103/ap_on_bi_ge/us_berkshire_burlington_northern_24
AP – FILE - In this May 2, 2009 file photo, Warren Buffett, CEO of Berkshire Hathaway, right, waves to shareholders … By SAMANTHA BOMKAMP, AP Transportation Writer Samantha Bomkamp, Ap Transportation Writer – 1 hr 17 mins ago
NEW YORK – The biggest name in investing is making what he calls an "all-in wager" on the U.S. economy — $34 billion to own a railroad that hauls everything from corn to cars across the country.
The acquisition of Burlington Northern Santa Fe, the nation's second-largest railroad, would be the biggest ever for Warren Buffett's Berkshire Hathaway investment company.
It's a natural fit for the Oracle of Omaha, a city with a special place in railroad history. It was the starting point for the westward push of the transcontinental railroad. Today, Omaha is the headquarters of Union Pacific, and BNSF trains rumble through every day.
In a statement, Buffett, whose investing decisions are carefully scrutinized by the world of finance, voiced confidence in the railroad industry.
"Most important of all, however, it's an all-in wager on the economic future of the United States. I love these bets," he said Tuesday.
Berkshire Hathaway Inc. already owns a 22 percent stake in Burlington Northern and would buy up the rest under the deal, for a total value of $34 billion. It still needs approval from Burlington shareholders and antitrust regulators, both expected early next year.
Burlington Northern is the biggest hauler of corn and coal for electricity, making it an indicator of the country's economic health. It also carries everyday items such as refrigerators, clothing and TVs from Western ports like Los Angeles and Seattle.
Berkshire will pay $100 a share in cash and stock for the rest of the company, more than a 30 percent premium on the Monday closing price of Burlington Northern shares. Shareholders will have the option of a $100 cash payment per share or common stock in Berkshire.
Burlington Northern Santa Fe Corp. stock shot up $20.93, or 27 percent, to $97 on Tuesday. Stock in other rail companies rose as well. Berkshire owns a 2 percent stake in Union Pacific's stock and a less-than-1 percent stake in Norfolk Southern.
Buffett has said he realized a few years late that railroads were an appealing investment. As diesel prices rise, shipping by rail instead of truck becomes more attractive, and it would be extremely difficult for a competitor to build a new railroad.
"They do it in a cost-effective way and extraordinarily environmentally friendly way," Buffett told CNBC on Tuesday. "I basically believe this country will prosper and you'll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit. It's a bet on the country, basically."
Burlington Northern made about 31 percent of its money last quarter from shipments of consumer products from the West to major hubs like St. Louis, Kansas City and Chicago.
Its next most important segment was coal, followed by industrial products like farm equipment, lumber and chemicals. It also hauls corn, wheat and soybeans, much of it exported to China. Burlington Northern serves more of the nation's major grain-producing regions than any other railroad.
Burlington Northern also hauls trains full of retail merchandise imported from Asia and imported cars from manufacturers like Toyota and Honda.
Burlington itself, however, is among the least optimistic of the major railroads about the pace of economic recovery. Last week it said third-quarter profit dropped 30 percent from a year earlier; people resisted buying retail goods and industrial production struggled.
Coal shipments to power plants have fallen off sharply because of lower electricity demand. Burlington Northern hauls enough coal to power one out of every 10 homes in the U.S.
Still, the coal hauled by Burlington Northern is mined from places like the Powder River Basin in Wyoming and Montana and is lower in sulfur than the coal in the eastern U.S., making it cleaner and in higher demand these days.
An average Burlington Northern train hauls as much freight as 280 trucks. Rails are also favored by some shippers because they can carry things that can't travel on highways, like hazardous chemicals. Buffett's Berkshire already owns major utilities that rely on coal through its MidAmerican Energy Holdings Co. Analysts say he is looking for an investment that will reap rewards many years into the future, and isn't so concerned about immediate gains.
The billionaire is "buying at the trough — things aren't going to get much worse. He's getting in at a good time," said Art Hatfield, an analyst with investment firm Morgan Keegan.
Hatfield said he believes Buffett went for Burlington Northern in part because of its strong management team and because Burlington Northern has been more aggressive than its peers in developing new technology, making it more profitable.
Major railroads have been able to slash costs during the recession by cutting jobs, parking railcars, improving train speeds and making other moves that improved efficiency.
Before this, Berkshire's biggest acquisition was the $16 billion stock purchase of reinsurance giant General Re, announced in 1998. Last fall, he plowed $5 billion into Goldman Sachs, in a vote of confidence in the financial system.
___
AP Business Writers Josh Funk in Omaha, Neb., and Deborah Jian Lee in New York contributed to this report.
sumisu
16 years ago
BNSF Crew Begins Replacing 90,000 Ties in Minnesota and Wisconsin
Tuesday April 7, 2009, 11:30 am EDT
http://finance.yahoo.com/news/BNSF-Crew-Begins-Replacing-iw-14870253.html
(MARKET WIRE)--Apr 7, 2009 -- Last week, BNSF Railway Company (BNSF) dispatched a maintenance crew of 43 people to begin replacing railroad ties between East Winona, Wis., and St. Croix Tower, Minn. The crew is expected to replace more than 1,300 ties a day through July. This maintenance project will cost approximately $10.5 million.
"Expanding and maintaining our infrastructure along this stretch of trackage and throughout the system not only allows us to provide customers with efficient and reliable rail service but it also benefits the overall efficiency of America's supply chain," said Dave Freeman, BNSF vice president, Engineering.
BNSF expects to spend about $2 billion this year to keep the railway's infrastructure strong by refreshing track, signal systems, structures, freight cars, and upgrading technologies.
About BNSF
A subsidiary of Burlington Northern Santa Fe Corporation (NYSE:BNI), BNSF Railway Company operates one of the largest North American rail networks, with about 32,000 route miles in 28 states and two Canadian provinces. BNSF is among the world's top transporters of intermodal traffic, moves more grain than any other American railroad, carries the components of many of the products we depend on daily, and hauls enough low-sulfur coal to generate about ten percent of the electricity produced in the United States. BNSF is an industry leader in Web-enabling a variety of customer transactions at www.bnsf.com.
Contact:
Contact:
Steve Forsberg
913-551-4479
sumisu
16 years ago
Union Pacific Is Getting Back on Track
02/02/09 - 09:59 AM EST
http://www.thestreet.com/_yahoo/newsanalysis/investing/10460545.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
In addition to manufacturers and sellers of things now eschewed by recession-damaged consumers, companies that transport those goods wouldn't be expected to be doing all that well.
But Union Pacific(UNP) may be back on track as an investment, helped by a price-to-earnings ratio that will likely grab the attention of value investors and the price of fuel at less than half its record high. And legendary value maven Warren Buffett has taken a liking to the railroad industry -- to the tune of $4.7 billion.
Even though UNP's freight volume slumped 12% during the dismal fourth quarter, lower fuel costs along with productivity enhancements and more favorable pricing helped the carrier raise its net income by 35% to $661 million, or $1.31 per share, from $491 million a year earlier, or 93 cents.
UNP's stock price crumbled from the mid-$80s in late August to the high $30s earlier this month before a modest rebound to the low- to mid-$40s. Goldman Sachs raised its rating to "buy" from "hold" last month.
TheStreet.com Ratings' quantitative evaluation model assigns UNP an overall grade of B-minus, which equates with a cautions "buy" recommendation.
As can be seen in the accompanying table, the company's precipitous price decline contributed to a "risk grade" of D-plus while its attractive p/e ratio helped it achieve a "reward grade" of A-minus.
Union Pacific, the nation's largest rail carrier, operates more than 32,000 miles of track across 23 western and Gulf Coast states. While its shipments of automobiles sank 17% in the fourth quarter, energy shipping climbed 20%, while the agricultural business advanced 10%.
For fiscal 2008, which ended Dec. 31, UNP's earnings per share climbed 32% to $4.54 on a 4.5% advance in revenue to $16.3 billion.
Union Pacific has recently been priced at 9.7 times this year's estimated earnings and 8.4 times next year's. Assuming analysts are correct in their estimates of a resumption to earnings growth as the economy gathers steam, it wouldn't seem unreasonable to expect the rail carrier's p/e multiple to expand in tandem with earnings growth.
Investors might take heart from a Jan. 20 investment of $271.2 million by Buffett's Berkshire Hathaway(BRKA )(BRKB) in the railroad industry. Buffett acquired 4.4 million additional shares in UNP's major competitor, Burlington Northern Santa Fe(BNI)BNI, bringing Berkshire Hathaway's stake to 74.5 million shares worth $4.7 billion. The investment icon has hinted that he is likely to buy more of the railroad's shares.
UNION PACIFIC: BACK ON TRACK?
Company UNION PACIFIC CORP
Ticker UNP
Industry Road & Rail
TheStreet.com Ratings Reward Grade A-
TheStreet.com Ratings Risk Grade D+
TheStreet.com Ratings Overall Grade B-
TheStreet.com Ratings Recommendation Buy
Recent price 42.50
Market Cap ($Mil.) 21,523.3
Total Assets ($Mil.) 38,033.0
Total Debt ($Mil.) 7,682.0
Latest Fisc. Yr. Revenue ($Mil.) 16,283.0
EPS - Latest Avail. 12 Mos. 4.54
EPS - Curr. Year Consensus 4.39
EPS - Next Yr. Consensus 5.09
EBIT ($MiL.) 3,375.0
Cash Flow from Operations ($Mil.) 3,277.0
Price/Book Ratio 1.4x
Ret'n on Equity (%) 14.0
P/E - Current Year 9.7x
P/E - Next Year 8.4x
Dividend Yield (%) 2.54
Source: TheStreet.com Ratings (Data as of 1/23/2009).
For an explanation of our ratings, click here.
sumisu
16 years ago
OT: The Romance of the Rails
DECEMBER 13, 2008
THE WALL STREET JOURNAL
http://online.wsj.com/article/SB122877524153989295.html#articleTabs%3Darticle
A generation that grew up with model trains is renewing its love affair with Lionel and others.
When Jay Woodworth was growing up in the early 1950s, he couldn't wait to get the latest Lionel catalog. "I would take it to bed and dream about all those great trains," he says.
Mr. Woodworth doesn't have to dream anymore. Now, the semi-retired former bank executive commands a model-train empire at his house in western New Jersey. As many as a dozen passenger trains race along the tracks. At one end, Mr. Woodworth is building a scale model of New York's old Pennsylvania Station.
As he stands at the bar on the edge of his sprawling train room, he says he enjoys "sipping on a tall frosty and watching trains whizzing around the layout."
Mr. Woodworth is one of many baby boomers renewing their love affair with trains. They have the time and money to build the train layouts they didn't have as kids -- and have access to new and more exotic trains than ever before. These are updated versions of the trains that the 50-plus set remembers from its childhood: the three-rail "O gauge" trains that families set up each year around the Christmas tree, or if they had room, on plywood tables.
Fueling the revival is a big increase in the number and variety of O-gauge trains. Manufacturers are building trains that have never been built before in O gauge, including large steam locomotives and modern diesel engines. And they are making O-gauge trains longer, more detailed and truer to scale than the old, more toy-like Lionel trains, which were compressed to squeeze around tight curves. Part of the appeal of O-gauge trains is that they are easier for older adults to see and handle than smaller models, such as the popular HO-scale trains, says Carl Swanson, editor of Classic Toy Trains magazine.
Daniel Machalaba
PERSONAL TOUCH Carl Chancey and his New England-theme layout
"I couldn't believe my eyes," says Will Allen, a 60-year-old management consultant in Raleigh, N.C., who took his son to a model-train show in 2002. "I was hooked right away." Mr. Allen was so impressed that he enclosed the family's car port to build the Duckunder Terminal Railway, a three-rail O-gauge layout measuring 25 feet by 40 feet that has track on five levels, and three large passenger terminals, one of them an exact replica of Chicago's Dearborn Station. He operates more than 800 passenger cars and 143 locomotives; they are stored on and under the layout and on adjacent shelves.
O gauge has also gotten a technology boost. Manufacturers are now marketing hand-held wireless controllers that enable hobbyists to command each locomotive remotely and individually. And they are outfitting some of their locomotives with digital sound systems that mimic the motor noise, horns and whistles of real trains.
Costly Fun
The hobby has its drawbacks, chief of which is sticker shock. Highly detailed die-cast locomotives sell for $1,000, or more, and some hobbyists have invested hundreds of thousands of dollars in their layouts. The nation's faltering economy could hit the hobby hard. Lionel, for one, says that for new customers, it must look beyond aging boomers.
Still, the hobby draws on deep-rooted memories and the powerful Lionel name. Joshua Lionel Cowen, who founded Lionel in 1900, targeted returning veterans of World War II who were starting families, and stoked the country's fascination with trains. Lionel catalogs pictured flashy passenger trains, fast freights and smiling boys -- and pitched model trains as good for father-son bonding and child development. Soon a large number of families had electric trains made by Lionel or its chief rival, American Flyer, a manufacturer of the somewhat smaller, two-rail "S gauge" trains.
"Train sets were as ubiquitous in houses as Xboxes are now," says Lionel Chief Executive Jerry Calabrese. Some Lionel trains even became icons of the era, most notably the company's Santa Fe F-unit diesel engine and its Super Chief passenger train.
But Lionel and American Flyer went into a steep decline. Railroads faded from the national consciousness in the 1960s, along with most long-distance passenger trains. Baby boomers went on to cars, college, families and careers. Lionel bought American Flyer, and the Lionel name and products were licensed to food giant General Mills Inc. in 1969. Lionel, now closely held, continues to produce some S gauge trains under the American Flyer name in addition to its broad line of Lionel O gauge trains.
Interest in Lionel trains as collectibles increased in the 1970s and 1980s, says Charles Ro, founder of a large train store in Malden, Mass., that bears his name. Today's buyers tend to be "runners," as Mr. Ro calls them -- people who prefer to operate, or run, model trains, as opposed to collecting them.
The Return of O
Some hobbyists credit O-gauge enthusiast Mike Wolf for re-energizing the production of O gauge. Mr. Wolf launched MTH Electric Trains in 1993 and began making a wide range of realistic O-gauge locomotives and trains. This year, MTH, based in Columbia, Md., introduced the Orient Express locomotive and cars. Atlas Model Railroad Co., of Hillside, N.J., a longtime manufacturer of the smaller "HO" and "N gauge" trains, entered O gauge about 10 years ago with detailed models of trains other companies hadn't produced. A cottage industry cropped up to supply realistic scenery, buildings and accessories.
Meanwhile, Lionel got a boost from rock star Neil Young. Mr. Young had rigged up a remote-control system so his son with cerebral palsy could operate trains on the family's O-gauge layout in California. Mr. Young then worked closely with Lionel to incorporate the technology into Lionel trains.
Now, Lionel is trying to reclaim some of its 1950s mass-market allure. The company, which emerged from bankruptcy protection in May after settling a legal battle with MTH, has opened a New York office and showroom and is reaching beyond hobby shops this holiday season to stores such as FAO Schwarz, Macy's and Target.
Train collection from Jay Woodworth
Lionel's Mr. Calabrese, a veteran of Marvel Comics, says the company will continue to make highly detailed scale model like its Union Pacific Big Boy steam locomotive and Amtrak Acela. But, inspired by the success of its Polar Express trains, the company will ramp up production of starter sets for children. Mr. Calabrese is also launching a series of the kind of Lionel trains that lured boomers after World War II, using some of the same molds and dies left from the 1950s.
Mr. Calabrese is hoping that the remakes will entice more adults in their 50s and 60s to buy Lionel trains for themselves or to give to their grandchildren. "It is something they can set up and do together, or something the kid will remember them by," Mr. Calabrese says.
Memories to Scale
Meanwhile, boomers are already building their dream layouts. Not surprisingly, some of these undertakings evoke the postwar years, when railroads were king and before expressways, shopping malls and sprawl changed America.
"We grew up in the 1950s, when America was at its best," says Jim Steed, 66, who retired from the Georgia Department of Economic Development in 2002. The Blairsville, Ga., resident says he built his O-gauge layout with 19 churches and "lots of factories and smokestacks."
Carl Chancey, 61, is an O-gauge enthusiast who loves to put detailed, personal touches on his layout. Mr. Chancey, who works for a pharmaceutical-industry consulting firm as a senior consultant and lives outside of Boston, tried to capture the flavor of New England railroading with mountains, rivers, mill buildings, an oil depot, scrap yard, skid row and outfitters store.
Train collection from Marty Fitzhenry
He placed a miniature welder at the junkyard. Tiny bulbs flash below the welder to simulate a blue arc welding light. He also added hand-crafted pewter figures of his fellow O-gauge lovers Marty Fitzhenry and Lou Caponi. The figures were created from photos that Mr. Chancey sent to a specialty maker of figures.
Then there is Mr. Woodworth, 65, who is building the large layout near Clinton, N.J. Mr. Woodworth says he remembers riding such famous trains as the Pennsylvania Railroad's Broadway Limited, the New York Central's 20th Century Limited and the Milwaukee Road's Hiawatha in the 1950s and 1960s, and he wanted them on his layout.
He got help from David Shaw, an owner of the Train Station, a Lionel train store in Mountain Lakes, N.J., in rigging up the sophisticated circuitry and signal systems that keep his trains rolling at high speed without colliding. On a recent day the system worked perfectly, stopping the Broadway Limited before it got too close to the Hiawatha. "That is really cool," Mr. Woodworth says.
—Mr. Machalaba is a writer in Woodstock, Vt. He can be reached at encore@wsj.com.
sumisu
16 years ago
Burlington Northern Santa Fe Reports Third Quarter 2008 Results
Thursday October 23, 4:01 pm ET
FORT WORTH, TX--(MARKET WIRE)--Oct 23, 2008 -- Burlington Northern Santa Fe Corporation (BNSF) (BNI - News)
-- Quarterly earnings were $2.00 per diluted share, which included a $0.09 per share impact related to a favorable tax settlement. This compares to third-quarter 2007 earnings of $1.48 per diluted share.
-- Freight revenues increased $818 million, or 21 percent, to $4.77 billion compared with the third quarter of 2007, and included higher fuel surcharges of approximately $570 million.
-- Operating income of $1.21 billion increased $206 million, or 21 percent, compared with the same 2007 period.
Burlington Northern Santa Fe Corporation (BNSF) (BNI - News) today reported quarterly earnings of $2.00 per diluted share, compared with third-quarter 2007 earnings of $1.48 per diluted share.
"The U.S. and global economies are facing very significant challenges. Despite the economic uncertainty, BNSF continues to perform well. In the third quarter, BNSF achieved our best quarterly earnings per share in the history of the Company," said Matthew K. Rose, BNSF Chairman, President and Chief Executive Officer. "While we are all concerned about the current financial and economic situation, we continue to be optimistic about the future of our diverse franchise and we remain confident about our long-term prospects."
Third-quarter 2008 freight revenues increased $818 million, or 21 percent, to $4.77 billion compared with $3.95 billion in the prior year. The 21-percent increase in revenue was primarily attributable to improved yields and an increase in fuel surcharges of approximately $570 million driven by higher fuel prices.
Agricultural Products revenues were up $227 million, or 33 percent, to $909 million, predominately due to strong unit volumes in ethanol, corn and feeds and improved yields. Coal revenues rose $198 million, or 23 percent, to $1.05 billion, as a result of higher unit volumes, contractual inflation escalators and improved yields. Industrial Products revenues of $1.12 billion were $162 million, or 17 percent higher than the third quarter of 2007. Improved yields and increased demand for construction products more than offset the lower unit volumes for both building products and chemicals and plastic products. Consumer Products revenues rose $231 million, or 16 percent, to $1.69 billion due mainly to growth in domestic intermodal unit volumes and improved yields, offset by lower international intermodal unit volumes. Increased fuel surcharges driven by higher fuel prices further benefited each of the business units.
Operating expenses for the third quarter of 2008 were $3.70 billion compared with third-quarter 2007 operating expenses of $3.07 billion. The $631 million increase in operating expenses was primarily driven by a $501 million increase in fuel expense due to higher fuel prices on relatively flat fuel consumption.
Burlington Northern Santa Fe Corporation's subsidiary BNSF Railway Company operates one of the largest North American rail networks, with about 32,000 route miles in 28 states and two Canadian provinces. BNSF Railway Company is among the world's top transporters of intermodal traffic, moves more grain than any other American railroad, carries the components of many of the products we depend on daily, and hauls enough low-sulfur coal to generate about ten percent of the electricity produced in the United States. BNSF Railway Company is an industry leader in Web-enabling a variety of customer transactions at http://www.bnsf.com.
Financial information follows:
Burlington Northern Santa Fe Corporation
Consolidated Income Information *
(Dollars in millions, except per share data)
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http://biz.yahoo.com/iw/081023/0445933.html
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sumisu
16 years ago
If Warren Buffett Takes a Train,
Should You Go for a Ride, Too?
By JAY PALMER
August 10, 2008
http://online.wsj.com/article/SB121834079190027499.html
Across America, the train whistle is a-blowin'.
Amtrak ridership is at a record, and local transit systems from Washington, D.C., to Oakland, Calif., are scrambling to add cars and track. Freight trains, too, are barreling into a new, more promising future.
Put simply, with roads congested and gas prices sky-high, Americans are getting fed up with driving. Flying is hitting similar problems.
Little wonder that local authorities expect passenger-train ridership to keep climbing, even as the U.S. Chamber of Commerce expects freight railroads to see an 88% increase in demand over the next quarter-century.
Investors may want to hop aboard before the train leaves the station. Warren Buffett, for one, has done so. Over the past 18 months, his Berkshire Hathaway has built up an 18% equity stake in Burlington Northern Santa Fe, along with smaller but substantial holdings in a number of other freight lines.
Though the weak economy has curtailed freight volumes, the stocks of many freight railways have moved up markedly, as investors look down the tracks to better days. But given the long-term growth prospects -- do you ever expect to see $1.50-a-gallon gas again? -- the group still looks reasonably priced, especially since its earnings outlook is strong.
Some bulls see some freight stocks climbing 10% to 15% over the next year -- and much higher over the long haul.
In rail freight, seven lines -- Union Pacific, Burlington Northern, CSX, Norfolk Southern, Canadian National, Canadian Pacific and Kansas City Southern -- handle close to 90% of the nation's freight rail traffic. Business has been very good. That's in part because locomotives today get roughly 80% more mileage from a gallon of diesel than they did 30 years ago, making them much more fuel-efficient than big trucks when the amount they can haul is figured into the equation.
On the passenger side of the business, there are no U.S. railways with publicly traded stocks, but investors can find some intriguing plays among equipment makers like Canada's Bombardier (BBD-B.Toronto), which makes locomotives, passenger cars and more, and Pennsylvania-based Wabtec, which makes brake systems for the mass-transit and long-distance rail markets.
And there are opportunities overseas. China, for instance, is quadrupling its spending on its railroads to $160 billion over the next three years. That's why China Railway Group (0390.Hong Kong) and China Railway Construction (1186.Hong Kong) are attracting attention as promising plays for the long term.
sumisu
16 years ago
Study: Blasting bad for Glacier National Park
Friday July 18, 10:54 am ET
By Susan Gallagher, Associated Press Writer
Evaluation finds proposed blasting inadvisable for avalanche control in Glacier National Park
http://biz.yahoo.com/ap/080718/mt_park_blasting.html?.v=1
HELENA, Mont. (AP) -- Glacier National Park officials, citing concerns about wildlife habitat, have rejected a BNSF Railway proposal to use explosives for preventing avalanches that could send snow onto railroad tracks.
Instead, the railroad should spend millions of dollars to build more snowsheds -- canopies over segments of track -- to keep snow from blocking the route along the park's southern edge, according to an environmental document released Thursday by park officials, in collaboration with the U.S. Forest Service and the Montana Department of Transportation.
A few years ago, Burlington Northern Santa Fe Corp. asked Glacier for a permit to use explosives for avalanche control in a canyon where snow blocked the tracks for 29 hours. A series of avalanches occurred, derailing an empty freight train and just missing cleanup crews. One of the slides hit a truck on U.S. 2 below the railroad.
Besides creating a hazard, snow on the tracks delayed commerce, said the railroad, which obtained an emergency, three-day permit for explosives in 2006 and used a helicopter in setting off 10 charges. The effect was minimal, and the operation was canceled.
Last year, BNSF withdrew its proposal for a permit, saying the National Park Service had overstated how much shelling would be needed for avalanche work. The railroad said it would submit a new proposal, but did not. The Park Service decided to complete work on an environmental impact statement anyway.
Apparently distinguishing between the 10 charges in 2006 and long-term use, the document says that "explosive use for avalanche reduction would be an unprecedented action in (Glacier), and the park has many serious concerns about impacts to park values, including winter wildlife habitat, threatened and endangered species, natural sound and recommended wilderness."
The impact statement also said some of the cost of extending snowsheds and building new ones would be offset by losses BNSF faces if avalanches continue to disrupt rail transportation. The railroad would be entirely responsible for the cost and had raised expense as a concern when snowsheds were discussed previously.
The Park Service said the proposed snowsheds would span a fraction of the 72 miles of BNSF track along the park's southern boundary.
Will Hammerquist of the National Parks Conservation Association called the decision "a victory for people who love the park and a victory for park resources."
Railroad spokesman Gus Melonas said Thursday that company officials were reviewing the document and declined further comment.
The environmental impact statement, which will be listed in the Federal Register, will be submitted to National Park Service Regional Director Mike Snyder in Colorado. For the document to be implemented, Snyder must sign a record of decision.
sumisu
16 years ago
Shipping delays remain as Midwest floodwaters ease
Thursday July 10, 4:05 pm ET
By Christopher S. Rugaber, AP Business Writer
Railroads, other shippers continue to battle delays as Midwest floodwaters recede
http://biz.yahoo.com/ap/080710/shipping_floods_aftermath.html?.v=2
WASHINGTON (AP) -- Shipments of coal and other freight in the Midwest are still being delayed almost a month after record-breaking floods decimated the landscape from Cedar Rapids, Iowa, to Hannibal, Mo.
Railroads and other shippers have largely restored service as the floodwaters have receded, but some rail lines are still closed and heavy rains may have contributed to a derailment this week. Data from the industry's trade group show the floods reduced shipments of coal, grains and other goods as demand for those commodities remains high.
Parts of two rail lines operated by BNSF Railway, a subsidiary of Burlington Northern Santa Fe Corp., are under water and remain closed, the company said.
"We're still trying to get train service back to normal," said Steven Forsberg, a spokesman for BNSF.
Union Pacific Corp., the nation's largest freight railroad, Norfolk Southern Corp. and others say they've repaired damaged tracks and bridges, and their trains are running on time.
But small local lines in hard-hit states such as Iowa and Wisconsin are still struggling with the flood's aftermath.
The Iowa Northern Railway Company is "experiencing significant service disruptions" and its main office in Cedar Rapids is closed, according to a note on its Web site Thursday. The railway, which operates a 163-mile network, carries grain and ethanol.
The company will have to detour some its shipments for months due to a washed-out bridge near Waterloo, Iowa, that likely won't be replaced until the end of this year, said spokesman Joshua Sabin.
Separately, a freight train operated by Iowa, Chicago & Eastern Railroad derailed Wednesday, near Guttenberg, Iowa. The company said recent heavy rains, before and after the floods, may have contributed to a landslide that caused the derailment. The railroad hopes to repair the damaged track by Sunday.
IC&E, which operates a 1,400 mile network in five states, said Thursday on its Web site that a separate track in Wisconsin remains out of service due to flood damage.
The impact of the historic floods also can be seen in rail shipping data. In June, freight rail shipments dropped 3.6 percent compared to June 2007, according to the Association of American Railroads, with flooding responsible for much of the decline.
Shipments of coal fell 3.2 percent, after rising for much of the year, according to AAR spokesman Tom White. Grain and ethanol shipments, while higher than last year, were lower than expected due to flood-related delays and production cuts.
Shipments began to rebound this week as rail operators cleared out backlogs, White said. Rail cargoes increased 1.1 percent in the week ended July 5, according to data released Thursday.
Most of the affected industries say that shipping problems stemming from the floods have eased.
"We think things are pretty much back to normal," said Luke Popovich, spokesman for the National Mining Association, which represents Arch Coal Inc., Peabody Energy Corp. and others.
Monte Shaw, executive director of the Iowa Renewable Fuels Association, said shipping is "mostly back to normal."
Getting business back on track has not been easy for the railroads. Forsberg said it took a "Herculean effort" by BNSF's repair crews to reopen a rail line near Gulfport, Ill., that was heavily damaged when a levee broke.
Company engineers rebuilt a mile-long section of track through a 28,000-acre lake created by the flood. The effort required 165,000 tons of rock and 24-hour shifts for 10 days, Forsberg said.
BNSF is still working to restore two lines near the Mississippi River. One line that connects Burlington, Iowa, and St. Louis still has more than seven miles of track under water.
The two lines carry mostly coal and mixed freight that has been rerouted, Forsberg said, and up to 35 trains had used them every day. That's out of 1,300 trains that operate daily on the company's 32,000-mile network.
The disruptions also have had a financial impact on the rail companies. Burlington Northern last month reduced its second quarter earnings estimates by 10 cents to $1.30 per share. Union Pacific said it expects the flooding to reduce its earnings by 5 cents a share.
Spokesmen for Mississippi River barge operators American Commercial Lines Inc. and Kirby Corp. did not return calls seeking comment.
Trucking companies say the worst of the flooding impact is over.
Mike Smid, chief executive of YRC North American Transportation, a unit of Overland Park, Kan.-based YRC Worldwide Inc., said delays "settled down" at the beginning of last week.
The nation's largest trucker is still seeing some delays in its intermodal service, which transports freight from railroads to trucks for final delivery.
"The rails are running regular schedules, but right now they are still a bit slow," Smid said. "But major thoroughfares and major arteries in the Midwest are clear, and our trucks are running on schedule."
AP Business Writer Samantha Bomkamp in New York contributed to this article.
sumisu
16 years ago
Flooded roads, rails limit Midwest shipping
Friday June 13, 6:25 pm ET
By Samantha Bomkamp and Christopher S. Rugaber, AP Business Writers
Flooded roads, rails limiting shipments, manufacturing in the Midwest
http://biz.yahoo.com/ap/080613/flooding_industry.html?.v=2
Flooding in the Midwest has swelled rivers and submerged roads and rails, halting or delaying shipments of food, fuel and other goods. Manufacturers also have been forced to suspend production of everything from oatmeal to pork products.
At the earliest, barge, road and rail traffic will get back to normal next week. But companies are focused on getting through the weekend, when at least one river is expected to crest at nearly 32 feet, making it possible that the transportation snags could drag on.
Union Pacific Corp., the nation's biggest freight railroad, currently has six mainline tracks out of service that carry freight through Iowa. Burlington Northern Santa Fe Corp. is experiencing delays along its key routes along the Mississippi River -- from Ft. Madison, Iowa, to Memphis, Tenn.
A bridge over the Cedar River has collapsed, and another owned by Union Pacific is being monitored for possible washout. Several more are under water. The shutdowns are expected to last about a week, but warned further delays are possible.
Flooding in Iowa and Wisconsin also is affecting Amtrak service on two major western routes from Chicago to San Francisco and Seattle. Some service also is suspended between Chicago and Denver, spokesman Mark Magliari said. Amtrak is providing alternative service by bus and train in some areas, but not in Iowa, at least through the weekend. Major lines to Wisconsin and some parts of Minnesota have been suspended since Tuesday.
The situation is slightly better for trucks, which can more easily redirect cargo shipments to alternate routes.
David L. Miller, chief operating officer for Con-way Freight, said regional service has been shut down or delayed through virtually all the flooded areas. He expects service to be nearly restored by Monday, as freight is transferred to other routes.
Both FedEx Corp. and United Parcel Service Inc. also said delays should be minimal. Barring any further severe weather, both shippers expect to return to normal operations by early next week.
As shipments are delayed across the country, the floods also have caused shutdowns at several food processing plants in Iowa, including a Quaker Oats facility in Cedar Rapids and two Tyson Foods Inc. pork facilities.
Quaker Oats, a unit of PepsiCo, Inc., makes its signature oatmeal cereals at the Cedar Rapids plant, which employs 1,100 people, spokeswoman P.J. Sinopoli said.
A nearby distribution facility has not been affected. "We have ample inventory on hand at this point to meet customer needs," she said, adding that the company is reassessing the situation daily.
Cedar Rapids is one of the worst-hit areas, with the Cedar River expected to crest at 31.8 feet on Friday. In a 1993 flood, considered the worst in recent history, it was at nearly 19.3 feet.
"There is no business ... near downtown Cedar Rapids that isn't completely shut down," Sinopoli said.
Meanwhile, barge operator American Commercial Lines Inc. said flooding on the Mississippi River will cause several lock closures, which could last about two weeks, and more flooding over the weekend is expected to create delays around St. Louis. Conditions on the Illinois River have stabilized and normal operations have resumed, but a wet forecast could affect service this weekend, the Jeffersonville, Ind.-based company said on its Web site.
The railroad industry has been particularly hard it.
-- Norfolk Southern Corp. expects flooding to shut down service through Hannibal, Mo., this weekend. The company plans to reroute service on the line through St. Louis.
-- Canadian National Railway Co. currently has two sections of rail out of service in Iowa, and spokesman Bryan Tucker said a portion of a mainline track carrying cargo to Chicago washed out early Friday. Canadian Pacific Railway Ltd. has shut its mainline through Wisconsin, which carries freight from Canada to Chicago.
"We're at the mercy of the weather at the moment, as is everybody else," said Canadian Pacific spokesman Mike LoVecchio.
AP Business Writer Samantha Bomkamp reported from New York and Christopher S. Rugaber reported from Washington.
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