BNI Beats, but Volumes Down Again

Burlington Northern Santa Fe Corp’s (BNI) third quarter earnings came in at $1.36 per share, ahead of the Zacks Consensus Estimate of $1.28 per share. Last year, the company had a profit of $1.99 per share. Results were negatively affected by a decline in freight volumes, partially offset by reduced costs. 

Total revenues declined 27.0% year over year to $3.6 billion. The decline was brought about by a decrease in fuel surcharges coupled with lower unit volumes, partially offset by improved yields. 

Operating expenses shrank 27% year over year to $2.69 billion. The reduction was mainly brought about by lower fuel prices, along with strong cost controls and decreased unit volumes. 

All of the business units which contribute to revenues declined mainly due to lower fuel surcharge. 

Coal revenues decreased 10% to $940 million on lower unit volumes driven by soft demand, which was partially offset by a favorable coal rate case adjustment and improved yields.
 
Agricultural Products revenues declined 21% to $715 million on lower unit volumes. 

Lower demand for Industrial Products caused the revenues from this unit to decline 34% to $747 million. 

Lower intermodal volumes led to a decline in revenues from Consumer Products by 36%, to $1.09 billion. 

For the fourth quarter, the company forecasts earnings of $1.10 to $1.20 per share. 

Though Burlington has posted better results than expected, it has been facing depleting volumes of late due to the global economic downturn. We believe the actions taken by management to improve its network and lower its costs should expand the company’s margins when volumes begin to rebound. 

We remain optimistic about Burlington’s excellent management team, its revenue mix and its ability to control acquisitive growth. Despite the ongoing market turmoil, we see the company as well positioned to capitalize on the economic turnaround. Hence, we recommend a Neutral rating on the shares.

Read the full analyst report on BNI