1 / 33

November 14, 2006

Renaissance: Rails, Returns, Capital & Capacity Anthony B. Hatch – abh consulting 155 W68th Street NYC 10023 (212) 595-0457 ABH18@mindspring.com:: Indiana Logistics Summit. November 14, 2006. Railroads at historic tipping point. Capacity issues across all modes Volume increasing

astra
Télécharger la présentation

November 14, 2006

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Renaissance: Rails, Returns, Capital & CapacityAnthony B. Hatch – abh consulting 155 W68th Street NYC 10023 (212) 595-0457 ABH18@mindspring.com::Indiana Logistics Summit November 14, 2006

  2. Railroads at historic tipping point • Capacity issues across all modes • Volume increasing • Share increasing • Rates increasing • Services levels (yes) increasing • Returns increasing • A secular, not a cyclical story • Capacity and infrastructure – and competitor - issues remain • Not fully reflected in the market?

  3. Show Me the Money • Share Price is the Indicator – over time! • Cash (Flow) is King • High ROIC = High Stock Price • And Vice Versa • Key is the phrase “through a cycle” • Old Model: Disinvestment • New Model: TBD

  4. Spending $: Mgmt.’s #1 Decision • Capex for Maintenance – “base” • Capex for Capacity, Service & Growth • Dividends • Share Buybacks • M&A – Strategic • M&A – Non-strategic (conglomeracy) • How management allocates indicates confidence & direction and impacts all stakeholders

  5. Virtuous Circle 2006 • Better returns (half finally earn returns equal to the cost of capital) • Better stock prices • Better revenue prospects – up double digit ’04-05 • Equals more investment – capex up sharply • Equals more capacity, better service • …equals better returns and growth….

  6. Railroad Stock PricesJanuary 2001 – October 2006 Index Jan 2001 = 100 Sources: MSN and CSI, Inc.

  7. S&P 500 and RailroadsMonthly Data January 1980 – October 2006 Index Jan. 1980 = 100 Sources: MSN and CSI, Inc.

  8. Even With Booming Traffic, Rail Earnings Are Substandard Median Return on Equity in 2005 (S&P 500 companies) *BNSF, CSX, NS, and UP Source: Business Week

  9. RR CoC vs. ROIC -stocks have done well but… they still trade at a discount to all stocks Cost of Capital Return on Investment Source: Surface Transportation Board

  10. Railroad Capital ExpendituresClass I Railroads Billions e Source: Railroad Facts, AAR

  11. Food – 2.6% Transportation equipment – 2.8% Petroleum & coal products – 3.0% Wood products – 3.0% Fabricated metal products – 3.5% Average all manufacturing – 3.5% Chemicals – 4.4% Paper – 4.7% Nonmetallic mineral prod. – 5.4% Electric utilities – 11.6% Class I RRs – 17.8% Capital Expenditures as % of Revenue Source: Census Bureau, EEI, AAR

  12. Railroad PerformanceClass I Railroads Index 1981 = 100 Productivity Volume Revenue Price Source: Railroad Facts, AAR

  13. Railroads and the EconomyClass I Railroads Index 1980 = 100 Sources: Federal Reserve System and AAR

  14. Railroads and the EconomyClass I Railroads Index 1980 = 100 Sources: Federal Reserve System and AAR

  15. Railroads and the EconomyU.S. Railroads Index 1980 = 100 Sources: Federal Reserve System and AAR

  16. Railroad Intermodal Revenue Growth Over 5% - Long Live the New King!- Coal Intermodal Source: Carload Waybill Statistics (includes non-Class I railroads)

  17. Intermodal Growth DriversDomestic and International • Globalization • Trade • Railroad Cost Advantages • Share Recovery From Highway • Truckload Issues

  18. Serious U.S. Transportation and Congestion Problems • High Cost of Highway Maintenance and Construction • Interdependence of Modes • $67 billion per Year Drag on Economy • Demand for Freight Transportation to Double by 2020

  19. Coal and Ag – Bulk Comeback • New growth mode? • Emissions and environmental issues • Oil prices and coal • Politics and coal; and grain/rereg • Ethanol • Exports • Feed

  20. Major Sources of Railroad Revenue Class I Railroads, 2005 Gross Freight Revenue in billions Intermodal* - $10.1 Coal - $9.4 Chemicals - $5.4 Transportation equipment - $4.0 Farm products - $3.6 Food - $3.3 Lumber & wood - $2.3 Pulp & paper - $2.0 Primary metal products - $1.7 Stone, clay & glass products - $1.5 Nonmetallic minerals - $1.3 Source: AAR *Estimated. Some intermodal revenue is also included in individual commodities.

  21. Railroad Rates- the old story Class I Railroads, Revenue Per Ton-Mile Cents Constant $: Down 56% since 1980 Current $: Down 9% since 1980 Source: Railroad Facts, AAR

  22. Pricing - the new paradigm • Rates up 3% in ’04 – post-Staggers best • Up 11% in ’05 (Secular rate of 2-3%?) • Fuel surcharges similar to TL • Yet Price Gap to the highway widening, even in ’05 and ’06 YTD • Capacity (still) short across all freight modes, despite temporary surpluses • Rails moving toward tariff and spot markets Conclusion: Best Ever Rate Environment “The new Golden era” – cost of capital within sight; not there yet

  23. RRs and Investment • Is growth affordable? Capex up 10% in ’07? • Can the intermodal model extend to carload? • Is additional capacity necessary? Desirable? • Wall Street’s constrictive role (“fighting the last war”) – changing? • Is this disconnect between the Renaissance and the Street the opportunity of a lifetime?

  24. Sources of capital • FCF – booming at most carriers (capex vs. ROIC) • Governments – states, PAs, Feds • Governments – Canada as contrast • Traditional Street sources & Banks • Private Equity

  25. Railroad Issues Fall 2006 • Economic/industrial recovery - durability • Service metrics – recovery or a meltdown (again)? • Trucking troubles also a secular issue • Capacity – coming shortage? Or “creative tension”? • Intermodal – new king of the hill • Coal and Grain: Comeback? Thanks to oil! • Is Growth Affordable? (Who will pay?) • Alliances vs. Mergers? • Hurricanes, other AoG • Labor – 1 Man Crews off the table? Coming shortage? • Safety and security – new risk?

  26. “Big Six” Rail H106 results • All six beat Street consensus • EPS up an average 58% vs. tough comps; range from +27% to +140% • Revenue growth averaged 14% • Estimated Yield growth (ex FS) was 6% • Fuel surcharges added another ~6% • So Far Q306 5 for 5 beating Street; solid forecasts (DPS increases, share buybacks & splits) – operating ratios in the 50s?!?

  27. Capital Expenditures 2005Class I Railroads $6.4 billion for Roadway & Structures and Equipment Source: AAR and R-1 annual reports Excludes new operating leases.

  28. New Freight Car DeliveriesRailroad and Private Owners Beginning 1995, Canadian cars included with U.S.

  29. New Locomotives InstalledU.S. Class I Railroads Note: New locomotives may also be installed by Canadian, Mexican, or U.S. regional railroads.

  30. Return on Total Capitalby Industry 2001-2004 average

  31. Railroad Return on EquityClass I Railroads n.m. n.m. - not meaningful (negative value) Source: Railroad Facts, AAR

  32. Railroad Employee ProductivityClass I Railroads, Ton-Miles Per Employee Millions Source: Railroad Facts, AAR

More Related