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BNSF's First-Quarter Net Earnings Slip On Lower Revenues And Carload Volumes

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BNSF's First-Quarter Net Earnings Slip On Lower Revenues And Carload Volumes

BNSF's first-quarter net profit fell 5% amid a 6% decline in revenue, according to Berkshire Hathaway, Inc. (NYSE: BRK-A), BNSF's parent company.

BNSF's net earnings for the first quarter of 2020 were $1.19 billion, compared with $1.25 billion in the first quarter of 2019, Berkshire Hathaway said on May 2. Meanwhile, operating income rose 2% to $1.82 billion, compared with $1.78 billion in the first quarter of 2019, BNSF said on May 4. The western U.S. railroad confirmed today the results laid out this weekend.


Source: Berkshire Hathaway

First-quarter revenue slipped 6% to $5.4 billion amid a 5.2% decrease in volume and a 0.6% increase in average revenue per car/unit. Pre-tax earnings fell 4.9% to approximately $1.6 billion as a result of lower volumes brought on by the COVID-19 pandemic. First-quarter volumes were 2.34 million carloads/units compared with 2.46 million in the first quarter of 2019. Also affecting pre-tax earnings was a favorable outcome in an arbitration hearing and an expense reduction related to changes to a retirement plan. 

BNSF 2020 Value 2019 Value Y/Y Gross Change Y/Y % Change
Freight revenue (in millions) $5,140.0 $5,456.0 ($316.0) -5.8%
Carloads/units (000s) 2,336 2,464 -128 -5.2%
Revenue per carload/unit $2,200 $2,214 -$14 -0.6%
OR% 65.2% 68.1% -2.9% -4.3%

Within BNSF's segments, consumer products revenue fell 11.8% to $1.8 billion on a 7.2% decline in volume and lower average revenue per car/unit. BNSF attributed the volume decline to lower international intermodal volumes and the COVID-19 pandemic, which contributed to lower U.S. West Coast imports. Changing U.S. consumption patterns as a result of the pandemic also contributed to declining activity for BNSF's automotive and domestic and intermodal segments. 

Industrial products revenue fell 0.5% to $1.5 billion amid a 2.3% decline in volumes, which were partially offset by higher average revenue per car/unit. Higher demand for petroleum products offset lower volumes for frac sand and liquefied petroleum gas.

Meanwhile, coal revenue declined 11.9% to $766 million on a 7.7% drop in volumes as well as lower average revenue per car/unit. The retirement of coal-fired units at power plants, lower natural gas prices and mild winter weather dented volumes.

But not all BNSF's segments experienced revenue losses year-over-year. Agricultural products revenue rose 2.8% to $1.1 billion on a 3.3% increase in volumes brought about by higher domestic domestic grain and soybean meal shipments, which were partially offset by lower grain exports. 

Although BNSF's first-quarter revenue slipped over last year, BNSF also trimmed quarterly expenses, which aided the company in minimizing its profit loss for the quarter. Operating expenses fell 6.7% to $3.6 billion on lower volume-related costs, productivity improvements and improved weather conditions compared with the first quarter of 2019. The reduced costs came from lower employee counts, improved efficiency and lower average fuel prices, among other factors. Meanwhile, BNSF's first-quarter operating ratio decreased 0.6% to 65.9%. A lower operating ratio, which is the ratio of operating expenses to revenues, can imply an improved financial health.  

The railroad said its service, velocity and cost performance "significantly" improved between the first quarters of 2019 and 2020 since severe winter weather and flooding impacted the first quarter of 2019.

BNSF, along with Berkshire Hathaway's utilities and energy businesses, will have a combined capital expenditures budget of $8.8 billion for the remainder of 2020. These assets already spent $2 billion in capital expenditures in the first quarter.  

"BNSF is an important part of the national and global supply chain, and as an essential business it has continued to operate throughout the duration of the COVID-19 pandemic. However, the pandemic is expected to cause an economic slowdown that could be significant and, therefore, could adversely affect the demand for BNSF's services," Berkshire Hathaway said. "The pandemic continues to rapidly evolve, and the extent to which it may impact BNSF's business, operating results, financial condition or liquidity will depend on future developments, which are highly uncertain and cannot be predicted with confidence. We believe BNSF has sufficient liquidity to continue business operations during this volatile period."

 

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