Announcements

NEARS Vermont Rail System Dinner Train!


NEARS Vermont Rail System Dinner Train!

Monday, September 30th, 2019!

Enjoy an amazing 3 course dinner while you ride along Lake Champlain and the Green Mountains on a Vermont Rail System train, with historic dining cars and lounge car. You can board the train at 4:30pm for horsd'œuvres and a cash bar, and we will depart at 5:30pm and travel from Burlington to Middlebury, and return back to Burlington, on a 3 hour trip. Tickets are $69 a person, which includes food and gratuity (drinks are on your own). Please join us for this beautiful and memorable trip!

Space is limited! Please get your tickets today!

Ticketing for this event is separate from NEARS registration. Please follow this link.

https://greenmountainrailroad.thundertix.com/events/155163

THOUGHTS FROM THE NEARS CONFERENCE


THE COWEN INSIGHT

While shippers remain concerned about PSR implementation, early results for "The Next Three" (recent PSR implementers NSC, UNP, KSU) are far better than the recency bias created by CSX's early PSR struggles. Shippers remain in a "show me" mode while rails look for increased business after service improves.

NSC Chief Marketing Officer Alan Shaw

Alan Shaw, EVP and Chief Marketing Officer of Norfolk Southern, was the keynote speaker for day two and highlighted how his railroad is focused on changing the culture and the way the railroad operates. They are taking a more measured and balanced approach to PSR with a long-term focus on growth and productivity (with equal importance given to both goals). NSC is re-engineering its interface with its customers in a collaborative way. The railroad is clean-sheeting their terminals first and once they are done with terminals they will turn their focus to road operations. Additionally, NSC is converting its DC locomotives to AC locomotives, which should increase the power of the fleet and allow the railroad to operate with fewer locomotives. Early results appear favorable.


The Shippers' Perspective On PSR


Two shippers (Kevin Acker of The Chemours Company and Ross Corthell of the Packaging Corp. of America) spoke about their current experience with PSR implementation. While investors may look back to the last implementation by CSX and the bad taste it left in many shippers' mouths, these two shippers noted that this is not the case thus far with The Next Three. One of the shippers stated that UNP's results were mixed but believes that some of the early issues could have been weather related. Another commented that NSC had done a good job thus far and that their service (as measured by specific origin/destination pairs) had improved 15%. If this is sustainable, the shipper added that they would need far fewer rail cars.


Gil Lamphere On The History Of PSR


Long time rail executive Gil Lamphere brought the audience down the PSR memory lane as he recalled the first conversations with the operating system's creator Ed Moyers (Hunter Harrison perfected PSR but did not invent it). Mr. Lamphere had pretty high praise for the operating model but noted that operating ratio improvement was just a byproduct and not a goal of the original PSR. He stressed that people and assets that are not in motion are considered redundant in the PSR model. He reflected on the very rapid pace at which Hunter was able to implement PSR at CSX and noted he broke alot of eggs. He spoke highly of the current efforts of KSU, NSC and UNP and applauded their measured approach.


Cowen NEARS Survey


Once again, Cowen sponsored a survey among NEARS conference attendees. When asked whether they are more confident in the direction of the economy today than they were three months ago, 37% of shipper attendees answered that they are more confident, while 63% answered that they aren't. We contrast this with our 1Q19 Rail Shipper Survey, which showed that 48% of shippers are more confident than they were three months ago, but note that the NEARS survey consists of a smaller, geographic-specific (North East) subset of shippers, compared with a broader shipper base for our 1Q19 Rail Shipper Survey.
Second, we inquired about shippers' experiences with "The Next Three" Class I's, the three recent adopters of PSR, NSC, UNP, and KSU, as each rail undergoes a transformation. 45% of survey participants said that they were contacted by the Next Three about their PSR plans and implementation process; 43% said that they have had negative service impacts from the early PSR implementation; and 57% expect negative service impacts in the future.
Lastly, we surveyed NEARS attendees on the railcar market. 28% answered that their need for railcars has increased over the last three months, 6% answered that it decreased, and 67% answered that it remained the same. Asked whether they are concerned about the availability of railcars, 15% are "Very Concerned", 47% are "Somewhat Concerned", and 38% are "Not Concerned".

Jason H. Seidl
646 562 1404
jason.seidl@cowen.com

Matt Elkott
646 562 1409
matthew.elkott@cowen.com

Adam Kramer
646 562 1375
adam.kramer@cowen.com

Job Posting - Vermont Rail


Sales & Marketing Position

Vermont Rail System, a long-established and growing Northeast Short Line Rail Carrier, is accepting applications for a full time Senior Level Marketing and Sales position at its Burlington, VT headquarters. This position will be responsible for all Marketing and Sales activity across our network. Candidate must have experience in railroad marketing and sales, with knowledge of rail equipment, commodities, and pricing. Transportation strategy and logistics experience a must. Candidate must be a team player with proven leadership and management skills to both lead and grow the Marketing Team, as well as interact with all levels of the organization. Must be a creative and flexible problem solver. Travel mostly in the Northeast a must. VRS offers competitive pay and benefits. VRS is an equal opportunity employer. Send resume and salary requirements to marketing@vrs.us.com

BNSF & GWR Earnings - It's More About the Conversation - Tony Hatch


Greetings – Last two and next the Review….But what was most interesting wasn’t the actual results reported by BNSF (obviously via Berkshire Hathaway) and Genesee & Wyoming – both weather-impacted, the latter slightly below consensus but with reiterated FY Guidance – but was said by their respective top leaders, Messer’s Buffett and Hellman, at official Q&As. Both leaders are, of course, esteemed men – the former the “Oracle of Omaha” and the latter a former winner of the “Progressive Railroading Magazine/RailTrends Innovator of the Year”. Thus we have to take what they say seriously – Buffett on PSR and Union Pacific (“we pay a lot of attention to what is going on at the UP” in terms of margins/OR) and Hellman on M&A in the short line regional space and the role of PE & Infrastructure Funds (and whether they see themselves as a buyer or a seller). First, the results:

BNSF reported a slight increase in revenues (2%) on a 5%+ volume drop – of course heavily impacted by the floods that hurt UP, too….expenses declined 1% (helped by some one-time items – including a “retirement plan curtailment gain”), and while the reported OR increased slightly (20bps) to 68.1%, the adjusted OR dropped 200bps to 66.5%. PTI was up 10%, net income up 9% (without the boost the other rails gained from their share repo programs). The performance of their “Consumer” Business Unit (IM, plus autos) was initially worrisome – revenues up 8% but volumes down 6% (due to lower international numbers and “increased truck competition”; uh-oh). The rest flowed like this: Industrial Products (revenues +8%, units up 1%+); Ag (-3%/-7%); Coal (-8% 15%/-10%). They didn’t break out the weather impact, of course, but it was bad for them as for their chief rival. Capex will be up ~8% ($3.6B vs. $3.3B).

Speaking of UP, as a reminder, they reported a 15% increase in EPS on a 1% increase in OPI ($3.5B of share repurchases - $18.1mm shares - in the quarter); units were down 2% and the OR improved 100bps to 63.6%. That’s pretty comparable although the OR is 300bps lower for UP. Comparing business units, UP reported a worse revenue performance in “Energy” (coal) and Industrial Products and flat in Ag. But UP’s “Premium” outperformed BNSF’s “Consumer” – in units (+2% compared to -6%) but not in revenues (+3% compared to +8%).

So what’s “Uncle Warren” all worked up about? In a first, the team of Jain & Abel, the latter overseeing BNSF within the BH portfolio, joined WB and Charlie Munger for the in the 6-hour marathon Q&A session at Buffett-Fest in Omaha over the weekend. To be sure, the business press didn’t cover rail questions – but Bill Stephens of Trains did. The Oracle fielded “several questions” on the PR difference between BNSF and UNP – and revealed that he was very aware of the PSR story in the industry dating back to EHH & the IC. He stated: “It’s not like we’re losing business to anybody but they have been operating more efficiently, in effect, than we have during the last few years and, like I say, we take notice of it; We’ll see what that does in terms of shipper satisfaction….but we are measuring ourselves very carefully against what they do and if changes are needed we’ll do them.” And: We are not above copying anything that is successful”….is this why Matt Rose left? Where is the business mix/growth potential/ROI argument, Mr. Buffett?

GWR results came in 3 cents below consensus, but the weather impact on them (and on their interchange partners) cost them 9 cents – and they too reiterated FYG despite the under-water start to the year. North America was where the weather was, of course but Australian JV results were slightly below original guidance due mostly to more severe FX and drought effects (in fact they exited a grain branch business in WA). Oz is still seen by GWR (and their 49% partner, Macquarie) as a growth opportunity with contractual, stable characteristics (“and its free cash flow attributes are extremely strong”). And, in a role-reversal, UK/Europe, the UK came in ahead of plan, posting a positive OR (97.9% versus 101.6%) – yet still adding another charge (of $5.5mm) to Q1 results. But the focus was on NA; some takeaways:
• Safety was great in of itself, but GWR slipped from #1 to number 4 – and remember, everyone had winter
• GWR eliminated a “Region” going from 3 to 2; they also consolidated some dispatching
• They added (leased) two new short lines back home in Indiana, thereby enabling them to fill in the holes and create a 400-mile contiguous railway – back-to-the-future for their “cluster” strategy; they also had some nice Industrial Development wins
• Their volume of -1.2% still outperformed the Class One carload level for Q1/19 by 220bps

So, the renewed Short Line Value Proposition, enhanced by Class One PSR conversion and its merchandise focus,