Company Info

Wednesday Report

A big down day today for railroads on the NYSE.

BNI down 5.22%
CSX down 6.35%
NSC down 5.38%
UNP down 4.67%

What is happening? A clue comes from two other industry groups also down big today – Coal and Steel.

Some examples of the damage to coal today: James River Coal Company down 22.8%, Walter Industries Inc down 18.63%, Massey Energy Co. down 18.92%, Arch Coal, Inc. down 17.19%. The steel industry had a hard day also: United States Steel Corp. down 12.52%, Schnitzer Steel Industries, Inc. down 16.8%, Nucor Corp. down 14.25%, Ak Steel Holding Corp. down 13.63%.

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Many railroads get significant revenue from hauling coal and steel products, especially CSX and Norfolk Southern. When miners, foundries, coal and iron ore suppliers get sick, the railroad industry takes a hit.

What’s going on? Several factors are contributing to softness in these industries vital to railroads. Coal prices in Europe have declined by as much as 13% which could lead to lower prices world wide. Earnings for the third quarter are expected to be weak for energy and natural resource companies because costs are rising faster than prices can be raised. Also, there is a general slowing of demand as business activity declines.

Its time to be alert as several railroads report earnings towards the end of July. The industry has had a nice run-up until the end of May. Is it over?

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