From the Editor: While uncertainty rules, railroads prep for recovery

With Class Is withdrawing previously provided guidance on freight-rail volumes and revenue for the rest of the year, and states reopening for business in varying degrees and paces, coronavirus-related clarity was in short supply as this issue went to press May 4. 

“With COVID-19 blurring the horizon, we need to remain focused on rightsizing to meet the current demand while being ready to ramp back up as soon as the issue of the pandemic clears,” CN Executive Vice President and Chief Operating Officer Rob Reilly told Managing Editor Jeff Stagl in an email. CN scaled back 2020 capital expenditures by CA$200 million to CA$2.9 billion, and withdrew its 2020 financial guidance and three-year targets provided at the railroad’s 2019 Investor Day.  

Other Class Is issued similar sentiments in their Q1 earnings calls and releases: 

• Canadian Pacific updated its outlook for the rest of the year. CP now expects volume to be down mid-single digits and adjusted diluted earnings per share to be flat year over year. CP is still budgeting capex of CA$1.6 billion as it takes advantage of the traffic slowdown to better position the network for recovery. 

• CSX withdrew its guidance for the rest of the year. “The potential range of outcomes for both production and demand, as well as the potential shape of the recovery, are too wide to predict at this time,” said President and Chief Executive Officer Jim Foote. He also said: “I’ve been through just about every modern-day financial calamity plus others in my career. And this one is clearly the most challenging.”

• Kansas City Southern pulled its full-year earnings forecast. KCS also announced it reduced 2020 capex from $500 million — or 17 percent of annual revenue — to $450 million. The Class I might further cut capex by another $50 million. “We are focusing intently on rightsizing our resources in the face of declining volumes, while remaining prepared for a return to volume growth,” said President and CEO Pat Ottensmeyer. 

• Norfolk Southern Corp. withdrew its outlook for flat full-year revenue. Q2 volumes continued to decline across all of NS’ commodity segments, down 30 percent quarter-to-date (through late April). NS is “doubling down on examination of our structural cost opportunities to ensure we remain positioned to drive enhanced profitability for the long term,” said Chief Financial Officer Mark George.

• Union Pacific Railroad officials projected Q2 carload volumes would be down 25 percent year over year. Capital expenditures in 2020 will be reduced by $150 million to $200 million. “The 18-month implementation of Unified Plan 2020 has put our company in a position of strength, with a strong balance sheet and ample liquidity, as we face today’s fluid and uncertain situation,” said President and CEO Lance Fritz.

A little certainty could be just around the corner. FTR Transportation Intelligence recently unveiled the COVID-19 Rail Freight Recovery Index, which measures rail and intermodal’s response and recovery based on pre-pandemic levels, while accounting for historical patterns and seasonal fluctuations. Weekly Association of American Railroads data analyzed by FTR shows “rail volumes in the intermodal and carload sectors are likely near the bottom,” FTR officials said in a May 1 press release.