By SAMANTHA BOMKAMPNEW YORK
Railroads and trucking companies told very different stories in their third-quarter earnings reports, as rails continued fetch higher prices and truckers dealt with weak pricing and slumping demand.
But both were helped by a drop-off in the price of fuel. Many companies have fuel surcharges -- the extra cost it tacks on to a customer's bill -- that are delayed by two months or more. And as diesel prices dropped toward the end of the quarter, many truckers and railroad operators were paying less for fuel than they were collecting from shippers. Overall though, rails continued to hold the upper hand as more freight moved to the tracks and off the highways.
The four largest U.S. railroads -- Union Pacific Corp. and Burlington Northern Santa Fe Corp. in the West and CSX Corp. and Norfolk Southern Corp. in the East -- all posted third-quarter results that beat Wall Street's expectations.
And except for CSX, every railroad grew earnings by more than 30 percent in the period. Excluding a one-time gain in the prior-year period, however, the Jacksonville, Fla.-based company's earnings from continuing operations rose 29 percent.
Besides higher prices, railroads are benefiting from their ability to improve productivity through initiatives that cut the time a train spends in a station or that improve its speed. These factors allowed the major railroads to offset lower volumes compared with a year ago.
Although some trucking companies buoyed earnings in the June to September period by racking up fuel surcharges or cutting costs, the group largely painted a bleak picture of an impending or current recession.
YRC Worldwide Inc. reported a 10 percent drop in third-quarter profit, but excluding some hefty one-time items, the Overland Park, Kan.-based company said it would have posted a loss much wider than analysts were expecting. The company did not give a prediction for the fourth quarter, citing economic uncertainty.
Werner Enterprises Inc. managed to grow its profits by 3 percent as it offered a wider array of services for customers, countering "lackluster" freight demand.
Miami-based Ryder System Inc. said its third-quarter earnings rose from a year ago but still fell short of Wall Street's expectations. The company also lowered its outlook for the year and put its share buyback plans on hold.
The trucking industry's leading trade group underscored carrier's fears when it reported that goods shipped by truck fell for the third month in a row in September.
The American Trucking Associations said Monday its seasonally adjusted tonnage index, which measures the weight of freight hauled by U.S. truckers based on membership surveys, fell 0.9 percent in September.
And the ATA's chief economist Bob Costello predicts freight demand will continue to get worse before it gets better.
"It is a tough freight market, and there is nothing on the horizon that says this will change anytime soon," Costello said.
Costello said he believes a recession began in the third quarter and will continue through the first quarter of 2009.
And as less freight is moved by truck, Wolfe Research analyst Edward Wolfe suggested that more freight will continue to shift to rail freight. This trend will be accelerated, he predicted, when fuel prices turn higher -- creating a bigger pricing disparity between the two methods of transportation.
