Railroads

[LC]

John oliver has done some decent episodes on relevant business/investing topics. 

 

I won't say I always agree with his conclusion or even how he presents the evidence, but I will give him credit for at least giving airtime to topics that nobody else would.

[Eldad]

1 hour ago, LC said:

John oliver has done some decent episodes on relevant business/investing topics. 

 

I won't say I always agree with his conclusion or even how he presents the evidence, but I will give him credit for at least giving airtime to topics that nobody else would.

Let me guess, greedy corporate fat cats are evil and their seeking of more efficient ways of doing things is actually deadly and evil and going to kill us. See Ohio crash. 
 

I’ll skip. 
 

 

[dealraker]

4 hours ago, LC said:

John oliver has done some decent episodes on relevant business/investing topics. 

 

I won't say I always agree with his conclusion or even how he presents the evidence, but I will give him credit for at least giving airtime to topics that nobody else would.

Thanks LC. 

[dealraker]

2 hours ago, Eldad said:

Let me guess, greedy corporate fat cats are evil and their seeking of more efficient ways of doing things is actually deadly and evil and going to kill us. See Ohio crash. 
 

I’ll skip. 
 

 

Somehow my family made well over 100 times their money with Norfolk long before PSR came along.  But what the hell, here's something that will really infuriate you.

 

https://rsexpress.com/precision-scheduled-railroading/

[Eldad]

28 minutes ago, dealraker said:

Somehow my family made well over 100 times their money with Norfolk long before PSR came along.  But what the hell, here's something that will really infuriate you.

 

https://rsexpress.com/precision-scheduled-railroading/

Thank you dealraker. 
 

J Oliver is a biased individual. If he is covering a topic like PSR, I already know what he is going to say is all I meant. 
 

Your article is from the prospective of the railroad client. They are free to use trucks or barges. As a shareholder of BNSF, UNP, and CP I am not so worried about their PSR concerns. If my companies have an advantage I would like them to exploit it to the extent the law and public good faith will allow. 

[dealraker]

51 minutes ago, Eldad said:

Thank you dealraker. 
 

J Oliver is a biased individual. If he is covering a topic like PSR, I already know what he is going to say is all I meant. 
 

Your article is from the prospective of the railroad client. They are free to use trucks or barges. As a shareholder of BNSF, UNP, and CP I am not so worried about their PSR concerns. If my companies have an advantage I would like them to exploit it to the extent the law and public good faith will allow. 

I own all the railroads and owned them as HH passed through most with his game.  A fossil model now, leapfrogged and down the road we go with the repairs needed from this obsession. 

 

I'm a long term investor, I complained when Buffett bought my BNSF and when KSC sold to CP while all others celebrated and bragged.  Same when Prem sold my Hub Brokerage.  Where do you find these long term superior businesses?  Take your cash, pay the cap gain tax, and go shopping for another great business?  Good luck.

 

Same with operating ratio PSR focus.  HH did it to several, the bolted or died.  Problem is the HH model ain't gunna grow sales and as I predicted all the railroad stocks would stagnate in sales and price for years after these OR/PSR obsessions/buyback/cut cap ex/cut employees/cut lines/cut customers garbage all ended.  Yea, some of it was excellent...

 

New era now.  It ain't simple PSR no more if you want a good outcome.  Those days are as dead and burried as any model that ever existed.

Edited January 27 by dealraker

[Eldad]

38 minutes ago, dealraker said:

I own all the railroads and owned them as HH passed through most with his game.  A fossil model now, leapfrogged and down the road we go with the repairs needed from this obsession. 

 

I'm a long term investor, I complained when Buffett bought my BNSF and when KSC sold to CP while all others celebrated and bragged.  Same when Prem sold my Hub Brokerage.  Where do you find these long term superior businesses?  Take your cash, pay the cap gain tax, and go shopping for another great business?  Good luck.

 

Same with operating ratio PSR focus.  HH did it to several, the bolted or died.  Problem is the HH model ain't gunna grow sales and as I predicted all the railroad stocks would stagnate in sales and price for years after these OR/PSR obsessions/buyback/cut cap ex/cut employees/cut lines/cut customers garbage all ended.  Yea, some of it was excellent...

 

New era now.  It ain't simple PSR no more if you want a good outcome.  Those days are as dead and burried as any model that ever existed.

Point taken. I have a lot to learn admittedly. 

[dealraker]

Some action in the rails world:

 

Ancora-Led Group Takes Aim at Norfolk Southern, Pushes to Oust CEO Shaw

Investors have $1 billion stake in railroad operator, plan fight for board control

 

By 

Lauren Thomas

 

 and 

Esther Fung

 

Updated Jan. 31, 2024 7:27 pm ET

 

Norfolk Southern has met with the investor group in recent weeks. PHOTO: GENE J. PUSKAR/ASSOCIATED PRESS

An investor group led by Ancora Holdings has taken a big stake in 

Norfolk Southern NSC -0.68%decrease; red down pointing triangle

 and plans to run a proxy fight aimed at overhauling the railroad operator’s board and replacing its chief executive. 

The group has built a roughly $1 billion stake and nominated a majority slate of directors to Norfolk Southern’s board in a bid to oust Chief Executive Alan Shaw, according to people familiar with the matter.

The director slate includes former Ohio Gov. John Kasich and Sameh Fahmy, who was an executive at railroad Kansas City Southern. 

The idea would be to take control of the board to effect changes aimed at boosting Norfolk Southern stock, which is down by about one-quarter from a high two years ago as revenue and profit fall. Norfolk Southern was the worst-performing stock last year of all the so-called Class 1 railroads that include 

Union Pacific

, 

CSX

 and 

Canadian National Railway

. 

Norfolk Southern has met with the investor group in recent weeks. In those private conversations, the group’s director nominees have zeroed in on a number of issues including how the company handled a big train derailment last year and what they see as Shaw’s failure to hit operating targets. 

 

Separately, hedge funds Sachem Head Capital Management and D.E. Shaw have recently been building their own stakes in Norfolk Southern, some of the people said. The size of those positions couldn’t be determined. 

Norfolk Southern is among the top-five largest railroad operators in North America by revenue. It operates across the eastern U.S. in 22 states and in Washington, D.C. The company’s market capitalization currently stands at roughly $54 billion. 

Norfolk Southern’s fourth-quarter results last week revealed a 19% decline in earnings and a 5% drop in revenue compared with year-earlier levels as railroads grapple with declining demand from lumber and coal suppliers, among others. The company, which has complained of a “stubbornly weak freight market,” said it focused on safety and service for much of 2023 and is aiming to improve productivity this year. 

Ahead of the report, the railroad operator told employees that it planned to lay off 7% of its nonunion workforce, including management and administrative staff, according to a memo viewed by The Wall Street Journal. 

“The overall macroeconomic environment and prolonged weak freight market has limited the amount of business we can attract, and our cost structure is too high for our top line,” CEO Shaw said in the memo. 

The dismal earnings report led multiple research analysts to downgrade the stock. 

“Norfolk has long been an underperforming self-help story that simply can’t figure out how to help themselves,” 

Stifel

 analysts wrote in a research note. 

The company’s stock fell after a toxic train derailment in East Palestine, Ohio, resulted in damaged cargo, fires and chemical releases across the area roughly a year ago. The accident led to scrutiny of Norfolk Southern’s safety practices, with costs associated with the derailment eclipsing $1 billion. 

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Shaw, a Norfolk Southern employee since 1994, became CEO in 2022 and has faced a slew of challenges during his tenure. Bruising negotiations between unions and freight railroads in 2022 led President Biden to intervene to prevent a potentially damaging strike. 

Other hurdles for Norfolk Southern have included disruption because of extreme weather and supply-chain congestion. 

Norfolk Southern isn’t the only railroad to face shareholder pressure for change. 

Union Pacific, the largest freight-railroad operator in the U.S., last year named Jim Vena chief executive after a major shareholder urged the company’s board to oust Lance Fritz from the job. Union Pacific also announced staff cuts to put a lid on operating costs. 

Cleveland-based Ancora has nearly $9 billion in assets under management. Last year, the firm was successful in winning board seats at packaging supplier Berry Global and vehicle marketplace RB Global. It also played a key role in installing Tom Kingsbury as CEO at retailer 

Kohl’s

, succeeding Michelle Gass after a deal to sell the business was scrapped. 

This time of year is typically when more proxy campaigns are launched and activists kick into high gear, as many companies’ windows for shareholder nominations open up ahead of annual meetings to be held in the spring. 

Disney

 is in the midst of a boardroom battle with Nelson Peltz’s Trian Fund Management and Blackwells Capital. 

 

[Dinar]

I am sorry, but I do not get the attraction.  Let's assume normalized revenues = $14bn, let's assume that (EBITDA - cap ex) / sales can = 40%, which would imply a 50% operating ratio, I doubt that the company can achieve it but let me dream... Then, let's assume annual EBITDA - cap ex can grow at 1% + inflation per annum purely driven by pricing, then, using a real r = 6%, value: 20 * 14bn * 0.4 = $112bn before debt and tax, or $100bn post debt and $75bn post tax, using 226mM s/o, that is $331 per share.

 

What am I missing?  @dealraker?

[dealraker]

26 minutes ago, Dinar said:

I am sorry, but I do not get the attraction.  Let's assume normalized revenues = $14bn, let's assume that (EBITDA - cap ex) / sales can = 40%, which would imply a 50% operating ratio, I doubt that the company can achieve it but let me dream... Then, let's assume annual EBITDA - cap ex can grow at 1% + inflation per annum purely driven by pricing, then, using a real r = 6%, value: 20 * 14bn * 0.4 = $112bn before debt and tax, or $100bn post debt and $75bn post tax, using 226mM s/o, that is $331 per share.

 

What am I missing?  @dealraker?

Ha!  Not too impressed with anything about NSC for a log time.

[Saluki]

14 hours ago, Dinar said:

I am sorry, but I do not get the attraction.  Let's assume normalized revenues = $14bn, let's assume that (EBITDA - cap ex) / sales can = 40%, which would imply a 50% operating ratio, I doubt that the company can achieve it but let me dream... Then, let's assume annual EBITDA - cap ex can grow at 1% + inflation per annum purely driven by pricing, then, using a real r = 6%, value: 20 * 14bn * 0.4 = $112bn before debt and tax, or $100bn post debt and $75bn post tax, using 226mM s/o, that is $331 per share.

 

What am I missing?  @dealraker?

 

If you start from the risk of a zero and work backwards, RRs look interesting. Other than ships, there is no cheaper way to move freight. So for large amounts of land based freight over long distances, they are the best option.  They are also somewhat monopolies since many of them have merged and some overlap in a few areas, but some have large portions all to themselves. The risk of a new competitor is almost zero because the RRs were built on land grants and rights of way that you wouldn't be able to get now. 

 

Advances in technology will allow longer cars and fewer people to operate the trains which should help profitability in addition to growth along with the economy.  And in an inflationary economy, most of the big capex was paid for in past dollars but the revenue comes back in future dollars which improves your ROI.  

 

There is also a potential to monetize all that land and track in ways that are not apparent yet, but may become valuable in the future.  For example, when I was a young energy/telecom attorney, Williams Companies in Oklahoma made a bunch of money from old natural gas pipes that were not being used and not even in good shape. During the fiber boom, they allowed telecom companies to run miles and miles of fiber through those empty pipes.  The telecom companies didn't have to get rights of way, or spend a fortune to dig up roads to bury the wires.  Win/Win.  Those rails go east/west and north/south across the entire US, Canada and sometimes Mexico.  Sometime someone is going to figure out a way to make money off that in a way that doesn't involve trains.