It’s rail earnings reporting time again, with most Class 1s teed up to report first-quarter 2020 earnings within the next few weeks. While first quarter earnings are likely to reflect the impact of COVID-19 to some degree, analysts believe that second and third quarter 2020 earnings reports will be tough to hear.
A Morgan Stanley analyst, Ravi Shanker, said “We believe there will be significant focus on management tone vs. content. Given the unprecedented lack of visibility in the near-term, management teams are (understandably) unlikely to volunteer a path for the future. As such, we expect virtually every company that has issued FY guidance for the year to withdraw it.”
Bascome Majors, a transportation analyst with Susquehanna Financial Parters said “We believe the COVID fallout to the North American industrial and consumer economies will drive deeply sub-seasonal railroad volumes as customers retrench during 2Q and into 3Q.”
Reflecting on the recession on 2008 and 2009, Majors said that the railroads would not have a complete recovery in 2021, but it could be robust. However, he added that the roads could be looking at total 2020 volumes that are ten to twenty percent below 2019.
Many believe that due to the pandemic, the rate of rail price increases will be lower in 2020 than it was in 2019. Jason Seidl, Cowen Transportation Director said “Should pricing now be in question too, we believe that the rails implementing precision scheduled railroading are best positioned, as PSR can help soften the double blow of lighter volumes and declining pricing power.”
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