FreightCar America: Orders for New Railcars on the Decline

Wednesday morning FreightCar America Inc.'s (RAIL) earnings came out; they were $1.80 per diluted share on sales of $322.5 million. Analysts were expecting earnings of $1.67 per diluted share.

More importantly, as I noted in my last week's post, orders for new railcars continue to dip.

This is from its press release:

Orders for new railcars totaled 768 units in the first quarter of 2007, compared with 2,199 units ordered in the fourth quarter of 2006 and 1,031 units ordered in the first quarter of 2006. The backlog of unfilled orders was 6,006 units at March 31, 2007, compared with 9,315 units at December 31, 2006, and 17,794 units at March 31, 2006.

Also there was a significant jump in accounts receivable (6x) quarter over quarter, but that could be a seasonality issue since there was almost a 4x jump in accounts ceceivable in the same quarter last year quarter over quarter.

Comments

[wghanna2:]

Warren Buffett has recently invested in railroads. He announced that he has a substanial stake in Burlington Northern and he is currently acquiring stakes in two other unnamed railroads. Recently, it has been rumored that CNI is one of those railroads. Does the reduction in new car orders mean Mr. Buffett is wrong?

2007 May 04 10:59 AM

[Roy Blanchard:]

Not necessarily. RAIL makes mainly open-top hopper cars for coal. NS is a major buyer. Most BNSF coal moves in cars owned by the utility companies buying the coal. As BNSF and UP move trains over their lines more quickly, utilities can move the same amont of coal with fewer cars. Revenue up, costs down, profits up. Go to aar.org and check performance metrics for system velocity to see the deltas here. See also my cover article in June TRAINS re rail ops and economics -- it's mainly shortlines but the principles apply to the Cass Is as well.

Buffett's thesis remains correct and look for his taking positions in UNP and CNI.

Disclaimer: I own NSC, CP, FLA.

2007 May 04 11:46 AM