- This is $275 million higher than previously disclosed due to several reasons.
- The management expects the acceleration of capital projects to take advantage of the Economic Stimulus Act of 2008.
- The acquisition of additional new locomotives and this will enable the company to take advantage of the significant fuel efficiency and other environmental benefits and the Economic Stimulus Act of 2008.
- The management expects capital expenditures associated with significant flooding costs in the Midwest.
The management reported a quarterly operating ratio of 83.6% compared with 77.5% in the year ago quarter.
- The operating ratio is calculated as total operating expenses less other revenues divided by freight revenues.
The company returned $380 million in cash to shareholders during the quarter.
- This is in comparison with $449 million in the year ago quarter.
- Of the $380 million, $111 million was in connection to dividends and the balance was in relation to purchase of common stock.
- The company paid $89 million in dividends during the second quarter of 2007 and repurchased $360 million worth of its common stock.
- As at June 30, 2008, the company had $481 million in cash and cash equivalents.
- This is in comparison with $393 million for the same date in fiscal 2007.
Operating Statistics:
- The average revenues per car/unit were $1,733 versus $1,488 in the year ago quarter.
- The management reported that the revenue ton miles were 163,373 million in comparison with 163,428 million in the second quarter of 2007.
- The quarterly gross ton miles were 279,060 million, a decrease from 279,535 million in the last year quarter.
- The company recorded freight revenue/thousand RTM of $26.46 versus $22.86 in Q2 of 2007.
- The management reported that the Q2 gallons of fuel used was 355 million compared with 356 million in the same quarter last year.
- The second quarter average price per gallon of fuel was $3.51, an increase from $2.17 for the second quarter in the previous year.
- The company reported 41 million freight train miles during the quarter in comparison with 42 million freight train miles in the previous year quarter.
Fiscal 2008 Guidance:
- The management anticipates Q3 tax rate of 38.5%, the same as in Q2.
- The full year 2008 CapEx is anticipated to be $2.850 billion, $275 million higher than the previous guidance.
- The upward revision is because of the $70 million incurred as capital costs relating to floods.
- The company is also taking advantage of the opportunity to acquire additional 75 locomotives which are about 15% more fuel efficient than locomotives being replaced.
- The management expects free cash flows after dividends of $800 million for 2008.
- This is lower than last quarter’s guidance primarily due to additional capital spending and significantly higher fuel inventory costs.
Key questions and answers from the second quarter fiscal 2008 earnings call conducted by Burlington Northern Santa Fe Corp. on July 24, 2008.
Ken Hoexter (Merrill Lynch): Gross ton miles looked relatively flat. Going back to a couple of years you used to be at 4% to 6% productivity improvement run rate. Is that something you think you can get back to? Is that due to the 0% CAGR because of the floods and recent incidents or can we see that re-engage itself?
Carl R. Ice: We''ll see more improvement than we saw this quarter. It was up a little compared to the second quarter last year, flat compared to two years ago and this is why you saw the zero CAGR. We''ll improve it in the third and fourth quarters. I doubt we''ll get back to the 4% to 6% in the near term but we expect to drive improvement on this measure.
Ken Hoexter (Merrill Lynch): You mentioned that 6% of that 20% or so is pure pricing. What percent of legacy contracts we''ve seen renew in this quarter and what''s left to come in the second half of the year? Is that over 6% that you''re targeting in the estimates for the back half?
John P. Lanigan, Jr: Typically contracts in our business in the rail industry are back end loaded from a standpoint of negotiation. They take effect the following year. From a contract perspective, we''re done for this year in any contracts and so that will have any impact on this year''s revenues.
Ken Hoexter (Merrill Lynch): On fuel surcharge, is that mostly on highway diesel or there is a component on WTI?
Matthew K. Rose: 100% highway diesel.
Randy Cousins (BMO Capital Markets): Can you comment on earnings sensitivity to oil prices?
Matthew K. Rose: If oil came down to let''s say $125 from $138 to $140, that would probably benefit us couple of cents a share for the quarter. That''s probably a little more than $10 drop and $10 probably is a penny or two.
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