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Original Source: FD (FAIR DISCLOSURE) WIRE
. Matthew Rose, Burlington Northern Santa Fe Corporation, President
- Chairman - CEO . Tom Hund, Burlington Northern Santa Fe Corporation, EVP - CFO . John Lanigan, Jr., Burlington Northern Santa Fe Corporation, EVP - CMO . Carl Ice, Burlington Northern Santa Fe Corporation, EVP - COO . Chris Weatherby, Merrill Lynch, Analyst . Randy Cousins, BMO Nesbitt Burns, Analyst . Ed Wolfe, Bear Stearns, Analyst . Michel Wienz, JPMorgan, Analyst . Adam Lawson, Morgan Stanley, Analyst
. Scott Flower, Banc of America Securities, Analyst . Jason Seidl, Credit Suisse, Analyst . David Feinberg, Goldman Sachs, Analyst
BNI reported that 3Q07 operating income exceeded $1b. 3Q07 EPS was $1.48. Co. expects 4Q07 EPS to be about flat with last year.
A. Key Data From Call 1. 3Q07 operating income = exceeded $1b. 2. 3Q07 EPS = $1.48. 3. 3Q07 OpEx = $3,068m. 4. 3Q07 share repurchase = 3.1m share. 5. 4Q07 EPS guidance = about flat with last year.
S1. 3Q07 Opening Comments (M.R.) 1. Highlights: 1. Reported EPS of $1.48, represents all-time record quarterly earnings and an increase of 11% from 3Q06 EPS of $1.33. 2. While Co. had benefit in 3Q07 of approx. $0.02 from recent developments in coal rate cases, these results were achieved in spite of a net $45m fuel headwind, due to expiring hedge position. 3. Freight revenue was up 4%, $3.9b, due to continued strong pricing of about 6%, which was partially offset by mix. 4. Reported an operating ratio of 74.6%, which represent an improvement of more than 100 BP vs. 3Q06, which was the result of very effective cost control and ongoing improvement in yields.
S2. 3Q07 Financial Review (T.H.) 1. Results: 1. EPS was an all-time quarterly record of $1.48, 11% higher than 3Q06. 2. Operating income exceeded $1b for the first time, increasing by $80m or 9% over 3Q06, driven by: 1. Freight revenue growth of 4%.
2. Strong cost control, especially in largest expense category compensation and benefits. 3. Operating ratio improved to 74.6% and decreased more than 100 BP over 3Q06. 2. Expenses: 1. OpEx was $3,068m, $50m or 2% higher than 3Q06. 2. 4% decrease in compensation and benefits was more than offset by higher fuel, depreciation, and material and other expenses. 1. Compensation and benefit expense was $937m, down $38m or 4% from 3Q06. 2. Compensation and benefit expense for employee was down 3%, on slightly lower headcount. 3. Wages and benefit increases were offset by lower variable compensation cost and other cost controls.
4. Purchase service expense was $501m, flat with 2006. 5. Depreciation expense was $324m, up about 9% from 3Q06, as a result of continuing capital investment. 6. Equipment rent expense was $235m, about flat with 3Q06, as higher locomotive rents were partially offset by reduced freight car costs. 7. Material and other expense of $257m, up $34m over 3Q06, this increase was partially result of $16m higher than normal environmental accrual. 1. A favorable settlement in 2006, higher material expenses, and increased crew support cost were partially offset by lower personal injury cost. 8. Fuel expense of $814m was about 3% higher than 3Q06.
1. $22m increase was driven by a reduction in hedge benefit of
$75m, partly offset by improved fuel efficiency of more than 3%.
9. Avg. fuel price per gallon was $2.31. 1. Fuel expense reflected $45m headwind for 3Q07, and the headwind was the net impact of hedge benefit changes partly offset by increase fuel surcharge participation and slightly lower fuel prices. 2. For 4Q07, anticipates a net headwind of about $100m. 3. Increase over last quarter's guidance was principally due to significantly higher fuel prices. 10. Expects 4Q07 total OpEx to be about $260m or 9% higher than 4Q06, with fuel expense accounting for about $220m of this
change. 11. Interest expense was $132m, and other expense was $6m. 12. Tax rate was 38.6%. 13. Still anticipates capital commitments of about $2.55b and free cash flow after dividends of around $700m for 2007. 3. Share Repurchases: 1. Bought back 3.1m shares under share repurchase program. 2. Outstanding shares are down about 25%, since the share repurchase program began.
S3. 3Q07 Business Units Review (J.L.) 1. Highlights: 1. Posted an all-time revenue record despite continued economic softness leading to declining units and flat revenue ton-miles. 2. Three of Co.'s four business units, coal, Ag, and industrial products achieved all-time revenue record. 1. Ag had an all-time units record and coal had all-time record tonnage. 3. Overall, delivered an improved revenue performance driven by yield quality, despite the slowdown in the US economy. 4. Fuel surcharge revenue was down 2%, due to the decline in units. 5. The overall change in mix was primarily driven by international revenue and fees, which was partially offset by favorable coal rate case adjustments. 2. Coal Business: 1. While 3Q07 started off with flooding and washouts in the Midwest, Co. rebounded quickly enabling coal to set an all-time revenue record and '3Q' tons record. 2. Loadings per day were 55.6 system-wide and 50.6 on the Powder River Basin. 3. Continued focus on efficiency resulted in an all-time high of 118.4 tons per unit, driven by steel to aluminum conversions. 4. Sept. recorded all-time trains per day record for the Joint Line. 1. Expects PRB coal tonnage in 2007 to exceed 290m tons, which would beat all previous records.
5. Even as Co. move record amounts of coal, utility forecast
continues to indicate higher demand than what the mines are
producing. 1. During 3Q07, two-thirds of the (indiscernible) loading opportunities were mine related. 3. Agricultural Products:
1. Produced an all-time record qtr. for revenue and units led by
volume growth in wheat, fertilizers, and ethanol. 2. Overall, Gulf exports were up 26% during 3Q07, driven by wheat exports.
3. Due to a combination of mix and PNW elevator maintenance
outages, PNW export volumes were down 10% with wheat partially
offsetting soybeans and corn. 4. Ethanol …