BNSF's Q2 Net Earnings Fall, But Operating Ratio Improves

Like its other Class I counterparts, the COVID-19 pandemic hit Berkshire Hathaway Inc.'s BRK bottom line in the second quarter, with revenue falling 22% amid an 18% drop in rail volumes.

"BNSF is an important part of the national and global supply chain and, as an essential business, has continued to operate throughout the duration of the COVID-19 pandemic. However, the COVID-19 pandemic has caused a significant economic slowdown that has adversely affected the demand for transportation services," Berkshire Hathaway, which owns BNSF, said in a statement. 

Berkshire Hathaway's statement continued, "The COVID-19 pandemic continues to evolve, and the full extent to which it may impact BNSF's business, operating results, financial condition, or liquidity will depend on future developments which are highly uncertain and cannot be predicted with confidence. We believe BNSF's fundamental business remains strong and it has ample liquidity to continue business operations during this volatile period."

Nonetheless, BNSF's operating ratio improved to 61.1% in the second quarter, compared with 64.8% in the second quarter of 2019.

Operating ratio, which is the ratio of operating expenses to revenues,  can be used by some investors to gauge the financial performance of a company, with a lower operating ratio implying improved performance. BNSF attributed the lower operating ratios in 2020 to lower volume-related costs, productivity improvements, the effects of cost control initiatives and improved weather conditions.

BNSF's second-quarter net earnings were $1.13 billion, compared with $1.34 billion in the second quarter of 2019.

Of that, revenues totaled $4.6 billion, compared with nearly $5.9 billion for the same period in 2019. But operating expenses were lower, falling 26% to $2.9 billion from $3.9 billion in the second quarter of 2019 amid lower fuel expenses and lower expenses for compensation and benefits, as well as lower expenses for equipment, rents and materials.

(BNSF)

BNSF's rail volumes for the first half of 2020 totaled 4.4 million cars/units, compared with 5.03 million cars/units for the same period a year ago. Average revenue per car/unit has fallen 2.7% amid an 11.7% decline in rail volumes. 

Revenues declined across all of BNSF's segments. Consumer products slipped 17% to $1.6 billion amid a 12% decline in rail volume because of lower intermodal and automotive shipments as a result of the COVID-19 pandemic.

Industrial products fell 26% to $1.2 billion in the second quarter amid a 26% volume decline. The COVID-19 pandemic, as well as well reduced demand in the energy sector drove frac sand and petroleum products volumes lower. 

Agriculture products were down 12% to $1.1 billion on a 7% decrease in rail volumes. BNSF attributed the volume declines to the pandemic, which affected ethanol and related commodities, and to lower net exports. 

Meanwhile, coal tumbled nearly 39% to $541 million amid a nearly 34% volume decline. Lower electricity demand as a result of the pandemic, as well as mild winter weather, low natural gas prices and the retirement of coal-fired power units contributed to the volume decline, according to Berkshire Hathaway.

(BNSF)

BNSF said today it is lowering its capital expenditures budget for 2020 by $300 million to $3.1 billion, "given lower volumes being experienced due to the COVID-19 pandemic and productivity

Improvements. This new level of capital will have a continued emphasis on maintenance and expansion required to continue operating a safe, reliable and efficient network that meets customer demands."

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