Burlington Northern Profit Surges on Strong Asia Imports

Burlington Northern Santa Fe Corp. (BNI), the second-largest U.S. railroad, Tuesday said quarterly profit rose 42 percent due to strong demand for agricultural products and imports from Asia.

Burlington Northern, whose shares rose as high as 5 percent to a new record high, said it cashed in on heavy traffic from a surge in imports into the West Coast ports, carrying goods from Asia to U.S. retailers and manufacturers.

The railroad's third-quarter net profit rose to $414 million, or $1.09 per share, versus $2 million or 1 cent per share in the year-ago period charge for asbestos and environmental liabilities.

Excluding last year's charge, earnings rose 42 percent.

The result came in above analysts' estimates of $1.00 a share, according to Reuters Estimates. Revenue rose 19 percent to $3.32 billion versus expectations of $3.21 billion.

Operating ratio (search), a measure of railway efficiency, was 75.8 percent in the third quarter, an improvement of 3.6 percentage points from a year earlier excluding the charge. For the fourth quarter, Burlington sees operating ratio at around 76 percent.

It also sees freight revenue growth in the "mid-teens" and sees EPS up about 25 percent, which includes a 4 cent per share gain from an arbitration settlement and implies earnings of around $1.14 per share versus Wall Street estimates for $1.10.

Railroads continue to thrive in the face of high oil prices, because fuel accounts for a smaller portion of operating costs for rails versus truckers, making it a cost-effective alternative for hauling goods.

Burlington's results follow upbeat earnings from Canada's biggest railway, Canadian National Railway Co. (CNI), on the back of revenue gains for almost all the major product groups except petrochemicals.

Burlington Northern, based in Fort Worth, Texas, is best positioned of all the rail companies to capitalize on growth in intermodal traffic and a spike in coal demand, said Standard & Poor's transportation analyst Andrew West.

"It's the railroad most attuned to (these) two growth strategies in rail transportation," said West, who has a "strong buy" rating on the company with a price target of $72.

The company attributed revenue gains to the positive effect of fuel surcharges, greater volume and price increases.

Agricultural products revenue rose 25 percent to $522 million on the back of strong exports through ports in the Gulf of Mexico and Pacific Northwest. Consumer products revenue rose 21 percent with strength seen across most business sectors.

Seemingly endless demand for coal from utility companies continues to drive traffic in and out of the Powder River Basin (search), a region in Montana and Wyoming where most of the U.S. coal is mined, but the railway is still trying to recover from two major derailments in the area.

Coal revenue rose 6 percent to $622 million, but Burlington Northern expects even more growth in 2006.

"When you think about next year's coal number, it's all over the ballpark but it's going to be big however you look at it. I'm not sure if the mines or the railroads will be able to fulfill all of the market demand," Burlington Northern CEO Matthew Rose said on a conference call with analysts.

Burlington Northern shares rose $2.53, or 4.29 percent, to $61.53 on the New York Stock Exchange. The shares reached a new record high of $62.10.

Year to date, shares of Burlington Northern have risen 23 percent while the S&P Railroads Index (search) has increased 13 percent in the same period.