GWR

Calendar Fourth Quarter Earnings Roundup: IBM, GE, PG, UNP

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Image Source: texasfeel Let’s get our thoughts on calendar fourth-quarter performance from a few giants in their respective industries. By Kris Rosemann and Brian Nelson, CFA International Business Machines IBM’s (IBM) stock is now back above the $170 per-share mark after falling below $120 per share just a little over a year ago. Five-year performance of the equity, however, still remains terrible, with shares of IBM languishing around the price they were changing hands at the beginning of 2012. Warren Buffett’s association with the stock has a lot of investors excited, but we think the Oracle of Omaha may be a bit too optimistic on this one. Year-over-year revenue at IBM has been under considerable pressure for some time, and … Read more

Tough Times for Rails

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Key Takeaways: The North American railroad industry is oligopolistic in nature, and we love the barriers to entry and pricing strength that come with it. North American railroad operators have been hit by volume declines across a wide range of end markets. Currency movements and global economic concerns aren’t helping matters. Union Pacific remains our choice for exposure to the space. Though others present interesting opportunities as well, we think the firm’s operating ratio has the most upside from current levels in addition to it having some attractive market positioning. “…we’re not thrilled by the performance of Union Pacific since it was added to the Best Ideas Newsletter portfolio, but the railroad industry offers such a strong fundamental backdrop that … Read more

Part I: Nelson’s Notes on Berkshire Hathaway’s 2014 Newsletter

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Hi all, It has taken me a few weeks to get a chance to read the annual newsletter of Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B), and this year’s installment was not a disappointment. For me personally, there’s not a lot of incremental insights that are gleaned, but I like reviewing the newsletter because the annual installment is invaluable for new investors, especially those looking to learn about the markets and how to think about them. What I’ll do below and in future parts is pull out a sentence or paragraph from the annual report and add to it or comment on it in order to provide further perspective. It should make for some great conversation. I’m not sure how many … Read more

Union Pacific Still on Track

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Union Pacific (UNP) reported solid second-quarter results July 24 and raised its quarterly dividend 10% today. The headline to the railroad’s second-quarter results said it best: All-Time Quarterly Records. The firm’s operating revenue advanced 10%, operating income increased 17%, and diluted earnings per share leapt 21%, to $1.43, all over the same period a year ago. Union Pacific’s operating ratio—the inverse of the operating margin in railroad speak—advanced 2.2 points, to 63.5%, as efficiency improvements and price increases drive the higher levels of profitability. Ongoing improvement to the firm’s operating ratio is core to our fundamental thesis on the company. Railroads simply have fantastic business models, and we think the group is on the cusp of a multi-year cycle of … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Our Investment Thesis on Union Pacific Remains on Track; Pricing Growth Strong

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Must Read: Joint Outlook for the Railroad and Coal Industries Union Pacific (UNP) showed why the company is included in the Best Ideas portfolio when it reported fourth quarter results Thursday. The company’s headline was nice: “Best-Ever Quarterly Results.” That’s saying quite a bit as coal shipments continue to provide stiff headwinds across much of the industry. Norfolk Southern (NSC), for example, recently reported an 8% decline in coal volumes during its fourth quarter, its results released Wednesday. Though revenue carloads of coal declined 10% during Union Pacific’s fourth quarter, strong pricing almost completely offset the weakness in this segment. Average revenue per car across all of Union Pacific jumped 6% in the quarter, far better than inflation. We continue to … Read more

Union Pacific Reports Best-Ever Quarterly Results; Thesis Remains Intact

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Union Pacific (UNP) reported its “best-ever quarterly results” when it posted third-quarter performance Thursday. The quarterly results, in our opinion, were truly fantastic. The company’s operating ratio came in at a record 64.8% (the firm’s best ever—1.8 points better than the year-ago period), as the railroad offset lower coal and grain volumes with strong pricing and productivity improvements. Operating revenue advanced 4% thanks mainly to core pricing gains, which translated into 10% and 13% increases in operating income and diluted earnings per share, respectively. The strength came in spite of lost revenue and increased costs from the flooding in Colorado (which hurt operating income by roughly $10 million). Year-to-date, Union Pacific has hauled in $2.25 billion in free cash flow, … Read more

Air Quality Standards Take Aim at Coal

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After competing with an abundance of lower-priced, cleaner natural gas, coal miners (KOL) may now have to deal with more demand headwinds as governments aim to reduce coal burning. The US Expectations are already for as much as 27 gigawatts’ worth of coal generation (about 8.5% of the US coal fleet) to retire by 2016. This percentage could rise to nearly 17% (one-sixth) by 2020, according to the Energy Information Administration. In addition to the expected retirements, the Environmental Protection Agency (EPA) plans to block all new coal-fired plants unless the construction of these plants coincides with expensive technology that captures greenhouse gas emissions. Image Source: Energy Information Administration Though the EPA forecasts that no traditional coal-fired power plants (1) … Read more

How to Think About Corporate Tax Reform

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