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Major railroads see YOY boost in coal revenue in Q2'17

Major railroads continued to see coal revenue boost their overall earnings in the second quarter due to factors like high natural gas prices.

The year-over-year gains followed the trend of the first quarter, when coal revenues also boosted the earnings of nearly all major railroads and companies were optimistic about the recent quarter.

Some major companies saw declines sequentially, though, and CSX Corp. experienced major delays in serving some of its coal customers.

Norfolk Southern Corp. saw a 32% jump in its coal operating revenue year over year. The railway cited factors like high natural gas prices for the increases in coal volume, coal revenue and revenue per unit. The highest share of the railroad's coal volume went to domestic utilities, though export coal also improved for Norfolk Southern.

Alan Shaw, executive vice president and chief marketing officer, said in an earnings call that Norfolk Southern expects more year-over-year growth led by coal and intermodal in the third quarter.

CSX saw an increase in coal revenue in the second quarter but faced a number of complaints from some of the coal producers it serves and even a lawsuit. Coal revenue for the railroad increased slightly sequentially and jumped from $416 million to $530 million year over year. Export coal saw the biggest gain.

If coal helped CSX, though, CSX did not necessarily help coal.

Producers Arch Coal Inc. and CNX Coal Resources LP both criticized CSX for delays and service issues during the second quarter, while Murray Energy Corp. sued the railroad for a "failure to provide reliable service" after requesting relief from the U.S. Surface Transportation Board.

On its earnings call, CSX President and CEO Hunter Harrison said it is his long-term opinion that "fossil fuels are dead" and the company would not be investing in infrastructure like new tracks or locomotives for its coal delivery business.

James McCaffrey, CNX Coal's senior vice president of energy marketing, said in the coal producer's earnings call that it has options to switch over to Norfolk Southern at some of its mines.

BNSF Railway Co. saw a sequential drop but a 21% rise in carload counts and a 39% rise in revenue year over year in the second quarter. In its filing, the company said coal volumes improved because of higher natural gas prices and more utility burn compared to a warm winter in early 2016.

Union Pacific Corp. also saw a year-over-year increase but a sequential drop in its coal revenue.

In the railway's earnings call, Executive Vice President and Chief Marketing Officer Beth Whited said UP expects the third quarter to follow a traditional pattern and be up sequentially but relatively flat year over year.

Kansas City Southern experienced a growth in freight revenue from utility coal deliveries in the second quarter. An executive said on the earnings call that the railroad will likely see a sequential gain in the second half of 2017 due to high gas prices but year-over-year volume dips.

Major Canadian railroads both showed year-over-year growth in coal revenue.

Canadian Pacific saw a 16% increase in coal revenue, jumping from C$149 million in the second quarter of last year to C$165 million in the recent quarter.

John Brooks, chief marketing officer of CP, said in a July 19 earnings call that the Canadian railroad had experienced an "all-time record" for its coal shipments in the second quarter, mostly through Vancouver.

Canadian National Railway Co. coal revenues grew 33% from C$95 million in the second quarter of 2016 to C$126 million in the recent quarter, according to its earnings report. The recent total represents a drop from the C$129 million reported in the first quarter this year. CN's overall net income jumped to C$1 billion in the recent quarter — a 20% increase year over year.

The railroad said it saw volume weakness in U.S. thermal coal shipments to domestic markets, accentuated by the loss of a utility customer in the U.S. Midwest, but volume increases in Canadian metallurgical coal exports via the West Coast after two mines in British Columbia reopened.

CN said the low Canadian dollar also contributed to an increase in the second quarter.