Consensus is both rare and beautifully constructive. Once achieved, it allows Fools to continue to the next station in their investing journey. But be sure your interpretation of that consensus is flawless.
Norfolk Southern (NYSE:NSC) and Canadian Pacific Railway (NYSE:CP) reported the last of the earnings for major North American railroads this week, revealing the sharp revenue cuts and freight volume declines that characterized results for the rest of the industry. Norfolk Southern's profits fell 45% to $247 million, accompanied by revenue that was down 33%. Canadian Pacific's profit decreased 39% from a year ago as revenue fell 21%. At competitor Canadian National Railway (NYSE:CNI), earnings slid only 16% on 15% less revenue.
Using overall freight volume as a relative indicator, these two operators were hardest hit among major North American railroads. Anyone tracking industry data throughout the quarter, as this Fool did, would have flagged them as relative underperformers, and indeed in the final tally they experienced the steepest decline in freight volumes: 26% for Norfolk Southern and 24% for Canadian Pacific. In contrast, Berkshire Hathaway's (NYSE:BRK-B) pony in the railroad sector -- Burlington Northern Santa Fe (NYSE:BNI) -- suffered only a 19% volume drop.
And both Norfolk Southern and Canadian Pacific at least tepidly echoed the bottom proclamations voiced by every major operator.
A brief lesson for interpreting bottoms
I have three brief reminders for Fools who are feeling encouraged because these companies say we're seeing a bottom.
- Bottoms by nature are impossible to confirm without the passage of time. Yes, we have corroborating observations from coal miners like Arch Coal (NYSE:ACI) and steelmaker Nucor (NYSE:NUE), but each declaration is accompanied by stark cautions about the lack of foreseeable growth.
- The distinction between stabilization and growth has never been more important to grasp. Norfolk Southern CEO Wick Moorman reminds us that it "seems likely that the economic recovery will take some time," adding that significant recovery could still be a year away.
- Don't tune out those qualifying statements. This Fool is concerned about investors' being tempted to latch onto bottom-declaration fever and ignore the pesky details of what a road to recovery might look like.
I'm no longer asking you to jump off the train, but merely to mind the gap.
Further Foolishness:
- Bottom: that deceptive, magic word
- The haulers held up well under the circumstances
- What a sector without a bottom looks like
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