Burlington Northern Santa Fe (NYSE:BNI) has been working on the railroads all the livelong day, but not with a mind toward just passing the time away. Strong demand for rail transit has translated into a strong operating environment for this leading hauler.

Revenue in the third quarter steamed ahead 19% as the company experienced an 18% upswing in freight revenue. This, in turn, was fueled by roughly 7% growth from fuel surcharges, 6% from higher pricing, and 4% from unit growth. Burlington Northern Santa Fe's margins improved again as the adjusted operating ratio moved from 79.4% last year to 75.8% this quarter and adjusted earnings per share were 42% higher than in the year-ago period.

Growth was pretty broad-based this period. Intermodal business growth of more than 20% fueled a strong performance in the consumer product segment, while industrial and agricultural product revenue also grew by double digits. Strong coal demand, especially for Powder River Basin coal, led to a 6% rise in that business.

Rails have been strong for a while now, with the stock prices of Burlington, Canadian National (NYSE:CNI), CSX (NYSE:CSX), and even Union Pacific (NYSE:UNP) all appreciating by double digits over the last year. What's more, many shippers seem to be increasingly turning to intermodal and rail options for their transport needs -- good news for those companies that don't have an overabundance of spare capacity.

Rails are kind of strange in the transport world because they're really the only sector where the companies own the passages. Truckers all use the same public roads, tankers share the waterways, and while airlines lay claim to gates, they all use the same air. While this helps to cut down on competition, it also imposes a considerable maintenance burden. For instance, 80% of Burlington's year-to-date capital spending has been for maintenance, with most of that going toward track upkeep.

That high maintenance burden does put a damper on the cash flow situation for big rails like Burlington. That said, the company is nonetheless free cash flow positive this year and has been for nearly all of the last decade. So, what does it mean when a company in a popular industry has an OK-looking earnings valuation and a less-OK-looking cash flow valuation? It means you need to be careful, Fools. Times are good right now for the rails and there may yet be money to be made in the stocks, but the cash flow picture suggests that long-term appreciation may be more limited.

Ride the rails in Fool style:

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).