Railroad Roundup: AAR North American Railroad Traffic (Week 6)

Summary:

Volumes grew for the 5th straight week (+1.6%) led by Bulk markets (+5.7%), which once again benefited from strong coal demand.  Merchandise markets grew 2.5%, while intermodal fell back into negative territory at -0.9%.  Growth on growth reverted back into negative territory as well, suggesting real underlying growth has yet to convincingly emerge.  CNR remains the leading performer with volumes up 4.1% y/y, spearheaded by its metals and minerals business and complimented with positive intermodal volumes.  Quarter-to-date results are now running near +6%, well ahead of our 3% estimate. NSC also delivered another strong week of volumes, up 3.7% y/y, led by its coal, metals and intermodal businesses.  NSC's volumes are also running ahead of expectations with quarter-to-date volumes now +4.7% vs. our 1.8% estimate.  KSU trailed the group with volumes down 3.1% in the week, as a 10% drop in intermodal (perhaps due to strong $), more than offset a 46% uptick in automotive and a 7% rise in chemicals/petroleum.  While early 2017 results are lumpy and overall still subdued, we expect performance will gradually improve as we progress through the year.  We reiterate our positive view on the group and Buy ratings on CSX, CP and UNP.