Saturday, December 26, 2009

Burlington Northern's Tepid Outlook Is aWarning

A PESSIMISTIC BUSINESS FORECAST BY THE management of Burlington Northern Santa Fe as the railroad considered Berkshire Hathaway's merger proposal in late October may mean U.S. industrial activity will be less robust in 2010 than many on Wall Street anticipate.

Railroads, which transport more than 40% of the country's freight, are an excellent gauge of economic activity. If Burlington's (ticker: BNI) outlook proves accurate, the nation's other major railroads -- CSX (CSX), Norfolk Southern (NSC) and Union Pacific (UNP) -- also could see subpar results. Shares of all three have rallied since Burlington's Nov. 3 announcement of its acceptance of Berkshire's (BRKA) $34 billion proposal.

After Berkshire CEO Warren Buffett made what proved to be a successful $100-a-share bid to Burlington CEO Matthew Rose, Burlington management sent the railroad's board four potential financial scenarios to consider as it weighed Buffett's proposal. The most optimistic -- that Burlington could earn $5.06 a share if the economy and the company's business recover in 2010 -- was at odds with Wall Street's far more upbeat 2010 consensus earnings estimate of $5.50 a share, according to the preliminary proxy for the merger.

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