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Coal Weighs on Buffett’s Most-Watched Index: Chart of the Day

Feb. 15 (Bloomberg) -- The biggest component of Warren Buffett’s most-watched index is falling, and the decline may depress first-half earnings at U.S. railroads.

Buffett follows a gauge of freight-train traffic that’s compiled by the Association of American Railroads, as he told ABC News in a 2009 interview. This indicator tracks the number of carloads, and coal accounts for a bigger percentage of the shipments than any other category.

The CHART OF THE DAY shows the number of freight cars carrying coal each week for the past 12 months. The top panel compares the figures with year-ago levels, and the bottom panel tracks them as a percentage of total shipments.

“Coal results have been significantly below our prior expectations for the first quarter,” Gary Chase, a Barclays Capital analyst, wrote yesterday in a report. Shipments in the first five weeks of this year dropped 2.9 percent from the same period of last year. The total of 120,052 carloads for the week ended Feb. 4 was the lowest for that time of year since 2004.

Earnings per share swing by 0.5 percent at CSX Corp. and Norfolk Southern Corp. and by 0.2 percent at Union Pacific Corp. for every 1 percent change in the amount of coal they ship, Chase wrote. The New York-based analyst cut first- and second-quarter profit estimates on the railroads because of the current slump. Buffett’s Berkshire Hathaway Inc. owns a competitor, Burlington Northern Santa Fe.

CSX and Norfolk Southern also face “an overhang” from lower natural-gas prices, the report said. Natural gas traded last month in New York at the lowest price since February 2002. The decline gave utilities an incentive to curb their use of coal, an alternative to natural gas at some power plants.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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