Berkshire’s Rose Turns to Manufacturing as Coal ‘Traumatized’
Matt Rose, chief executive officer of Warren Buffett’s railroad, said he is counting on deliveries of manufactured goods to build the business after coal shipments declined amid reduced demand from power plants.
“The coal markets have been traumatized with low natural gas prices and very mild weather,” the CEO of Burlington Northern Santa Fe said today in an interview in Omaha, Nebraska, site of the annual meeting for Buffett’s Berkshire Hathaway Inc. (BRK/A) “Coal is the one storm cloud that we’re dealing with.”
BNSF contributed $701 million to first-quarter earnings, compared with $607 million a year earlier, as shipments of consumer goods and industrial products rose, Berkshire said yesterday. It may take until next year or 2014 for the business to return to its peak, which was 2006, Rose said.
Natural-gas drillers have been using hydraulic fracturing, or “fracking,” and other technology to develop gas in shale fields from Texas to Pennsylvania. The new sources have driven down the price and made coal a less attractive alternative.
“What we’re going to miss in our coal business, we’re going to have to pick it up in our manufacturing business,” Rose said. “We should be able to do that” as housing construction and auto production rebound in the U.S.
Rose, 53, became CEO in 2000 and joined Berkshire when Buffett bought the Fort Worth, Texas-based railroad in 2010 in his biggest takeover. The railroad CEO said the shift to extracting energy from shale deposits has created other opportunities for his company.
“Everything to do with drilling, horizontal drilling, frack sand, pipe, oil, it’s phenomenal,” Rose said. “We’re seeing strong double-digit type growth in all those markets.”
BNSF is the second-biggest U.S. railroad, behind Union Pacific Corp., and operates a network concentrated west of the Mississippi River.