Show Railroads Prospering Says Economist Large Future of Transportation Is Assured Special Dispatch h I BABSON PARK Florida Jan JanH In H-In In view of or the Increased rail rail- railroad railroad rail railroad road earnings reported by so 80 many of our roads Mr Ir Babson was wa to- to today today to today day asked his opinion of the rail railroad road Industry and amI Its future pos pea pos Ills re reply ly is as follows follow Standing or on the tho threshold ot of what may prove provo the th most pros year the railroads have ever had it I is i difficult today to elleve that only a few fe years ears have elapsed since the transportation industry was the football first of oC financiers and liter later of ot politicians It Is a far tar cry from flom the pu damned be lle- lle be damned policy polley of the th railroad barons to Interstate Commerce commission control or from gov- gov goy eminent sov-eminent operation during the war ar period to present day conditions The Th secret of o tho the amazing pros pros- prosperity prosperity pros of oC the th roads lies In the thi co- co cooperation operation co-operation operation which has come about on the part ot of management work worker era er stockholders stockholder rs the th government go and the th public public- group croup has contributed its full fun share chare WORKERS CO CO At At no time In the th past have there been more brilliant man man- management management man I brains In lu the tho rail Indus Indus- Industry industry Industry try than today Never have lh the workers worker been beer more willing to co- co cooperate co cooperate operate with 1 management A seri seri- serious serious seri seri-ous ous strike under the Parker Wat son Parker at son Eon railroad law Is I very nearly Impossible Stockholders have In- In in increased creased In number tremendously durIng the past pasc few years ears and all allot of them have rallied generously to the support of th their ir particular Toads roads The government has lIas been reasonable la In tho the exercise of Its regulatory functions The public has dropped Its hostile attitude ao popular a d few years ears ago aso Today not a handful but the tho great bod body of the American pub pub pub- lic is interested d In the railroads Tho volume of traffic handled dur- dur durIng during dur during ing 1926 was In the tho aggregate lars larger than eyer ever before reported and many roads were in the tho best bost physical condition of ot the past de decade de- de decade 1 cade Earnings too in many cues cases were the best ever er reported I i Gross re revenue Increased nearly 5 per cent over 1925 and anil net operating operating oper- oper Income about 12 per cent Indications are aro that the tho roads came came very cry close clos to earning the allowable per cent on theIr tentative aggregate capitalization WEST STATES ST SHOW GAINS G As compared with 1925 1926 the tho chief gains Jains in traffic the th past year were in the th fouth southern rn and western states stales Large Larro increases were re- re reported reported re reported ported In the loading of ore ole coal and grain cf merchandise merchandise dise showed only slight Increases and of forest products de- de decreased created de-created creased From the standpoint of net railroad operating op r Income the soft coal road roads in the Ihy Pocahontas re- re region region rc-Elon rc gion made the th best belli showing They were helped ty Iy the tho stimulation given gi coal traffic by the English strIke Roads Road in the central west western ern region and the northwestern region also showed lire large l rge Increases In the th northwestern group croup how how- however how however ever er the large larse roads did very ery much better than the th small ones should be noted of of course that over the country as a whole al- al although al although though some made road have reported i ionly only a small increase over 1925 they are arc nevertheless making very good earnings The The progress 1 the tho railroads have made In improving their physical condition and operating efficiency Is well known Ever ver since being restored to private management Improvement in operating condi condi- conditions condi- condi condition condition tion modernisation of shops and equipment and nd Increased main maintenance have havo been boen vigorously pushed Remember Rem however that While Individual roads may make further gains galM f along alone these lines many roads road lute hJ h J already aready put Iut Into effect the larger part of economic economies I that can readily be brought about Consequently gross cross gr ss rev revenues revenues and net operating Incomes Income will thereafter thereafter there- there thereafter after tend to fluctuate more uni- uni uniformly uni uniformly It lt Is la expected that the rate of return In property valuation of Class 1 roads and large lar l r e swItching and terminal companies will como near to equalIng equalling the fair return of per cant cent fixed by the com com- commission commission com commission mission Marcil 1 1922 There Thero Is of course much mud variation in Lt the th results b being shown by liy Individual roads About twenty five of the themore themore themore more Important roads are arc likely to show how more than S 51 per cent and about Che moro more than 4 per cent cent- Ac jal rates amed on the tho ts t's tentative valuation valuation tion in previous years ears havo have varIed as follows 1925 63 per p lilT r cent 1924 per cent ent 1929 1923 per percent percent percent cent 1922 per cent and 1921 per cent The railroads themselves figure figuro the return at somewhat lower rates than due to he hl hither higher her valuations claim claim- claimed claimed ed b by them I Just what will III result from the recent decision of the supreme court wherein a much more liberal method of or evaluating public uti utility III property was judged proper is 19 I not clear but developments may be startling The same samo decision expressed ex- ex ex expressed pressed the view that a public util- util utilIty utility util utility ity was wa entitled to at least T 7 per percent tent cent on its capital It th these se Ideas are to be b applied to railroads a radical rearrangement of or Ideas re- re respecting re their future earnings pros pros- prospects prospects prospects would be necessary Mergers Mercer have e been an Important clement In the speculation In rails during the pint pest year It Is however that the consolidation or of orthe the railroads into Inlo several se large lal ge yi will IU be a long out drawn drawn process The length of time re- re required required re required to effect the tho Nickel Plato Plate merger is significant of the tho delays delas and difficulties that are arc likely to he hemet hemet met with It is doubtful whether 1 r or not many of the tho plans now be- be beIn being Inc be-Inc In ing will ever mature AllI All I the Interested investor can do Is to wait walt and watch for developments J H Over U a period of years ears demand upon the railroads is bound to ne- ne necessitate nc radical increases in fa- fa facilities ta The amount of or revenue It height t handled Increased Iron fron ton miles per capita in 1890 1190 to ton-miles ton in 1924 or an nv- nv average erac av-erac annual Increase in traffic of oC 58 fer cent This ine ing In the great creat growth crowth in populations population I that took place durin during that pe- pe period pe period clod It is reasonable to expect this growth crowth to continue If It it does docsa I a tremendous rearrangement of railroad terminal term mal large larce Increases in track mileage greatly Increased ue tae of trucks truck and buses for lor terminal and feeder business active devel devel- development development and of more efficient rolling stock parts part and ac- ac ac accessories is s necessarily ahead Of or e Interest therefore Is the way In which the roads will go about providing pro new capital to fl- fl finance tl-nanco tl nanee nance thi this growth crowth About was wa spent by class 1 roads last fear year for new equipment Im- Im Improvements Im Improvements to facilities and exten exten- extensions extensions extensions All told about was expended during the four years ended with 1926 1925 or an an- an annual annual an annual nual average ot of In view of the above outlook a a con con- continuation continuation con continuation of this rate over a num- num num number her ber ot of years year is not Improbable About of the spent last year ear was raised through the th sale sal of bonds bond and notes and only about through the sale of stocks stock During recent years years with rail stock prices at relatively depressed dels p roads have been obliged to raise new funds by means ot of bonds Now that earnings are ar good and stock elock prices recovered the way seems clear for some of ot the stronger roads to obtain new capital through the tale sale of ot stock The offering of the Southern Railway nail way is an exam exam- example example example However this road is obtain obtain- obtaining obtaining ing Its It new stoc stock capital on a 0 75 per cent basis and many roads may question the th expediency of such sucha sucha a course In view llew of the much more favorable basis obtainable through a bond ond Issue STOCK STOC SALE S STATUS Dy By reason reasI of the th position taken b by the tha Interstate commerce com com- commission com commission ml mission slon roads which already have havea a relatively large ine arge amount of bonds compared c with stock will proba proba- probably probably bly have havo to await a a favorable proba-I proba op- op opportunity op opportunity to sell tell stock Only those with a I relatively small amount or of bonds will in my Iny opinion o find ap- ap approval ap approval for the bond method of o ft- ft financing fl A continued lowerIng In money rate rates will tend to Improve the prospects of roads having ing to Issue stock On the whole the tho outlook for future railroad growth crowth Is good nr Ily reason of or progressive management which Is honestly striving to serve the people tho the strong baric bade growth in traffic the th relatively quiet rela rela- relations relations relations with labor and the favorable disposition of o the tho I public conditions in the tho railroad business are healthy That this has been wide wide- widely widely widely ly recognized is evidenced by the continued advance In rail securities during the last two years The avo av- average av stock quotations for Instance are aro now up to the levels le of o 1912 and nd many roads ha e done the handsome thing thine in dividends Further advantages will doubt doubt- doubtless doubt lefe less leu accuro in the months that are coming but hut I would caution the average av- av average v investor against speculating in rails during this present period of general Inflation and of course seine day the demands of ot shippers and may again be n n re restraint re- re t on r railroad earnings Those who have ha been holding the thee good sound rails nd as they have developed Into the th above mentioned proper proper- properties properties tie proper ties have no cause causo for worry Ac- Ac AccordIng According Ac According cording to the th busIness bu lne has been bren well above o normal since the middle ot of o 1925 it reaching its peak of ot 15 per cent above In De December cember comber Thu Tho last two weeks have llave sho shown shon n a reC the tho recession the chart now registering 12 per per cent cent above nor nor- normal normal normal mal Copyright HH 1931 Publishers FI- FI FInancial Fi Financial Bureau nr |