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CSX Beats Earnings in 2Q

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CSX Corporation (CSX - Free Report) reported second-quarter 2013 earnings of 52 cents per share, beating the Zacks Consensus Estimate of 47 cents and improving from the year-ago quarter figure of 49 cents.

The company’s second-quarter revenues were $3,069 million, slightly higher than $3,012 million in the prior-year quarter. The results also surpassed the Zacks Consensus Estimate of $3,022 million based on enhanced volumes and pricing along with improvement in operating efficiency and services.

Operating income increased 2% year over year to $963 million, while operating expense was $2,106 million, down 2%. Operating ratio (defined as operating expenses as a percentage of revenue) was 68.6%, down by 10 basis points.

Performance Across Business Lines

Merchandise revenues increased 4% year over year to $1,782 million in the reported quarter, supported by 1% growth in revenue per unit (RPU) and 3% expansion in volumes. The volume addition was driven by better performing Chemicals (up 11%), Minerals (up 7%), and Forest Products (up 3%).

Coal revenues were down 6% year over year at $770 million on 6% volume declines. RPU remained flat on a year-over-year basis. The weakness was due to lower domestic coal shipments. Export coal also suffered a significant setback due to less shipments of U.S. thermal coal to the European region as well as stiff competition.

Intermodal revenues rose 4% year over year to $425 million, driven by highway-to-rail conversions in the domestic market, increase in service lanes and customer base. On a year-over-year basis, both volumes and RPU increased 2% each.

Other revenues were $92 million, up 25% year over year.

Liquidity Position

The company exited the second quarter with cash and cash equivalents of $1,017 million compared with $1,371 million at the end of 2012. Long-term debt decreased to $8,811 million from $9,052 million at the end of 2012.


Although earnings per share growth in 2013 will likely be flat compared with the prior-year level, the growth rate is expected to be in the 10–15% range through 2015.

Amid the current sluggish economic environment and volatile coal market scenario, CSX aims to bring down its operating ratio to the high 60s range by 2015 and subsequently move further down to mid 60s in the long term.

Our Take

We believe CSX has a number of profit generating factors that include favorable rail industry pricing, recovery of the construction sector, expansion of network and terminal capacity. Additionally, the company’s focus on operational improvement and rendering better services to customers at affordable costs will likely drive profitability.

However, we remain on the sidelines due to competitive pressure, a unionized workforce and increased railroad regulation that may pose as significant threats to the company’s growth. CSX Corp. – which operates with the likes of Canadian Pacific Railway Ltd. (CP - Free Report) – currently retains a Zacks Rank #3 (Hold).

Other Railroad Stocks

Among other stocks in the railroads industry, Kansas City Southern (KSU - Free Report) is expected to release its earnings results on Jul 19, while Norfolk Southern Corp. (NSC - Free Report) will do the same on Jul 23.

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