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CSX Corporation’s (CSX - Free Report) efforts to reward its shareholders through dividends and buybacks are commendable. The company anticipates low to mid-single-digit volume growth in 2024, propelled by robust performances in the merchandise, intermodal and coal units.
Factors Favoring CSX
CSX's top line was boosted by higher export coal and domestic shipments, with a 3% coal volume increase in 2023. The company expects further growth with high export coal prices and fuel surcharge revenues.
CSX’s commitment to reward its shareholders is praiseworthy. In February 2024, the company announced a 9.1% hike in its quarterly dividend to 12 cents per share. In 2023, CSX bought back shares worth $3,482 million and paid out dividends worth $882 million.
In the fourth quarter of 2023, CSX held $1.436 billion in cash, significantly surpassing its $559 million debt, ensuring ample liquidity. Furthermore, its current ratio (a measure of liquidity) stood at 1.05, reflecting a robust financial position.
Key Risks
CSX grapples with supply-chain disruptions, labor shortages and semiconductor issues, affecting its merchandise segment. Intermodal revenues fell by 4% in 2023, with an anticipated 8.1% decline in the first quarter of 2024.
CSX's bottom line is being constrained by high costs, particularly fueled by labor, fringe expenses, purchased services and rising fuel expenses. Additionally, the company grapples with substantial challenges stemming from its high capital expenditures. With 2023 expenses at $2.3 billion and an anticipated increase to around $2.5 billion in 2024, elevated capex could hinder the company's ability to generate free cash flow.
High Operating Costs & Supply-Chain Disruptions
CSX faces operational challenges from supply-chain disruptions, including labor and equipment shortages. High operating costs are hurting not only the company’s bottom line but also other railroads like Norfolk Southern (NSC - Free Report) and Union Pacific Corporation (UNP - Free Report) .
NSC faces challenges from weak freight conditions, impacting all key segments — Merchandise, Intermodal and Coal. Revenues declined by 5% year over year in 2023, with revenue per unit dropping by 3%.
Operating expenses, particularly compensation and benefits, increased by 8% in 2023, contributing to a rise in the operating ratio. Recent labor negotiations are expected to further elevate labor costs. Expenses on compensation and benefits are projected to increase by 3.7% in 2024 compared to the 2023 actuals.
At UNP, supply-chain disruptions exacerbate concerns over soft consumer markets and reduced fuel surcharge revenues. Volumes dropped 1% year over year in 2023. This is expected to persist in the soft freight market, thus impacting overall volumes.
Operating expenses surged, leading to a 220-basis points deterioration in the operating ratio (operating expenses as a % of revenues) to 62.3% by the end of 2023. This trend is expected to continue due to costs related to recent labor agreements.
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CSX's Dividend Payouts Boost Prospects Amid Cost Concerns
CSX Corporation’s (CSX - Free Report) efforts to reward its shareholders through dividends and buybacks are commendable. The company anticipates low to mid-single-digit volume growth in 2024, propelled by robust performances in the merchandise, intermodal and coal units.
Factors Favoring CSX
CSX's top line was boosted by higher export coal and domestic shipments, with a 3% coal volume increase in 2023. The company expects further growth with high export coal prices and fuel surcharge revenues.
CSX’s commitment to reward its shareholders is praiseworthy. In February 2024, the company announced a 9.1% hike in its quarterly dividend to 12 cents per share. In 2023, CSX bought back shares worth $3,482 million and paid out dividends worth $882 million.
In the fourth quarter of 2023, CSX held $1.436 billion in cash, significantly surpassing its $559 million debt, ensuring ample liquidity. Furthermore, its current ratio (a measure of liquidity) stood at 1.05, reflecting a robust financial position.
Key Risks
CSX grapples with supply-chain disruptions, labor shortages and semiconductor issues, affecting its merchandise segment. Intermodal revenues fell by 4% in 2023, with an anticipated 8.1% decline in the first quarter of 2024.
CSX's bottom line is being constrained by high costs, particularly fueled by labor, fringe expenses, purchased services and rising fuel expenses. Additionally, the company grapples with substantial challenges stemming from its high capital expenditures. With 2023 expenses at $2.3 billion and an anticipated increase to around $2.5 billion in 2024, elevated capex could hinder the company's ability to generate free cash flow.
High Operating Costs & Supply-Chain Disruptions
CSX faces operational challenges from supply-chain disruptions, including labor and equipment shortages. High operating costs are hurting not only the company’s bottom line but also other railroads like Norfolk Southern (NSC - Free Report) and Union Pacific Corporation (UNP - Free Report) .
NSC faces challenges from weak freight conditions, impacting all key segments — Merchandise, Intermodal and Coal. Revenues declined by 5% year over year in 2023, with revenue per unit dropping by 3%.
Operating expenses, particularly compensation and benefits, increased by 8% in 2023, contributing to a rise in the operating ratio. Recent labor negotiations are expected to further elevate labor costs. Expenses on compensation and benefits are projected to increase by 3.7% in 2024 compared to the 2023 actuals.
At UNP, supply-chain disruptions exacerbate concerns over soft consumer markets and reduced fuel surcharge revenues. Volumes dropped 1% year over year in 2023. This is expected to persist in the soft freight market, thus impacting overall volumes.
Operating expenses surged, leading to a 220-basis points deterioration in the operating ratio (operating expenses as a % of revenues) to 62.3% by the end of 2023. This trend is expected to continue due to costs related to recent labor agreements.