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CSX Underperforms Industry in First 9 Months of '19: Here's Why

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CSX Corporation (CSX - Free Report) has been struggling due to multiple headwinds like sluggish intermodal volumes on account of declining truck rates, escalated debts and the lackluster trade scenario in the United States.

Consequently, CSX stock underperformed its industry in the first nine months of 2019. The stock gained 11.5% compared with its industry’s 18.5% growth in the January-September period.

Reasons for the Underperformance


CSX is plagued by the disappointing performance of its intermodal segment. Due to sluggish volumes, intermodal revenues have declined over the last two quarters. While segmental revenues decreased 5% in the first quarter, the same dropped 11% in the second.

With excess capacity in the trucking market, truckload rates are very cheap resulting in shippers not converting much to rail. CSX had trimmed its full-year 2019 revenue guidance in July as it anticipates shipping volumes for its industrial customers to remain weak as a result of the trade overhang.

This year, the slowdown in global trade due to the Sino-U.S. trade tensions apart from inclement weather has hurt overall volumes not only at CSX but other railroads as well. The situation is unlikely to improve in the remainder of 2019. Notably, in August, Union Pacific (UNP - Free Report) trimmed its volume growth outlook for the second half of the year citing the trade spat.

Among other headwinds plaguing CSX, the railroad operator’s high debt levels are worrisome. The debt to equity ratio for CSX is more than 100% compared with 83.8% for S&P 500. This unfavorable comparison highlights that CSX is a highly leveraged company. A high debt-to-equity ratio implies that the company is funding most of its ventures with debt.

However, the freight scenario is much better in Canada, which in turn, should aid third-quarter 2019 results of Canadian railroads like Canadian Pacific Railway (CP - Free Report) .

Woes Likely to Linger for CSX

CSX is scheduled to release its third-quarter 2019 results on Oct 16, 2019. We expect shipment woes to hurt CSX’s third-quarter 2019 results. As if the above-mentioned troubles were not enough, CSX and three other U.S. railroads — BNSF Railway, Union Pacific, and Norfolk Southern (NSC - Free Report) — were sued by multiple companies.

The lawsuits alleged that in a bid to illegally boost profitability the above-mentioned U.S. railroads conspired to increase prices, thereby violating federal antitrust law. Per the allegations, the railroads participated in a price-fixing scheme (starting in 2003) by imposing coordinated fuel surcharges. We expect investor focus to remain on updates pertaining to the lawsuits going forward.

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