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CSX's Earnings Beat in 1Q

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CSX Corporation (CSX - Free Report) reported first-quarter 2013 earnings of 45 cents per share, ahead of the Zacks Consensus Estimate of 40 cents as well as the year-ago quarter figure of 43 cents.

The company’s first-quarter revenues of $2,958 million remained relatively flat year over year. The result also surpassed the Zacks Consensus Estimate of $2,939 million based on higher contributions from Chemical, Automotive and Forest Products segments.

First-quarter operating income increased 2% at $875 million, while operating expense was $2,083 million, down 1%. Operating ratio (defined as operating expenses as a percentage of revenue) declined 70 basis points year over year to 70.4%.

Performance Across Business Lines

Merchandise revenues increased 2% year over year to $1,717 million in the reported quarter, driven by 3% growth in revenue per unit (RPU). However, volumes for the segment registered 1% year-over-year decline given significant drop in Agricultural Products (down 12%), Metals (down 8%), and Waste and Equipment (down 7%).

Coal revenues were down 13% year over year to $726 million on 10% volume declines. RPU also moved down 3% on a year-over-year basis. The poor performance by Coal was due to lower domestic coal shipments given lower electrical generation, higher utility stockpiles and low natural gas prices. Export coal also suffered a significant setback due to less shipments of U.S. thermal coal to European region.

Intermodal revenues rose 4% year over year to $404 million, driven by highway-to-rail conversions in the domestic market, increase in service lanes and increase in existing customers. On a year-over-year basis, volumes and RPU increased 3% and 1%, respectively.

Other revenues were $111 million, up 60% year over year.

Liquidity Position

The company exited the first quarter with cash and cash equivalents of $1,072 million compared with $1,371 million in the year-ago period. Long-term debt decreased to $8,846 million from $9,052 million in the year-ago period.

Management approved a new $1.0 billion share buyback program that is expected to start immediately and be complete in the next 24 months. The company also hiked its quarterly dividend by 7% to 15 cents.


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

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

Our Take

We believe that favorable rail industry pricing and operational improvement will aid CSX’s top-line growth and drive earnings going forward. The company has adopted several steps including improvement in car cycle times and reduction in overtime and other associated labor costs. These measures enable the company to lower rent expense, materials usage and labor cost per employee while delivering a superior service offerings to customers. In addition, the company aims at resource planning and execution to curb overtime expenses in transportation, mechanical and engineering departments. CSX Corp 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 Apr 19, while Norfolk Southern Corp. (NSC - Free Report) will do the same on Apr 23.

Other stocks worth considering within the sector is Canadian Pacific Railway Limited (CP - Free Report) that holds a Zacks Rank #2 (Buy).

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