CSX predicts relatively flat earnings this year

AP News
Posted: Jul 17, 2013 12:21 PM

OMAHA, Neb. (AP) — CSX officials say investors shouldn't expect much earnings growth this year, even though the railroad beat expectations in the second quarter and coal demand appears to be stabilizing.

But the Jacksonville, Fla.-based railroad is still predicting its earnings will grow 10 to 15 percent in 2014 and 2015, as the economy continues improving and shipments of crude oil and the sand used in shale oil mining keep growing.

CSX executives discussed their outlook Wednesday, one day after the company reported profit of $535 million, or 52 cents per share, on $3.07 billion in revenue for the second quarter. That's up from $512 million, or 49 cents per share, on $3.01 billion in revenue in last year's April-June period.

CSX beat Wall Street expectations for the quarter, as rates and total volume increased slightly.

"This team has delivered earnings growth in five of the past six years, and improved the operating ratio in each of the past six years," said Michael Ward, CSX's chairman, president and CEO. "This in spite of the fact that CSX has lost over half of its domestic coal business over this period and its merchandise business is still down from pre-recession levels."

CSX stock gained 31 cents, or 1.2 pecent, Wednesday to sell for $24.95 in midday trading.

Railroads have been dealing with a sharp decline in coal demand over the last couple years because relatively cheap natural gas prices and environmental concerns prompted a number of utilities to switch power plants from coal to gas.

But it appears that coal demand is beginning to stabilize. CSX said domestic coal shipments increased 5 percent in the quarter, as natural gas prices rose, but coal exports fell 23 percent, particularly to Europe.

CSX officials say the railroad was helped by some one-time items in the first half of the year, which is why they're predicting relatively flat earnings per share compared with last year's $1.79 per share.

S&P Capital IQ analyst Kevin Kirkeby said he still recommends buying CSX stock, because of the long-term positive trends for the railroad. Kirkeby said the railroad's comments about the prospects for its construction, agriculture and coal businesses were encouraging.

Investors watch what major freight railroads are carrying closely because railroads are indicators of the nation's economic health.

Ward said the railroad industry will learn from the oil train derailment in Canada that is presumed to have killed 50 people, but he's not sure if the accident will inspire new regulations.

Ward offered his condolences to everyone affected by the July 6 crash of an oil-laden train into the Quebec town of Lac-Megantic.

"It was a terrible accident," Ward said. "First responders did a great job responding to that horrible accident."

But Ward added that until investigators determine what caused the crash, it won't be clear whether new regulations are needed.

CSX said train accidents cost it $16 million during the quarter, and two railroad employees lost their lives last week in accidents. In May, a CSX freight train derailed and a couple of its cars exploded near Baltimore after striking a trash truck. Officials have estimated that high-profile accident caused at least $625,000 damage to the train and tracks, as well as to buildings nearby.

CSX operates over 21,000 miles of track in 23 eastern states and two Canadian provinces.

CSX was the first major U.S. freight railroad to release second-quarter earnings. Union Pacific Corp. will release its first-quarter results on Thursday, and Norfolk Southern Corp. will follow next Tuesday.


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CSX Corp.: www.csx.com