Coal Woes To Dent CSX' Q3

(RTTNews) - Railroad operator CSX Corp. (CSX) will chug along a bumpy track with its third-quarter financial results after the market close on Tuesday, October 13, 2015.

Amid continued weakness in global market conditions, the struggling railroads are striving to propel their earnings growth by scaling down costs and expenses. As CSX continues to focus on its value drivers of growing merchandise and intermodal business, value pricing and efficiency savings, the company still expects to drive meaningful full-year margin expansion this year as it progresses towards its longer term goal of a mid-60s operating ratio.

Most recently at the Cowen and Company 8th Annual Global Transportation Conference, CSX affirmed its outlook of flat earnings per share for the third quarter, but warned that achieving the estimate will be more challenging due to weaker-than-expected volumes.

For fiscal 2015, the company projects earnings per share growth to be in the mid-single digits, citing the volume declines in the third quarter and ongoing challenges to coal that are expected to continue in the fourth quarter.

While reporting its financial results for the second quarter in July, CSX had forecast earnings per share growth for the full year in mid-to-high single digits, but noted at that time that achieving the upper end of that range would be more challenging given the current energy environment.

CSX noted that while it delivered strong financial, service and efficiency improvements in the first six months of 2015, it expects the second half of the year to be more challenging amid intensifying headwinds in its coal markets.

Analysts polled by Thomson Reuters expect the company to report third-quarter earnings of $0.51 per share and revenues of $3.00 billion. For fiscal 2015, analysts estimated earnings of $2.03 per share, up 5.7% from the prior year, and revenue of $12.09 billion.

CSX Chief Sales and Marketing Officer Fredrik Eliasson, formerly the company's Chief Financial Officer, said, "In the third quarter, we see strong pricing that reflects the value of our service, and we continue to drive greater asset utilization and reduce costs as we match our resources with demand while improving our service product."

"At the same time, overall volume to date is down about two percent, with both our domestic coal and merchandise markets tracking slightly below the company's original third quarter expectations," Eliasson added.

CSX said it will deliver the earnings growth for the full year despite domestic coal revenue declines that may exceed $400 million for the year.

Q2 Performance

In the last quarter, CSX reported an increase in second-quarter profit, despite a 6% decline in revenue, driven partly by lower fuel prices and cost savings. Quarterly earnings topped Wall Street estimates, while revenue fell short of expectations.

The company's second-quarter net income was $553 million or $0.56 per share compared to $529 million or $0.53 per share last year.

On average, 25 analysts polled by Thomson Reuters estimated earnings of $0.53 per share for the quarter. Analysts' estimates typically exclude special items.

Revenue decreased 6% to $3.06 billion from $3.24 billion in the prior year, as pricing gains were more than offset by the impact of lower fuel recovery, a 1% volume decline and changing business mix. Seventeen analysts had a consensus revenue estimate of $3.12 billion for the quarter.

Coal volume in the quarter slid 11% from last year, merchandise volume dropped 3%, while intermodal gained 5%, CSX said.

Expenses for the quarter declined 9% to $2.05 billion. Operating ratio for the quarter improved to a record 66.8% from 69.3% last year, the company said.

Profile

Based in Jacksonville, Florida, CSX is one of the nation's leading transportation suppliers. The company's rail and intermodal businesses provide rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers.

Overall, the CSX Transportation network encompasses about 21,000 route miles of track in 23 states, the District of Columbia and the Canadian provinces of Ontario and Quebec.

CSX serves major markets in the eastern United States and has access to over 70 ocean, river and lake port terminals along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St. Lawrence Seaway. The company also has access to Pacific ports through alliances with western railroads.