- 2012 - October - 18th -

CSX reports slight drop in revenue, earnings

by Mark Basch, Contributing Writer

As the economy goes, so goes the railroad business of CSX Corp. So with a sluggish economy, Jacksonville-based CSX reported a slight drop in revenue and earnings in the third quarter.

“We’re seeing the economy moderating a little bit,” CSX Chairman and CEO Michael Ward said in an interview Wednesday.

The company’s results have been impacted for several quarters by big declines in CSX’s largest business, coal shipments.

Ward said excluding coal, the volume of freight shipped over CSX’s rails rose by 4 percent in the third quarter, down from 6 percent in the second quarter.

Ward thinks uncertainty over economic policy heading into the November election, as

well as concerns about federal budget negotiations after the election, are impacting the economy.

“I just think we’re seeing a little bit of a lack of confidence by consumers and the business community,” he said.

Overall, CSX reported late on Tuesday that third-quarter earnings fell 2 percent to $455 million, with revenue also down 2 percent at $2.89 billion.

Because of stock repurchases that reduced the number of shares outstanding, earnings per share rose by a penny to 44 cents in the quarter. That was 1 cent higher than the average forecast of analysts surveyed by Thomson Financial.

“We’re pretty pleased, given the slow economy and the hits we’re taking on coal, we were able to produce these kinds of results,” Ward said.

Revenue from coal shipments dropped 17 percent in the quarter to $791 million. Railroads have been affected by a continuing decline in demand for coal from U.S. utility companies, due to low natural gas prices and high stockpiles of coal. That has been slightly offset by increases in shipments to ports for export coal.

The trends are shifting somewhat. CSX’s domestic coal shipments fell by 30 percent in the third quarter, which was an improvement over a 37 percent drop in the second quarter.

Ward expects a somewhat smaller decline in the fourth quarter.

“It will be significant, but not 30 percent,” he said.

However, growth in export coal is slowing, so CSX still expects a big net decline for the fourth quarter.

“For overall coal, this will be our toughest quarter of the year,” Ward said.

He said it will be late in 2013 before overall coal trends improve.

The most positive trend in CSX’s results was a 17 percent jump in automobile shipments. The company attributes that to an increase in North American light vehicle production to meet pent-up demand.

CSX also saw an 8 percent increase in revenue for its intermodal business, as the company gains more customers who see its combination of rail and short truck routes as more efficient than long truck hauls.

Despite earnings that were slightly above analysts’ forecasts, CSX’s stock opened 63 cents lower Wednesday at $21 and closed at $21.19, down 43 cents on the day.

CSX’s stock had already fallen 7 percent in the past month, with analysts expressing concern about coal volumes.

Even with the recent price drop, Dahlman Rose & Co. analyst Jason Seidl said he is “remaining on the sideline” after the earnings report.

"We do not believe that this valuation alone is compelling enough to make us more constructive on the shares in absence of a near-term fundamental catalyst," he said in a research note Wednesday morning.



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