Coal is the largest business for the Jacksonville-based railroad company, and a big decline in demand has sharply lowered coal shipments for CSX and other railroads.
CSX late on Tuesday reported that earnings and revenue for the 2012 fourth quarter were lower than the fourth quarter of 2011, due to coal.
Net income in the fourth quarter fell 3 percent to $443 million. Earnings per share were unchanged at 43 cents, because there were fewer shares outstanding in 2012 after share repurchases by the company.
Total revenue fell 2 percent to $2.88 billion, with coal revenue dropping 18 percent.
"That's significant," CEO Michael Ward said about the drop in coal, which in previous years accounted for about a third of CSX's total revenue.
"People are looking for 'where's the bottom? When will coal stabilize?'" Ward said in an interview Wednesday.
Ward doesn't expect coal demand to stabilize until 2014 but he does think it will be less of a factor this year than it was in 2012.
He said two factors will stabilize the market. One is that some older, smaller coal plants that were scheduled to shut down before new regulations take effect in 2015 have already shut down because of the low demand.
The other factor is a mild winter last year caused inventories to build up. Once electric plants use up their stockpiles of coal, demand will become normal again.
Aside from coal, Ward is feeling good about CSX's performance in 2012. Total revenue for the year was about unchanged from 2012 at $11.8 billion, despite the drop-off in coal. Total revenue from other merchandise rose 6 percent and intermodal revenue increased by 11 percent.
CSX expects the U.S. economy in 2013 to be similar to 2012.
"I think we would probably say slow, steady growth," Ward said, but he thinks the economy could pick up if federal government officials resolve the fiscal issues hanging over the country.
CSX's biggest growth in 2012 came from automobile shipments, which jumped 23 percent. That growth is unlikely to continue at that rate in 2013.
Ward said U.S. light vehicle production rose from 13.1 million in 2011 to 15.3 million in 2012. "It's going to increase again this year but only to 15.6 million," he said.
Ward also is hoping for growth in fertilizer shipments, after last year's drought reduced demand, and also for crude oil shipped by railroad.
When he looks back at 2012, Ward may be most happy about CSX's safety record. The number of reportable injuries per 200,000 man hours on CSX's rail lines fell to 0.54 in the fourth quarter and 0.69 for the full year, down from 0.93 for both the fourth quarter and full year in 2011.
"The fourth quarter and the year were the best year us or anybody else in the railroad industry has ever had," he said. "To me that's so exciting."
CSX's stock rose by 87 cents to $21.68 on Wednesday after the earnings report. Fourth-quarter earnings of 43 cents a share were 4 cents higher than the average forecast of analysts surveyed by Thomson Financial. However, analysts pointed out that the earnings were helped by a gain from the sale of a non-operating property.
"We believe the share outperformance following the earnings call may be a slight overreaction, as an increase in real estate sale gains contributed about three cents a share to the results," Dahlman Rose & Co. analyst Jason Seidl said in a research note.
"While quarterly results were relatively clean and reasonably strong in non-coal areas, without the gains on sale of properties, EPS would not have been flat (compared with 2011). The railroad reported solid operational improvements, but the stockpile situation in the utility franchise doesn't appear to be improving yet," Sterne Agee analyst Jeffrey Kauffman said in his research note.
When anybody talks about CSX Corp. these days, the conversation almost always begins and ends with coal.