As the U.S. economy goes, so goes CSX Corp.
With the Jacksonville-based railroad company reporting higher third-quarter earnings, CSX Chief Executive Officer Michael Ward is positive about the economic outlook.
“We really do have a feeling that we’re going to see continued modest growth here,” Ward said in an interview Wednesday after CSX reported earnings rose 12 percent in the quarter to $464 million, or 43 cents per diluted share.
With the positive outlook, CSX is hiring more people. The company expects to hire a total of 4,000 workers this year, Ward said, including 3,000 to replace people lost through attrition. That still means a net gain of 1,000.
About half of the 1,000 additional hires will be engineers and train crews. The other half are being brought in to help install the company’s positive train control systems.
Those systems provide technology designed to prevent train collisions and accidents and were mandated by a 2008 federal law.
Ward said the hiring is spread throughout CSX’s 23-state rail network, and he did not have any specific data on employment in Jacksonville.
The volume of freight moving on CSX’s rail lines rose by only 1 percent in the third quarter, but total revenue rose 11 percent to $2.96 billion, helped by pricing increases and fuel surcharges.
CSX saw some strong gains in freight volume in some merchandise categories. Metals shipments jumped 15 percent, helped by demand from the automotive and energy sectors. Increased North American automobile production helped automotive freight rise by 4 percent.
Despite a continued housing slump, forest products volume rose by 9 percent, helped by shipments of pulp board and paper used for consumer products packaging.
Construction materials such as cement, crushed stone and gravel rose because of highway construction.
Meanwhile, there were declines in other areas. “It’s a little bit of a mixed bag,” Ward said.
Agricultural products shipments dropped by 9 percent and food and consumer shipments fell 5 percent, in part because higher beer inventories reduced new shipments of alcoholic beverages.
“Usually in a down economy, people drink more beer, not less,” Ward said.
Coal shipments fell 1 percent in the quarter, due to lower domestic demand. But coal revenue rose 15 percent, helped by fuel surcharges.
Coal is by far the biggest piece of CSX’s merchandise pie, with coal shipments accounting for nearly a third of the company’s third-quarter revenue.
CSX’s earnings of 43 cents a share equaled the average forecast of analysts surveyed by Thomson Financial.
That could be a disappointment to some investors because, according to Bloomberg News, this was the first time in 11 quarters that CSX did not actually beat the consensus forecast.
UBS Securities analyst Rick Paterson was not disappointed. UBS earlier this month added CSX to its “Key Call” list of the firm’s “highest conviction investment ideas,” and nothing in the third-quarter report changed Paterson’s view.
“We think CSX did enough in the third quarter to keep the stock performing. Expectations were not high into the print and a ‘normal’ quarter in a fragile economy is not a bad combination for the stock,” Paterson said in a research note Wednesday.
Ward thought that analysts seemed happy with the results during the company’s quarterly conference call on Wednesday morning.
“By and large, they were fairly positive in their questioning,” he said.
Ward said analysts’ expectations have been raised by CSX’s recent performance.
“If you consistently beat consensus (forecasts), they keep raising consensus,” he said.
With CSX reporting record-high third-quarter earnings, Ward isn’t worried about not beating analysts’ forecasts.
“I’m not unhappy with that at all,” he said.
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