As it always does in its quarterly earnings reports, CSX Corp. gave analysts a lot to chew on last week when it released its fourth-quarter numbers. But there was something beyond the financial data that also caught their attention.
At the same time it released earnings, CSX also announced that Oscar Munoz, formerly chief financial officer, was replacing David A. Brown as chief operating officer. The company did not say why Brown left the Jacksonville-based railroad, and CEO Michael Ward told the Daily Record only that the board of directors thought the change was “the best thing for the company.”
That led analysts to speculate about what is going on behind the scenes, and John Larkin of Stifel Nicolaus had some interesting insights.
“It occurs to us that the CSX succession plan contemplates that Mr. Munoz is the best candidate to replace Mr. Ward when Mr. Ward chooses to retire sometime over the next five years or so,” Larkin wrote in a research report last week.
“Currently Mr. Ward is 60 years of age and Mr. Munoz is 52 years of age. So the age differential is ideal for succession purposes. Clearly, however, Mr. Munoz needs broader-based experience as the vast preponderance of his experience has been in finance and accounting. The COO role will give him the operating and marketing experience he will need to succeed Mr. Ward,” he said.
Looking further down the road, Larkin also speculates that 46-year-old Cindy Sanborn might be in line to ultimately succeed Munoz as CEO. Sanborn currently runs the day-to-day operations of the railroad as chief transportation officer of CSX Transportation and “she receives high marks from those we know in the industry,” Larkin said.
He also noted that Sanborn’s father, Richard, was a CSX executive who later became CEO of Conrail and her mother also worked at CSX.
“Clearly she has railroading in her blood,” Larkin said.
Analysts still like CSX’s stock
In addition to the management change, CSX also announced that fourth-quarter earnings per share rose 13 percent to 43 cents. But that was a penny below the average forecast of analysts surveyed by Thomson Financial. With the earnings miss and the executive changes, CSX’s stock fell 84 cents to $21.85 Tuesday.
Robert W. Baird analyst Benjamin Hartford said in a research note that “Brown was viewed positively among industry insiders and investors,” so his surprise departure affected the stock.
“Munoz has been a catalyst at CSX and is familiar to investors, so the continuity of the transition mitigates some risk. However, we recognize that the uncertainty to Brown’s departure could present an overhang to investor sentiment until operating results improve,” he said.
But Hartford also upgraded his rating on CSX’s stock from “neutral” to “outperform” on Wednesday.
“We view yesterday’s pullback and the stock’s recent underperformance as an attractive entry point for CSX,” he said.
According to Thomson, 22 of 28 analysts covering CSX rate the stock as a “buy.” That includes Jason Seidl of Dahlman Rose & Co.
“CSX reported a slight earnings miss partly attributable to coal softness. However, the company continues to achieve some of the best pricing results in the industry and enjoys a positive intermodal outlook,” Seidl said in his research note.
Analysts also like Rayonier despite earnings miss
Rayonier Inc.’s earnings story was similar to CSX (but without a management surprise).
The Jacksonville-based forest products company had adjusted fourth-quarter earnings of 48 cents a share, 20 cents higher than the previous year but a penny below the average Thomson forecast.
So Rayonier’s stock, which has been trading at record highs this month, fell 94 cents to $46.16 Tuesday after the earnings report.
But like CSX, analysts continue to praise Rayonier despite the slight earnings miss.
“Rayonier has been an absolute juggernaut in the past few years (whether viewed by earnings, dividends or total shareholder returns) and we don’t see anything on the horizon to stop it,” D.A. Davidson analyst Steven Chercover said in a research note.
Rayonier is projecting a 10 percent increase in operating income this year but said its earnings per share will be about even with 2011, because of a higher effective tax rate. But that didn’t concern analysts.
“We view the guidance as conservative, given Rayonier’s recent history of outperformance, and would not be surprised if they handily beat their own forecast,” Chercover said.
He maintains a “buy” rating on Rayonier and raised his price target on the stock by $5 to $55.
Paul Quinn of RBC Capital Markets also has a $55 price target and an “outperform” rating on the stock, and he also thinks management is being conservative in its forecasts.
“While our short-term EPS estimates have moved lower on higher tax-rate assumptions, our EBITDA forecasts and long-term EPS estimates have increased due to the improved outlook for the cellulose specialties business,” Quinn said in his report.
EBITDA is earnings before interest, taxes, depreciation and amortization.
PSS also misses by a penny
On Thursday, PSS World Medical Inc. became the third Jacksonville-based company last week to miss its Thomson forecast by a penny.
The medical supply distributor reported net income of 38 cents a share for the third quarter ended Dec. 30, which is 3 cents higher than last year. But the average analysts’ forecast was 39 cents.
PSS also lowered its earnings target for the full fiscal year from its previous goal of $1.46 to $1.50 a share to $1.43 to $1.44.
Third-quarter revenue rose 3.5 percent to $527.7 million, but PSS said it expected better growth.
“We continue to see lower utilization of the nation’s health care system in this prolonged economic slowdown, as evidenced by fewer visits to primary care physicians. This year’s flu season, to date, has also been lighter than expected, based on historical patterns,” CEO Gary Corless said in a news release.
“Given hints of recovery in other areas of health care, we were surprised by management’s negative commentary on utilization trends,” analyst John Kreger of William Blair & Co. said in a research note after the report.
PSS’ stock fell as much as $1.10 to $23.37 in early trading Thursday, but it recovered to close at $24.48, up 1 cent on the day.
Robert W. Baird analyst Eric Coldwell said in a research note Friday that he “started yesterday concerned, ended comfortable” about the earnings report. Although PSS lowered its earnings targets for fiscal 2012, Coldwell expects better earnings growth in fiscal 2013 and 2014.
“A slew of internal initiatives are ahead of plan and some of the near-term revenue weakness may be temporary,” he said.
Coach stock jumps on strong earnings
While CSX and Rayonier were dropping on earnings misses Tuesday, Coach Inc. jumped to record highs as it beat analysts’ forecasts.
The handbag and fashion accessories company, which has a major distribution center in Jacksonville, reported earnings rose 18 percent to $1.18 a share in the second quarter ended Dec. 31, which is 3 cents higher than the average Thomson forecast. Sales rose 15 percent to $1.45 billion.
Coach’s stock jumped as much as $4.99 to $69.23 Tuesday after the earnings report.
Vistakon sales nearing $3 billion
Vistakon sometimes is overlooked as one of Jacksonville’s largest companies, because it’s a subsidiary of medical products giant Johnson & Johnson. But the contact lens subsidiary of J&J is approaching $3 billion in annual sales.
In its year-end financial report last week, Johnson & Johnson said that total sales at Vistakon rose 8.8 percent to $2.92 billion last year. Fourth-quarter sales rose 7.7 percent to $710 million.
Atlantic Coast Financial regains compliance
Atlantic Coast Financial Corp. said in a Securities and Exchange Commission filing that it has regained compliance with Nasdaq requirements to maintain its stock listing.
The Jacksonville-based parent company of Atlantic Coast Bank had received a letter from Nasdaq in November saying it could be delisted because the total market value of its stock had fallen below $5 million. But Atlantic Coast said it regained compliance because the market value was above $5 million for 10 consecutive business days.
Atlantic Coast’s stock had dropped below $1 in November, but it was trading between $2.31 and $2.59 for the past two weeks.
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