CSX Corp. reported higher first-quarter earnings but because of continued declines in coal shipments, the Jacksonville-based railroad company expects earnings for all of 2013 to be flat or slightly lower than last year.
"Both domestic and export coal are going to be down. Overcoming that is going be somewhat of a challenge," Chairman, President and CEO Michael Ward said in an interview Wednesday.
Transporting coal is CSX's biggest business and reduced coal volumes have been affecting its earnings for the past two years.
CSX late on Tuesday reported first-quarter earnings of 45 cents per share, 2 cents higher than the first quarter of 2012 and 5 cents higher than the average forecast of analysts surveyed by Thomson Financial.
However, the average earnings forecast for all of 2013 is $1.78 a share, about even with the $1.79 earned by CSX last year. So analysts had already anticipated Tuesday's forecast from the company.
"It's not something the market didn't expect," Ward said.
The good news in the earnings report is that once the coal market settles, CSX expects to grow earnings by 10 percent to 15 percent a year in 2014 and 2015.
"We're not going to be fighting the headwinds in coal and we're growing the other businesses," Ward said.
CSX's revenue declined slightly from $2.966 billion in the first quarter of 2012 to $2.958 billion in this year's first quarter. Earnings increased because of a cut in expenses.
The company's operating ratio – operating expenses as a percentage of revenue – fell from 71.1 percent in the first quarter of 2012 to 70.4 percent this year.
CSX had a goal of reducing its operating ratio to 65 percent by 2015 and while the company continues to reduce expenses, it admitted Tuesday that it won't be able to achieve that goal in the current marketplace.
"That was not a surprise to the market either," Ward said.
CSX still expects to reach that 65 percent level long-term but by 2015, it expects to only be in the high 60s.
One area in which CSX continues to achieve its goals is in safety on the railroad. After achieving a record low in 2012, the company's injury frequency rate improved again in the first quarter. The number of reportable injuries per 200,000 man-hours fell from 0.80 a year ago to 0.66 this year.
"Once again we had an excellent safety record," Ward said.
CSX's earnings are considered a bellwether of the overall economy, since the volume of goods shipped over the railroad indicates the level of overall growth.
Aside from the issues with coal, Ward sees continued "slow, steady growth" this year in the economy of 1 percent to 2 percent.
"I don't see anything that would tip it to the downside," he said, and the economy could even be stronger if federal government leaders settle the nation's fiscal issues.
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