When we talked to CEO Michael Ward about CSX Corp.’s third-quarter earnings last week, we skipped over the state of coal shipments because, frankly, that’s all anybody seems to talk about with CSX and it’s getting old.
However, coal is CSX’s biggest business and shipments continue to drop, so the subject is unavoidable.
The outlook for coal remains “bleak,” which seems to be the “new normal” for CSX, RBC Capital Markets analyst Walter Spracklin said in a research note after the company’s earnings report.
“CSX remains a company whose business is in transition with no bottom yet in sight to the declining coal markets. Third-quarter results and management outlook reinforced once again the uncertainty prevalent in that market,” Spracklin said.
“Investors looking for a bottom in coal saw no evidence here as management guided to a further 12-13 percent decline in coal in 2016,” he said.
After CSX officials gave that gloomy assessment in their conference call Wednesday, the company reported more bad news about its coal business on Thursday. Jacksonville-based CSX announced it is eliminating 300 jobs in Tennessee because of “significantly reduced coal traffic through the region.”
CSX said it is cutting back operations in Erwin, Tenn., that were serving the Central Appalachian coal fields because of “diminished traffic levels” in the area.
“The combination of low natural gas prices and regulatory action has significantly decreased CSX’s coal movements over the past four years, with more than $1 billion in coal revenue declines during that time,” the company said.
Coal has been CSX’s biggest business segment, accounting for more than 30 percent of its revenue just a few years ago. It still is the biggest segment but with the ongoing decline of the coal business, it accounted for slightly less than 20 percent of third-quarter revenue.
Looking beyond coal, there is some good news at CSX. Its third-quarter earnings of 52 cents a share were 2 cents higher than the average analyst’s forecast, according to Thomson Financial.
“The company continues to execute on cost reduction and steady pricing,” said Spracklin, who maintains an “outperform” rating on the stock.
Other analysts are more cautious. Patrick Tyler Brown of Raymond James & Associates is maintaining a “market perform” rating.
“While we are encouraged by CSX’s productivity savings and pricing outlook, persistent coal headwinds and network fluidity will be difficult to overcome,” Brown said in his research note.
Goldman Sachs analyst Tom Kim maintained a similar rating at “neutral” after the earnings report.
“We think downside is limited, as the company appears to have reset expectations particularly around domestic coal,” Kim said in his research note.
“What tempers our bullishness is that there is greater upside elsewhere in our coverage universe,” he said.
Wal-Mart has big local impact
The biggest earnings-related news of last week was Wal-Mart Stores Inc.’s announcement that it expects fiscal 2017 earnings to fall by 6 percent to 12 percent per share, due in large part to its plan to increase wages and training for its employees.
That news sent Wal-Mart’s stock down $6.70 to $60.03 on Wednesday, a 10 percent drop that was its biggest one-day decline since 1988, according to The Wall Street Journal.
While that news was bad for shareholders, it’s potentially good news for the Jacksonville area.
Nobody talks about Wal-Mart as one of Jacksonville’s biggest companies, but it is one of the area’s largest employers.
Not only does it have several thousand employees in its local stores, it also has a distribution center in Macclenny that employs 660, according to JAX Chamber data. So, the company’s plan to increase wages is good for the local economy.
Albertsons postpones IPO
In a strange way, Wal-Mart’s Wednesday announcement could impact another major Jacksonville company.
Albertsons Companies Inc. was planning an initial public offering that was scheduled to be priced Wednesday night.
However, the Idaho-based supermarket operator postponed the IPO and some analysts suggested the Wal-Mart profit warning was to blame, because it dampened the outlook for grocery stocks.
Albertsons’ postponement comes as everyone in Jacksonville waits to see if Southeastern Grocers LLC makes another try at an IPO. Jacksonville-based Southeastern Grocers, the parent company of Winn-Dixie and two other supermarket chains, filed plans for an IPO in September 2013 but withdrew the plans in August 2014.
A successful IPO from Albertsons may have paved the way for a Southeastern Grocers public offering but with the larger Albertsons postponing its stock sale, it’s unlikely Southeastern Grocers would try to bring another IPO to the market in the near future.
Albertsons operates 2,205 supermarkets in 33 states under 18 different banners. The company has been out of Jacksonville since it sold its seven area Albertsons stores to Rowe’s Supermarkets LLC 10 years ago.
Albertsons’ current store network is concentrated mainly in the West and Northeast, with almost no presence in the Southeast. It does have three stores in Central and South Florida, but those are its only stores east of Louisiana and south of Virginia.
The company had intended to sell about 65 million shares of stock at $23 to $26 each in the IPO.
Like Winn-Dixie, Albertsons is a former public company now owned by private equity firms. It is owned by an investor group led by Cerberus Capital Management, which had planned to retain a 72 percent stake in the company after the IPO, according to Albertsons’ prospectus.
Winn-Dixie was bought out in 2012 by Bi-Lo LLC, which was owned by Dallas-based Lone Star Funds. The company took on the Southeastern Grocers name when it filed for the IPO two years ago.
More bad IPO news
The Albertsons decision was not the only bad news for the IPO market last week.
First Data Corp. brought the year’s largest IPO to the market by selling 160 million shares at $16 each.
However, the $16 price was well below its hoped-for price range of $18 to $20 a share, and the stock fell even lower to $15.75 on its first day of trading Thursday.
That was taken as a bad sign for the overall IPO market and could have an impact on another local company, ADS Waste Holdings Inc.
The parent company of Advanced Disposal, which is headquartered in the Nocatee development in St. Johns County, filed plans in August to sell up to $100 million in an IPO. However, the company has not indicated any specific pricing terms or timing for its stock sale.
Media General now talking to Nexstar
After initially rebuffing Nexstar Broadcasting Group Inc., Media General Inc. is now talking to Nexstar about a possible merger.
Nexstar, which bought Jacksonville CW network affiliate WCWJ TV-17 from Media General in 2009, made an unsolicited $4.1 billion offer three weeks ago to buy all of Media General.
The offer came after Virginia-based Media General rejected overtures from Texas-based Nexstar and instead reached an agreement to buy another media company, Meredith Corp.
Since the Meredith agreement and Nexstar offer were announced, Media General has received harsh criticism from investors who believe the Nexstar bid is a better deal for shareholders.
Last week, Media General said it reached an agreement with Meredith that allows it to exchange “certain non-public information” with Nexstar. That will allow Media General officials to “further evaluate” Nexstar’s offer, while still keeping the Meredith deal in place.
Nexstar CEO Perry Sook said in a news release his company’s proposal is in the best interest of shareholders of both companies.
“Since we made our proposal, many Media General shareholders have expressed their support for our proposed combination,” Sook said, adding that the market has reacted favorably to the offer.
“We believe our proposal is a superior offer to the Meredith-Media General transaction and that the market understands how strategically and financially compelling this combination is for the shareholders of both companies,” he said.
Media General said in its news release that its board of directors is continuing to recommend shareholders approve the Meredith merger. Meredith also issued a news release saying its board is recommending the merger.
The Meredith-Media General merger would create a company with more than 80 television stations in 54 markets. A Nexstar-Media General merger would create a company with 162 stations in 99 markets.
Winston leaving FRP board
Jacksonville-based FRP Holdings Inc. said in a Securities and Exchange Commission filing last week that Jacksonville businessman James Winston is leaving the company’s board of directors next year.
Winston has served on the board of FRP and its predecessor company since 1992.
The real estate development company said in the SEC filing that Winston informed the chairman of the board that he does not want to seek re-election as a director when his term expires in February. The filing said Winston’s decision was for personal reasons.