CSX Corp. projected earnings a ‘wet blanket’

Jacksonville-based railroad giant’s stock tumbles after company predicts falling revenue.

  • By Mark Basch
  • | 5:10 a.m. July 25, 2019
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CSX Corp.’s stock dropped sharply last week, and took the rest of the market with it, after CEO James Foote gave an uncertain economic outlook with the company’s quarterly earnings report.

CSX is forecasting revenue this year to fall by 1% to 2% and Foote described the economic outlook as “puzzling.”

Stephens analyst Justin Long said in a research note investors were feeling some optimism about transportation stocks but “we felt CSX threw a wet blanket on the party.”

Most analysts maintained their ratings on the Jacksonville-based railroad company after the earnings report but Long downgraded the stock from “overweight” to “equal weight” because of the uncertainty.

“Longer-term, we continue to view the CSX story favorably due to the continued implementation of PSR, a strong management team and meaningful opportunities to gain market share,” he said.

PSR, or precision scheduled railroading, is the operating system implemented by CSX two years ago that is producing better efficiency metrics for the company.

“We believe one of the most underappreciated aspects of the CSX story over the long-term is its revenue growth potential as PSR is fully implemented in the U.S. and it leverages a better service product to capture market share from truck,” Long said.

However, “near-term challenges could trump the positive long-term narrative around CSX’s market share opportunity,” he said.

“While we think CSX will manage the business well as it navigates these challenges, this set-up is likely to make it tough for valuation multiple expansion the next 6-12 months.”

CSX stock dropped by $8.17 to $71.38 on July 17 after the earnings report.

The S&P 500 index, which includes CSX, fell by 0.65% that day, with many analysts blaming the gloomy outlook at CSX for the overall decline in the market.

Economy hurts Adecco outlook

Global staffing company Adecco Group, which has its North American headquarters in Jacksonville, also is facing challenges from the uncertain economic outlook.

Jefferies analyst Kean Marden last week downgraded the Switzerland-based company from “neutral to underperform,” following a more drastic downgrade early this month from “buy” to “sell” by Goldman Sachs analyst Suhasini Varanasi.

Varanasi said in his report he downgraded Adecco and Netherlands-based staffing company Randstad “to reflect weakening organic growth trends” that should affect their stocks.

“While first quarter results showed a stabilization of growth trends, recent macro and staffing datapoints have taken a turn for the worse, especially in Europe where Adecco and Randstad generate the majority of their revenues,” he said.

“Hence, we expect organic growth to weaken further and remain in negative territory near term.”

According to Adecco’s annual report, the company generated 64% of 2018 revenue in Europe and 18% in North America.

Marden said in his research note he expects Adecco’s second-quarter revenue to be down by about 3% when the company reports earnings in two weeks.

“Global labor markets struggled in June,” he said.

“China has been impacted by tariff discussions, Benelux data was weak as automotive supply chain issues ripple across Europe, our proprietary Hays job ads data suggest German momentum remained tough into July, French temp data softened in June, and (despite the positive overall non-farm data), there has been no sequential growth in U.S. temp volumes since last autumn.”

Marden said June was Adecco’s weakest month in the second quarter and he expects momentum to continue to be “subdued” into the third quarter.

“Economic indicators for the global Industrials sector (53% of Adecco’s revenue) are weak, profit warnings have become more common, and tariff uncertainty has not abated,” he said.

Adecco came to Jacksonville in 2010 by acquiring Jacksonville-based MPS Group Inc. for $1.3 billion. Adecco then moved its North American headquarters to Jacksonville in 2014.

Fidelity Stewart deal still awaiting merger approvals

Fidelity National Financial Inc.’s proposed acquisition of Stewart Information Services Corp. remains on hold as Jacksonville-based Fidelity seeks regulatory approval of the deal.

The merger of the two title insurance companies was announced in March 2018 but there is no completion date in sight.

The deal was rejected by New York regulators but the company is negotiating with them to resolve differences and also dealing with the U.S. Federal Trade Commission.

“We continue to work with the FTC and the New York State Department of Financial Services to seek approval of the proposed acquisition and we have meetings scheduled with the FTC in both July and August,” Fidelity CEO Randy Quirk said during the company’s quarterly conference call with analysts last week.

He then said company officials would take no further questions on the merger. But one analyst asked what Fidelity would do with its cash holdings if the deal falls through.

Fidelity agreed to buy Stewart for $1.2 billion in cash and stock, with half of the purchase made in cash.

Chief Financial Officer Tony Park said in the conference call the company expects to have about $1 billion in cash on hand by the end of the year, some of which would be used to pay Stewart.

If the deal is called off, Park said Fidelity would likely have about $800 million in cash available that could be used in possible dividend increases for shareholders or stock buybacks.

“All things are on the table with $1 billion of cash at Holdco (the holding company),” he said.

Dick’s Wings owner extends Jags deal

ARC Group Inc., owner of the Dick’s Wings & Grill restaurant chain, said in a Securities and Exchange Commission filing last week its sponsorship agreement with the Jacksonville Jaguars is extended through the 2028-29 football season.

The agreement includes the right to operate concession stands at TIAA Bank Field and advertising at the stadium and on Jaguars’ radio broadcasts.

ARC Group will pay the Jaguars $500,000 this year and $794,444 in each of the next nine NFL seasons. The company will pay more if the Jaguars have any playoff games.

In addition to the cash payments, ARC Group is required to provide the Jaguars with food and beverages valued at $35,700 this season.

In the same SEC filing, ARC Group also said it appointed Alex Andre as chief financial officer.

The company said in a news release Andre has nearly 20 years of executive experience. Most recently he served as co-founder of THS Ventures, a consumer products company.

Jaguars sign new local television deal

The Jaguars also last week announced an agreement with Jacksonville television stations WFOX TV-30 and WJAX TV-47 to remain the team’s official broadcast stations through March 2023.

The two stations will broadcast preseason games and other Jaguar-related programming.

Terms of the deal were not announced.

The television stations are operated by privately owned Cox Enterprises Inc. However, Cox agreed in February to sell its portfolio of 14 stations, including the two in Jacksonville, to funds managed by Apollo Global Management LLC.

Cannabis firm mCig names co-CEO

Jacksonville-based mCig Inc., which offers products and services for the medical cannabis industry, appointed Mike Aertker as co-chief executive officer.

Aertker is a biomedical engineer with nearly 30 years of experience, the company said in a news release.

Paul Rosenberg continues as chairman and co-CEO of mCig.

The company’s most recent financial report showed $1.9 million in revenue for the nine months ended Jan. 31 and a net loss of $1.6 million.



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