Leading U.S. railroad,
), reported second quarter 2012 earnings of 49 cents per share,
surpassing the Zacks Consensus Estimate of 47 cents. The earnings
figure increased 7% year over year from 46 cents buoyed by higher
revenues from exports coal, intermodal and automotive.
Revenue remained flat year over year at $3,012 million but fell
below the Zacks Consensus Estimate of $3,052 million.
Operating income grew 2% year over year in the second quarter to
$943 million, driven improving productivity and effective cost
control. Operating ratio (defined as operating expenses as a
percentage of revenue) improved 60 basis points year over year to
Performance Across Business Lines
revenue and volume increased 6% and 1% year over year,
respectively, in the reported quarter.
Automotive revenue increased 34% on 27% higher volume
attributable to 25% year-over-year growth in North American
automotive production. Chemical revenue climbed 4% year over year
on 1% growth in volumes driven by higher fracturing sand shipment,
required for natural gas drilling and growth in crude oil
shipments. Metals revenue grew 3%, but volume dipped 1% due to
weaker global demand, affecting exports that clouded higher
shipments of finished steel products like sheet steel, pipe and
steel bars required in automotive and energy industries.
Phosphates and Fertilizers revenues increased 6%, but volumes
dropped 1% to lower fertilizer shipment given the temporary lag in
procurement as a result of anticipated lower prices of finished
phosphate products. Food and Consumer revenue declined 3% as volume
plunged 7% in the second quarter due to lower shipments of
appliances that offset higher shipment of refrigerated products.
Agricultural Products revenue decreased 5% year over year on 7%
decline in volumes due to lower ethanol and corn volumes.
The housing and construction market remained dominated by the 6%
revenue growth in forest products. Emerging market revenues
remained flat year over year. Volumes in forest products improved
1% year over year due to the recovering construction market, while
emerging markets volume declined 10% due to the completion of major
construction projects, resulting in lower shipments of raw
materials like rushed stone, sand and gravel. Further, salt
shipments also declined on higher stockpile given the milder winter
revenues as well as volumes saw a year-over-year decrease of 14%
each in the second quarter. Utility coal shipments continued to
decline as a result of low natural gas prices. This decline was
partially compensated by higher export demand for U.S. thermal coal
in the international markets.
revenue saw a year-over-year increase of 10% on 8% volume growth.
Domestic shipments increased due to capacity growth, higher rate of
truck load conversion to rail freight along with new customer wins.
International business gained from new customers.
The company exited the second quarter with cash and cash
equivalents of $642 million, compared with $1,252 million in the
year-ago period. The long-term debt position slightly improved to
$8.6 billion from $8.7 billion at year-end 2011. The company's
debt-to-equity ratio stood at 96.5% versus 103.1% at year-end
The company continues to expect operating ratio of 65% by 2015
but also expects near-term growth to be affected by continued
declines in utility coal.
We expect the company to remain focused on growth with increased
profitability in most of its products lines, particularly in
Intermodal and Automotive. Higher profitability will further
support the investments to meet the growing demand in the
transportation sector. Additionally, we expect the company to focus
on better pricing and fuel cost recovery.
However, we remain cautious on the stock of CSX given the
declines in utility coal volumes, which constitute a significant
part of its business. Further, the company's capital intensive
nature, unionized workforce, increased competition from major
Norfolk Southern Corp.
) as well as strict railroad regulations, keep us on the
We have a Zacks Rank of #3 (short-term Hold recommendation) on
CSX Corp. We also maintain our long-term Neutral rating on the
CSX CORP (CSX): Free Stock Analysis Report
NORFOLK SOUTHRN (NSC): Free Stock Analysis
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