Leading U.S. railroad,
CSX Corporation
(
CSX
), reported third quarter 2012 earnings of 44 cents per share,
surpassing the Zacks Consensus Estimate and the year-ago earnings
by a penny.
Revenue for the quarter decreased 2% year over year to $2,894
million and fell below our expectation of $3,003 million.
Quarterly operating income dropped 3% year over year to $854
million. Operating ratio (defined as operating expenses as a
percentage of revenue) deteriorated 10 basis points year over year
to 70.5%.
Performance Across Business Lines
Merchandise
revenue increased 3% year over year to $1,609 million. However,
carloads remain flat year over year.
Automotive revenue increased 18% on 17% higher volume,
attributable to growth in North American automotive production.
Phosphates and Fertilizers revenues grew 5% year over year but
volumes remained flat due to lower export volumes. Food and
Consumer products rose 5% year over year on a 2% growth in
carloads, driven by higher shipments of potato and western
apples.
Chemical revenue climbed 4% year over year on a 2% growth in
volumes, driven by higher fracturing sand shipment, required for
natural gas drilling and growth in crude oil shipments. In
addition, plastic shipments were also on the rise due to higher
demand from packaging and automotive industries. Forest products
revenue grew 2% but volumes were flat year over year given weaker
market condition in paper business due to substitution effect of
electronic media. .
Quarterly revenues from Metals were essentially flat at $155
million and volumes dipped 3% year over year due to a decline in
scarp shipments on lower demand from steel plants. Agricultural
products revenues plunged 6% year over year on an 8% volume decline
given lower shipments of corn and ethanol. Further, emerging market
revenues were down 7% year over year on an 8% decline in carloads
that were mainly affected by lower salt shipments due to higher
inventories.
Coal
revenues saw a fall of 17% year over year to $791 million in the
third quarter on a volume decline of 16%. Utility coal shipments
continued to decline as a result of low natural gas prices. This
decline was partially made up for by higher export demand for U.S.
thermal coal in the international markets, mostly in Europe.
Intermodal
revenue saw a year-over-year increase of 10% on an 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.
Liquidity Position
The company exited the third quarter with cash and cash
equivalents of $693 million, compared with $580 million in the
year-ago period. The long-term debt position slightly improved to
$8.3 billion from $8.7 billion at year-end 2011. The company's
debt-to-capitalization ratio stood at 49.4% versus 49% at year-end
2011.
Guidance
The company continues to expect earnings growth andmargin
expansion for 2012 alongside operating ratio expectation of 65% by
2015.
Our Analysis
We expect the company to remain focused on growth with increased
profitability in most of its product 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
railroads like
Norfolk Southern Corp.
(
NSC
) as well as strict railroad regulations, keep us on the
sidelines.
We have a Zacks Rank of #4 (short-term Sell rating) on CSX Corp.
For the long-term the stock has a Neutral recommendation.
CSX CORP (CSX): Free Stock Analysis Report
NORFOLK SOUTHRN (NSC): Free Stock Analysis
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