CSX Corp Earnings Decline on Coal Woes - Analyst Blog

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CSX Corporation ( CSX ) reported fourth quarter 2013 earnings of 42 cents per share, missing the Zacks Consensus Estimate by a penny and deteriorating from the year-ago figure of 43 cents. For full-year 2013, earnings per share increased 2% year over year to $1.83.

The company's fourth quarter revenues of $3,032 million were marginally ahead of the Zacks Consensus Estimate of $3,012 million and increased 5% year over year buoyed by the strength in Merchandise and Intermodal markets. Revenues for the year improved 2% year over year to $12,026 million.

Despite mixed results, shareholders' Coal concerns are apparent as the stock declined 3.18% in after market trade on Nasdaq on Wednesday.

Fourth quarter operating income remained flat year over year at $813 million, resulting in operating ratio (defined as operating expenses as a percentage of revenues) of 73.2%, up 140 basis points (bps). Operating expense increased 7% year over year to $2,219 million.

For the full year, operating income rose 0.3% year over year to $3,473 million resulting in an operating ratio of 71.1%, up 50 bps. Operating expense increased 3% year over year to $8,553 million.

Performance Across Business Lines

Merchandise revenues increased 10% year over year to $1,819 million in the reported quarter driven by a 7% expansion in volume and 3% improvement in revenue per unit (RPU). Volume growth was supported by Agricultural Products (up 16%), chemicals (up 18%), waste and Equipment (up 11%) partially offset by Phosphates and Fertilizer (down 6%).

Coal revenues were down 9% year over year at $679 million on 5% volume decline and a 4% RPU decline.  Lower domestic coal shipments due to higher utility stockpiles and low natural gas prices contributed to the decline. This was partially compensated by Export coal, which experienced increased shipments of U.S. metallurgical coal to overseas markets from last year.

Intermodal revenues rose 10% year over year to $437 million driven by highway-to-rail conversions in the domestic market, increase in service lanes and customer addition. International intermodal business also performed well on continuous strength in existing customers. On a year-over-year basis, volumes increased 11% while ARPU declined 1%.

Other revenues were $97 million, up 9% year over year.

Liquidity Position

The company exited 2013 with cash and cash equivalents of $592 million compared with $784 million at the end of 2012. Long-term debt decreased to $9,022 million from $9,052 million at the end of 2012.

Guidance

CSX have a favorable expectation from the majority of its markets in 2014. Despite a volatile coal market, CSX aims to bring down its operating ratio to the high 60s range by 2015 and subsequently to the mid 60s.

Our Take

We believe CSX has a number of profit generating factors that include favorable rail industry pricing, recovery of the construction sector, ongoing truck to rail conversion as well as expansion of network and terminal capacity. Additionally, the company's focus on operational improvement will likely drive profitability.

However, a subdued coal business that is resulting in declining domestic coal volumes as well as regulatory and competitive issues could hurt the company's performance in the near term. CSX currently carries a Zacks Ranks #3 (Hold).

Other Stocks

Other stocks that are worth considering within this sector are Heartland Express Inc. ( HTLD ), Arkansas Best Corporation ( ABFS ) and Marten Transport Limited ( MRTN ). All these stocks currently hold a Zacks Rank #2 (Buy).



ARKANSAS BEST (ABFS): Free Stock Analysis Report

CSX CORP (CSX): Free Stock Analysis Report

HEARTLAND EXP (HTLD): Free Stock Analysis Report

MARTEN TRANS (MRTN): Free Stock Analysis Report

To read this article on Zacks.com click here.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ABFS , CSX , HTLD , MRTN

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