CSX Corporation (
CSX
) reported its earnings for Q4, 2012 on January 22, and the results
were more or less flat. Revenues declined 2% as the company
reported 18% decline in coal revenues, which were partially offset
by a 15% increase in automotive revenues. These results again show
that the company has to shift from its heavy reliance on coal to
other freight divisions as coal volumes are expected to stay low
for the foreseeable future. Encouragingly, the company posted some
efficiency gains as the firm's operating ratio improved by 30 basis
points to 70.6% for the whole year. We view this improvement in the
operating ratio as encouraging and will watch this metric closely
going forward because it will be important for CSX's long term
health. Additionally, in 2013, the company's ex-coal segments will
be important to watch since they will be
an important driver of growth.
See our complete analysis of CSX here
Highlights
During the fourth quarter CSX reported a decline in revenue of
2%, which was driven primarily by lower volume in its agriculture
freight and coal freight segments. The company reported a decline
in operating income of 4% year-over-year as the operating ratio for
the quarter increased 60 basis points of a percent to 72.1%. This
increase in operating ratio during the quarter doesn't trouble us
too much because the company's operating ratio for the year
improved by 30 basis points.
Economic Concerns Will Be A Drag On Growth
CSX's growth, like growth for any other railroad company, is
correlated with the growth of the global economy. Unfortunately,
for the next year or so global economic growth is expected to be
slow. Additionally, concerns about the Euro crisis and the U.S.
fiscal situation could cause volatility in the in the world
economy, which will in turn make CSX's revenues volatile.
CSX Efficiency Gains Will Help Margins
While CSX's operating income declined 4% during the quarter, it
posted a much better number than competitor Norfolk Southern (
NSC
), which posted a net income decline of 13%. In our
pre-earnings
article we stated that we would be looking for efficiency gains
across CSX's network, and the company repeated its impressive Q3
performance. On time origination and arrivals increased to 90% and
84%, respectively. These figures increase from 82% and 72% in Q4
2011. Additionally, terminal dwell decreased to 24.3 hours from
25.4 hours and velocity increased to 23 mph from 21 mph
year-over-year. We think that these efficiency gains help
the company keep a control on margins, and think that if
CSX is able to maintain or improve on these gains going forward, we
could see an improvement in its operating ratio.
Coal Declines Offset By Automotive And Intermodal
Growth
As expected, revenues from the coal and agricultural segments of
CSX's business proved to be a disappointment during the quarter.
Coal product revenues decreased 18%, driven by an 19% decline in
volumes which was partially offset by a slight increase in revenue
per unit. The decline in volume was caused by low natural gas
prices, high inventory levels and low global demand. We expect
these conditions to continue for the foreseeable future,
and expect that the coal freight segment will continue to be a drag
on CSX's revenues.
While coal revenues disappointed, the two bright spots for the
company were automotive and intermodal revenues, which increased
23% and 11% respectively. Automotive freight revenue primarily
increased due to higher vehicle production, which has seen
increases to meet pent up demand created by the high average
vehicle age in the U.S. However, as individuals continue replace
old vehicles, we might see growth in this segment moderate going
forward since vehicles are not a commodity purchased by an
individual customer on a recurring basis. This is definitely
something we will be closely watching over the year since
automotive revenue has offset other declines during the past two
quarters.
We currently have a
$21
price estimate for CSX
, which is approximately the same as the current market price.
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