Will Cost-Cutting Initiatives Benefit CSX in Q2 Earnings?

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CSX Corporation CSX is slated to report second-quarter 2018 earnings on Jul 17 after market close.

Last reported quarter, the company delivered a positive earnings surprise of 18.2% with better-than-expected earnings and revenues. Moreover, both the measures improved on a year-over-year basis. A substantial decrease in operating expenses also aided results.

With the Precision Scheduled Railroading well underway, things look up for the company in the second quarter as well.

Why a Likely Positive Surprise?

Our proven model shows that CSX is likely to beat on earnings this quarter on the back of a perfect combination of the following two key ingredients:

Zacks ESP : CSX has an Earnings ESP of +1.72%, representing the difference between the Most Accurate estimate and the Zacks Consensus Estimate. While the Most Accurate Estimate stands at 87 cents per share, the Zacks Consensus Estimate is pegged lower at 85 cents. A positive Zacks ESP is indicative of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : CSX carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. Note that stocks with a favorable Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have significantly higher chances of beating estimates.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

CSX Corporation Price and EPS Surprise

CSX Corporation Price and EPS Surprise | CSX Corporation Quote

Factors Likely at Play

The company's cost-cutting efforts are anticipated to boost results in the to-be-reported quarter. CSX has been benefitting immensely from the Precision Scheduled Railroading system, designed to improve operational efficiency, by lowering costs and optimal asset utilization. Reduced operating expenses are expected to improve operating ratio and drive bottom-line growth.

Impressive performance of the intermodal and coal segments is also likely to produce better results in the soon-to-be-reported quarter. The Zacks Consensus Estimate for second-quarter intermodal revenues stands at $476 million, higher than $448 million a year ago. The figure also compares favorably with $449 million, recorded in the preceding quarter.

The consensus mark for coal revenues is pegged at $541 million. The tally compares favorably with $530 million and $503 million, reported in the prior-year quarter and the first quarter, respectively.

Needless to mention, the new tax law is also expected to buoy results in the second quarter. As expected, the Tax Cuts and Jobs Act has been aiding results since its implementation in December 2017 and the second quarter is not likely to be any different. The reduced effective tax rate arising from the slashed corporate tax rate is expected to boost the company's bottom line in the period to be reported.

However, the company's high-debt levels remain a cause for concern.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider United Parcel Service, Inc. UPS , Union Pacific Corporation UNP and J.B. Hunt Transport Services, Inc. JBHT as these stocks too possess the right combination of elements to come up with an earnings beat in their next releases.

UPS has an Earnings ESP of +1.34% and a Zacks Rank #3. The company will report second-quarter earnings on Jul 25.

Union Pacific has an Earnings ESP of +1.15% and a Zacks Rank of 3. The company is scheduled to release second-quarter financial figures on Jul 19.

J.B. Hunt has an Earnings ESP of +2.13% and a Zacks Rank of 2. The company will announce second-quarter earnings numbers on Jul 16. You can see the complete list of today's Zacks #1 Rank stocks here .

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

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: CSX , UNP , JBHT , UPS

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