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Can CSX Corp (CSX) Pull a Surprise this Earnings Season?

CSX CorporationCSX is scheduled to report second-quarter 2016 results on Jul 13, after markets close.

The company's reported in line earnings in the first quarter of 2016 . The company has, however, posted an earnings surprise in each of the last three quarters of 2015, with the average being 3.5%. With coal volumes still low, it is to be seen how the company performs this time around.

Factors at Play

Coal is an essential factor influencing earnings for most railroad operators. According to U.S. Energy Information Administration's June report, coal production in the U.S. is forecasted to decline 17% in 2016 in the U.S. which does not bode well for railroad operators. Production declined by 28% year on year in May which is likely to deal a heavy blow to shipments. As CSX Corp has a hefty chunk of revenues coming in from coal shipments, this development is sure to dent its top line.

While macro factors do not look favorable, recent developments such as expansion of the Panama canal could help ramp up volumes for companies with strong East Coast operations, such as CSX Corp, Norfolk Southern Corporation NSC and Canadian National Railways Company CNI .

At the Bank of America Merrill Lynch Transportation Conference held in May, the Chief Financial Officer (CFO) at CSX Corp, Frank Lonegro mentioned that the company expected a high-single digit volume decline in the second quarter. The CFO mentioned that affected by globally low commodity prices, a strong U.S. dollar and changes in energy markets, lower volumes would impact earnings in second quarter.

To counter the challenges, the company is working on improving operational efficiency and expects service improvements coupled with the ongoing initiatives to deliver efficiency savings exceeding $250 million in the full year. Despite these efforts, CSX Corp has a cautionary guidance and expects full-year earnings to decline for the first time since recession due to adverse market conditions, offsetting gains in safety, pricing and efficiency.

CSX CORP Price and EPS Surprise

CSX CORP Price and EPS Surprise | CSX CORP Quote

Earnings Whispers

Our proven model does not conclusively show that CSX Corporation is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: CSX Corporation has an Earnings ESP of -2.22 as the Most Accurate estimate is 44 cents while the Zacks Consensus Estimate is 45 cents.

Zacks Rank: CSX Corporation carries a Zacks Rank #3.

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

Stock to Consider

Below is a stock which investors could consider as our model shows it has the right combination of elements to post an earnings beat this quarter:

United Parcel Services UPS has an Earnings ESP of +2.11% and a Zacks Rank #2.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CSX CORP (CSX): Free Stock Analysis Report

CDN NATL RY CO (CNI): Free Stock Analysis Report

NORFOLK SOUTHRN (NSC): Free Stock Analysis Report

UTD PARCEL SRVC (UPS): Free Stock Analysis Report

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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.


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

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