First Stop on the Railroad Earnings Express

The engine of global growth may suddenly feel like the big engine that won't, but one American rail company remains right on track.

Eastern U.S. rail carrier CSX (NYSE: CSX  ) delivered unabashedly solid earnings in a panic-driven market this week. Coming through on the raised outlook issued last month, the company reported a 40% increase in net earnings at $0.94 per share and reiterated guidance for compound annual earnings growth of 20% to 25% through 2010.

That 40% jump in earnings came with only an 18% increase in revenue, which points to impressive operational efficiency, and coincides with a reduction in the operating ratio of 250 basis points, to 75.2%. Railroads' track operating ratio, which is calculated as operating expenses divided by revenue, is a key metric. With a large percentage of revenue going to maintaining operations, cost control and efficiency are paramount. CSX aims to decrease that ratio to the high 60s by 2010.

If the domestic economy is slamming on the brakes, where did this revenue growth come from? It certainly did not come from the once-profitable business of hauling automobiles or construction supplies. As I mentioned last month, coal now accounts for nearly 30% of all revenue for CSX, and shipping Appalachian coal from miners like Massey Energy (NYSE: MEE  ) or CONSOL Energy (NYSE: CNX  ) to Eastern ports for global export has apparently remained robust despite all this panic about the global growth engine. CSX cited export coal, grain, ethanol, and metals as major drivers of the quarterly performance.

Considering the strong earnings from Peabody Energy (NYSE: BTU  ) released Thursday, and these seven signs that coal remains a hot commodity despite the indiscriminate sell-off among mining equities, I believe that the global demand for coal could surprise many Fools in its resilience amid the financial crisis. Though competitors like Norfolk Southern (NYSE: NSC  ) and Canadian National Railway (NYSE: CNI  ) also benefit from increased coal export volumes, CSX's geographical focus with respect to coveted Appalachian coal and nearby ports should offer a competitive advantage.

Nearly 1,400 Motley Fool CAPS members, including 248 All-Stars, expect CSX to outperform the S&P 500. In all, the CAPS community has shared its collective insight on 21 rail companies. Join the free CAPS community today and share your views on how the rail industry will fare through the current financial crisis.

Further Foolishness:

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found blogging actively and acting Foolishly in the CAPS community under the user name TMFSinchiruna. He owns shares of Peabody Energy and Massey Energy. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 755532, ~/Articles/ArticleHandler.aspx, 9/22/2014 6:27:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement