Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Railroads Are Keen to Gather Steam

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

If you have never journeyed across a continent by train, it could make an excellent addition to your bucket list. I can think of few experiences that provide so comprehensive a snapshot of a national landscape.

When the railroads deliver earnings, the resulting snapshot of economic activity offers a parallel perspective for investors. CSX (NYSE: CSX  ) is first to arrive at the earnings station, and the company posted solid results indicative of substantial year-over-year improvements in shipping volumes combined with impressive feats of operational efficiency.

CSX chugged in with an 11% increase in revenue, and a 22% boost to the bottom line over the prior year's dastardly period. Key to the estimate-beating performance was the company's best quarterly operating ratio on record, which came it at a lean 74.5%. This 230 basis-point improvement served to absorb some of the continuing weakness within the domestic coal sector, and indeed the entire industry has adapted remarkably well to reduced freight volumes by tweaking efficiencies throughout this tumultuous period. Canadian National Railway (NYSE: CNI  ) still wins top honors in this Fool's book for turning in a full-year 2009 operating ratio of just 67.3%.

Since it's been a while since we've enjoyed a spate of good news regarding domestic freight volumes, let's focus on the positives for a moment. For the first time since the financial crisis struck, every category of freight -- save for coal -- has entered positive territory for the industry as a whole (in year-over-year comparisons) so far in 2010. CSX saw its volumes of automotive cargo surge by 64%, phosphates and fertilizers by 32%, and metals by 27%. A Fool can certainly understand the resulting temptation to link these improving metrics with a stable and sustainable economic recovery, as most reports on these earnings have done. As I noted last month while discussing fellow bellwether Nucor, we certainly do have signs of noteworthy improvement.

On the other hand, now that we have journeyed more than a full year since the crisis first sent freight volumes plummeting, a perception trap is inherent in these comparative numbers. Industry wide volumes year-to-date remain more than 12% below corresponding levels in 2008.

Another sour note can be heard from the domestic coal market. Notwithstanding reports from coal miners Peabody Energy (NYSE: BTU  ) and Arch Coal (NYSE: ACI  ) that utility stockpiles have been thinning out more rapidly than anticipated, CSX shipped a full 19% less coal to domestic buyers than it did a year earlier. For coal-heavy shippers CSX and Norfolk Southern (NYSE: NSC  ) , this persistent weakness is like a lead caboose weighing down an otherwise encouraging recovery in freight demand.

Enjoying reduced reliance upon coal, and even a nice growth opportunity in coking coal exports from Teck Resources (NYSE: TCK  ) , I continue to view Canadian National Railway as the most attractive investment option in the bunch. CSX has turned in an encouraging quarter, but this Fool wonders how long the journey may before we can locate that elusive train station called The New Normal.

Some 1,600 Motley Fool CAPS members, including 411 All-Stars, expect four-star pick CSX to outperform the S&P 500. In all, the CAPS community has shared its collective insight on 34 "road and rail" companies. Join the free CAPS community today and share your views on how the rail industry will fare throughout these persistent economic headwinds.

Fool contributor Christopher Barker has never hopped a freight train, but he thinks it would be a fun place to learn the harmonica. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He also tweets. He owns shares of Arch Coal and Peabody Energy. Canadian National Railway is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy never plays on the tracks.

Read/Post Comments (0) | Recommend This Article (13)

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.

Compare Brokers

Fool Disclosure

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: 1153193, ~/Articles/ArticleHandler.aspx, 10/25/2016 11:58:36 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...

Today's Market

updated Moments ago Sponsored by:
DOW 18,192.25 -30.78 -0.17%
S&P 500 2,145.63 -5.70 -0.26%
NASD 5,291.54 -18.29 -0.34%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 11:43 AM
CSX $30.54 Up +0.13 +0.43%
CSX CAPS Rating: ****
ACIIQ $0.00 Down +0.00 +0.00%
Arch Coal, Inc. CAPS Rating: *
BTUUQ $11.81 Down -4.26 -26.51%
Peabody Energy Cor… CAPS Rating: *
CNI $65.64 Up +0.08 +0.12%
Canadian National… CAPS Rating: *****
NSC $93.32 Up +0.37 +0.40%
Norfolk Southern CAPS Rating: *****
TCK $21.31 Up +0.81 +3.93%
Teck Resources CAPS Rating: ***