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.