CSX's Earnings Should Keep Chugging Along

On Tuesday, CSX (NYSE: CSX  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

As a major railroad company, CSX has benefited from high energy prices in recent years that have made rail transportation a more efficient way of moving goods over long distances. But the decline in demand for commodities like coal has crimped the railroad's results lately. Let's take an early look at what's been happening with CSX over the past quarter and what we're likely to see in its quarterly report.

Stats on CSX

Analyst EPS Estimate

$0.40

Change From Year-Ago EPS

(7%)

Revenue Estimate

$2.91 billion

Change From Year-Ago Revenue

(1.7%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will CSX fire up its engines this quarter?
Analysts have gotten more pessimistic about CSX's earnings over the past few months, as they've cut back on their estimates for the just-ended quarter by $0.03 per share and chopped $0.07 per share off their full-year 2013 consensus. But the stock has kept motoring ahead, climbing more than 20% since early January.

Railroads have done extremely well in recent years by capitalizing on the big boom in commodities demand, especially overseas. For CSX, coal was a big driver of its major efficiency gains, as more than 70% of coal delivered to electricity-generating power plants goes by rail. But when rock-bottom natural-gas prices led electric utilities to shift from coal to gas to fuel their power plants, CSX and many of its rivals took big hits. In particular, Norfolk Southern (NYSE: NSC  ) , with similar geographic exposure to the Appalachian coal-producing region, shared CSX's declines.

But CSX has a couple of options to pursue to rebound. One way would be to take advantage of growing export demand for coal, as natural-gas prices in other areas of the world are far less competitive than they are within the U.S., and low shipping costs make global coal transport economically viable. The other alternative is to borrow a page from other railroads and seek to transport cheap domestic oil by rail from hard-to-reach areas to existing refineries, especially on the East Coast. Union Pacific (NYSE: UNP  ) and Canadian National (NYSE: CNI  ) have found high demand for their services in the oil-producing areas of Alberta and the Bakken, and although CSX's home territory is better served by existing pipelines, it could nevertheless have an opportunity to boost demand by meeting other needs.

In CSX's earnings report, watch to see how the railroad responds to the growing trend toward considering relocation of manufacturing capacity back into the U.S., as cheap energy and lower transportation costs become bigger factors. If CSX can capture its share of the market for exporting U.S.-made goods, then it could spell a new growth phase for the railroad.

With 21,000 miles of track serving two-thirds of the U.S. population, CSX maintains a valuable proprietary asset. Still, this railroad will face difficult obstacles in the years ahead because of a domestic surplus of natural gas and coal's declining popularity. To help investors better understand how CSX can deal with these challenges, The Motley Fool has released a brand-new premium research report written by Isaac Pino, industrials bureau chief and transportation expert. Isaac provides an in-depth look at CSX's competitive advantages, risk areas, and prospects for the future. Simply click here now to access your copy of this invaluable investor's resource.

Click here to add CSX to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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