CSX Corporation Beats Estimates and Continues to Return Value to Shareholders

Here's what you need to know about CSX's first-quarter results, and one thing investors should be happy about.

Apr 16, 2014 at 6:00PM

CSX Corporation (NASDAQ:CSX) was able to bounce back from a disappointing fourth quarter and beat analyst expectations in the first quarter of 2014. Earnings per share checked in at $0.40 on $3.0 billion in revenue. Harsh winter weather heavily affected CSX's results in the first quarter, but the key question is whether or not the company will be able to make up the lost earnings throughout the year.

Q1 results
Splitting CSX into its three business segments -- merchandise, intermodal, and coal -- the first two segments provided enough revenue growth to offset continued weakness in coal.

Source: CSX Corporation's first-quarter presentation

Merchandise revenue jumped 4% on a volume increase of 2%, and a strong 2013 harvest continued to drive agricultural sector growth: Revenue from agricultural products increased 18%. CSX's industrial sector contributed the majority of revenue to overall merchandise figures with chemical's 10% revenue increase leading the charge in the first quarter.

Intermodal also posted growth with volume increasing 5%, which was enough to boost revenue by 4%. Growth was driven by success with highway-to-rail conversions and strong demand for intermodal service offerings. Intermodal and merchandise business grew just enough to offset coal's 1% decline in volume, which produced a 9% decline in revenue.

The upside for investors is that CSX believes 2013 will be the weakest for coal demand and that volume and pricing should improve this year. That prediction is already beginning to come true as domestic coal volume improved 8% in the first quarter. Although, despite the improvement in domestic coal it was largely offset by export coal's significant 15% decline in volume. As global stockpiles of coal continue to be worked through and prices of cheaper natural gas alternatives rise, look for coal volume to rebound and help return CSX to higher earnings-per-share results over the next two to three years.

The biggest remaining questions for investors are: How much did the winter weather affect business, and can the lost earnings be made up during the rest of this year?

Harsh winter weather
What a brutal winter it was, especially for CSX, which was directly affected as weather-related expenses ballooned. Management estimates that the weather cost the company $0.06 in earnings per share because of increased labor, equipment, and other rising costs. Management also estimated that revenues were negatively affected between $0.02 and $0.03 per share.

Labor and fringe expense, which typically is about one-third of CSX's overall expenses, increased $190 million from last year's first quarter. As the weather worsened, CSX was forced to increase the number of crews working and locomotives employed. In addition to more crew members, CSX also paid out significantly more overtime to its employees, which led to a $35 million labor cost increase.

The weather was a primary factor in the 16% drop in operating income to $739 million and its operating ratio increasing 520 basis points to 75.5%. Management still believes that it can reach its goal to sustain the operating ratio in the high 60s in 2015. 

Looking ahead
Even with the weather disruptions leading to higher expenses and a worse than expected operating income in the first quarter, management maintains its guidance for modest growth in 2014. That means investors can expect stronger volume and revenue improvement over the next three quarters. To be more specific, the majority of lost shipping volume due to the weather should be made up in the second quarter. Investors should note that while volume will improve significantly, higher costs may linger in the second quarter which could hinder operating income yet again. 

A bright spot for CSX investors is no doubt the company's ability and history of returning value to shareholders through dividends and share buybacks.

Consider that CSX has increased its dividend 11 times over the last eight years, which equates to a 20% compound annual growth rate over that time frame. CSX again bumped up the quarterly dividend 7% to $0.16 per share, which will be payable on June 13, 2014. CSX also repurchased 5 million shares for $127 million, or $25.4 per share, compared to the zero shares repurchased during last year's first quarter.

Few companies can consistently return value to shareholders over the long haul; when dividends rise and outstanding shares decline, over the course of years, it forms an X when graphed.


CSX Dividend data by YCharts

CSX's proven history of returning value to shareholders could give potential investors reason enough to buy in and wait for a rebound in coal, which would significantly brighten the companies earnings prospects throughout the remainder of this decade.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Daniel Miller has no position in any stocks mentioned. The Motley Fool owns shares of CSX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 10:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers