CSX Corporation (CSX -0.14%) reported its fiscal-first-quarter 2014 earnings after market close on Tuesday. The bad news is that earnings declined year over year. The good news is that earnings didn't decline quite as much as investors had expected. For Q1 2014, CSX reported:

  • 2% growth in revenues to $3 billion, on a 3% uptick in volume
  • 16% falloff in operating profits
  • 11% decline in per-share profits to $0.40 (analysts, however, had predicted just $0.37 in profit)
  • weakening free cash flow, as last year's $240 million in Q1 2013 cash profits shrank and were cut nearly in half (to $124 million) in Q1 2014

None of these numbers looks particularly strong -- not that we expected to see really strong results, especially after fellow transport company J.B. Hunt (JBHT 1.89%) set the tone for transports yesterday, complaining about how harsh winter weather affected its results. Yet after declining during ordinary trading hours, CSX shares perked up after its earnings news was released once trading had ended, recovering their earlier losses and even gaining a few pennies. Why?

Probably key to the shares' after-hours strength was management's insistence that despite profits declining in Q1, CSX still believes that it will grow earnings in 2014. To be clear, management predicts it will not just recover from Q1's disappointment to grow earnings in the remaining three quarters of the year but will actually grow full-year 2014 profits to levels "modestly" better than CSX achieved in fiscal 2013. What's more, management promised to continue to grow profits farther out and to sustain "double-digit earnings growth and margin expansion for its shareholders in 2015 and beyond."

That's a pretty bold claim given that most analysts who follow CSX predict it will lag the rest of its industry in profit growth over the next five years and struggle to achieve even 10% earnings growth over the long term.

Problem is, with a price-to-earnings ratio of more than 15 today, CSX really does need to return to and maintain mid-teens earnings growth to justify its stock's valuation. And even then, the stock may be no great value. Due to high capital investment requirements, CSX's real free cash flow has historically lagged its reported GAAP income significantly -- with cash profits often being only mere fractions of reported net income.

Foolish takeaway
Management's reassurances of a return to double-digit earnings growth notwithstanding, poor performance in Q1 2014 and historically weak free cash flow across many years tell me that CSX stock is probably not a very high-quality investment. There are better places for your money.