CSX Corporation Earnings: Will Better Weather Boost the Railroad?

On Tuesday, CSX (CSX -1.95%) will release its quarterly report, and shareholders have high expectations that the railroad giant will recover strongly from weak results over the winter. Even though bad weather held back the company during the first three months of the year, CSX hopes to keep moving forward in tapping the same positive trends that have helped rivals Union Pacific (UNP -0.88%) and Canadian National (CNI -0.20%) keep their share prices headed in the right direction.

CSX has benefited from the high energy prices that have made rail transportation more cost-effective than other forms of transport, as manufacturers seek the lowest-cost methods to get their goods to market. Even though poor performance in the coal industry has hurt CSX to a greater extent than Union Pacific and some other peers, the railroad industry has turned to crude-oil transport and the demand for related raw materials necessary for unconventional drilling methods to pick up the slack. Will that prove sufficient to drive CSX's growth? 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 report.

Source: CSX

Stats on CSX

Source: Yahoo! Finance

What's next for CSX earnings?
Investors have had mixed views on CSX earnings in recent months, raising second-quarter estimates by a penny per share but cutting full-year 2015 projections by a penny as well. The stock has kept climbing, with gains of 10% since early April.

CSX's first-quarter earnings weren't perfect, although they nevertheless were able to exceed what many investors had feared. Harsh winter weather forced earnings down 14% from the year-ago quarter, even as CSX managed to boost revenue by 2%. Coal continued to weigh on the company, although the coal industry now makes up less than a quarter of CSX's total revenue and therefore has somewhat less impact on its results. Growing revenue from grain shipments and from intermodal business helped offset sales declines in coal, and CSX maintained its expectations for earnings growth for the full 2014 year.

Source: Wikipedia

The bigger concern that many throughout the railroad industry have, however, is what could happen if tougher regulation on crude-oil shipments comes into effect. In late April, a CSX train derailed in Virginia, with part of its oil cargo catching fire and forcing the evacuation of parts of downtown Lynchburg. The accident stoked more controversy about the state of regulation of crude-oil shipments by rail, and despite the fact that the lack of pipeline infrastructure makes rail transport one of the only ways to get oil to market, CSX, Union Pacific, Canadian National, and the rest of the industry all have to worry that heightened costs of upgrading tank cars and railroad networks could eat dramatically into profits.

Meanwhile, CSX could finally start to see coal shipment volumes turn around. Even though domestic pollution control laws have made U.S. use of coal less attractive, rising natural gas prices have made coal more cost-effective than it was during the natural-gas glut a couple years ago. Moreover, coal producers are increasingly looking to export coal to friendlier nations. That puts CSX in the strong position of shipping that coal to export terminals as well as their traditional utility customers, which could help add to long-term growth.

In the CSX earnings report, watch to see how the railroad's various segments perform. If coal starts to pick up as a more important source of revenue once again, then CSX's recent share-price gains could well continue into the future.

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