CSX Corporation Recovers a From Harsh Winter, but Has New Problems Ahead

CSX Corporation reported a strong second quarter today, though a surge in car loads has brought new problems for the company.

Jul 16, 2014 at 3:44PM

As earnings season kicks into gear, this time around it will be a much different story for many companies compared to the first quarter, which had a harsh winter adversely affecting results. In CSX Corp.'s (NASDAQ:CSX) case, the harsh winter weather sent overtime costs and labor expenses soaring. The question was whether or not CSX could make up lost volume and earnings throughout the year.

Looking at CSX's second-quarter results, we have part of our answer; but on the flip side from the first quarter, a surge in car loads brought a handful of different problems. Here are the details, and what investors should keep in mind going forward.

By the numbers
First, let's dig into the dreary numbers. CSX reported a mixed bag compared to estimates with a profit of $529 million, or $0.53 per share, on revenue of $3.24 billion, compared to analysts surveyed by Thomson Reuters who expected earnings of $0.52 per share on revenue of $3.25 billion. Revenue and operating income jumped 7% and 6%, respectively, while CSX's operating ratio remained stable at 69.3% in year-over-year comparisons.

CSX's business is split into three segments -- merchandise, coal, and intermodal.

Csx
Chart by author. Information source: CSX Q2 presentation.

Merchandise continues to lead the segments in terms of revenue per unit, or RPU, at $2,593, with coal and intermodal checking in at $2,255 and $650, respectively. CSX's total RPU was down in the second quarter, from last year's $1,839 to $1,821. The decline was due to coal's 9% decline in RPU compared to last year's second quarter, as well as intermodal's 2% decline for the same time periods.

While RPU declined due to weaker pricing, total revenue drove higher because of increased volume. However, the latter factor also brought additional problems for CSX.

The downside
CSX network performance was severely hurt because of the higher than expected surge in car loads. Compared to the first quarter, second-quarter car-load volumes were up 14%. At the same time that car-load volume was surging, velocity, or mph, declined on average from the first quarter -- not a favorable change.

Because of the slower velocity and higher than expected surge in car loads, CSX's network performance was adversely affected. CSX's on-time arrivals dropped from 82% in last year's second quarter down to 42% last quarter. Its train velocity, or mph, dropped from 23 during last year's second quarter down to 19.3 last quarter. Meanwhile, the amount of hours that carloads dwelled in terminals rose from 21.9 during last year's second quarter to 25.9 during the last quarter.

Investors should expect CSX's network performance to stabilize and reverse during the next quarter as the company will be better prepared to deal with the surge in car loads. Overall, this was a strong quarter for CSX, and the surge in volume far outweighed the cost in its network performance.

Looking ahead
Going forward, as the U.S. economy gains more momentum, it will provide CSX with a surge in business. Consider that ISM Manufacturing's Purchasing Managers Index has continually indicated expansion in the U.S. manufacturing industry during the last year. Moreover, ISM Manufacturing's Customer Inventory Index has continued to indicate inventories remain low -- a potential boost in business for CSX when those inventory levels inevitably rise.

Csx
Slide from CSX Corporation's Q2 presentation.

CSX's management confirmed that the remainder of 2014 would bring modest earnings improvements, but investors can expect margin improvements and double-digit earnings growth to take place in 2015.

While investors may have to wait a couple of quarters to see those gains take place, the silver lining is that CSX has continuously returned value to shareholders through increased dividends and share repurchases.

Csx
Source: YCharts.

Dividend stocks like CSX can make investors rich
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

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 5:03PM

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