Sometimes hailed as a "true American success story," the major railroad carriers have experienced a renaissance in the past decade. It wasn't always that way, though. In fact, it took years for the industry to break free from the shackles of heavy unionization and overregulation.
Last week, however, Union Pacific
The top line
Currently, analysts' average prediction for revenue at CSX stands at $2.99 billion for the quarter and $11.78 billion for the year. These figures represent potential top-line growth of 6% on a quarterly comparison and 10.7% on an annual basis.
How do we assign merit to these forecasts? For starters, we can dig a little deeper using the rail volume figures posted weekly by the Association of American Railroads. As of year-end 2011, CSX's total carload volume increased 4.2% on a quarterly basis and 2.1% on a year-over-year basis. Carloads reflect shipments of goods like coal, grain, and other heavy materials. Shipments of intermodal containers, which often contain consumer goods that require greater transport flexibility, increased 3.1% on a quarterly basis and 4.6% on an annual basis. In total, the combined carloads and intermodal containers shipments increased 3% for the year, slightly below UNP's 4% increase. Overall, this steady volume growth should translate to respectable revenue figures due to the railroads' ability to pass along fuel surcharges to customers.
The bottom line
Heading into the earnings announcement, the average analyst estimate calls for profit of $0.44 per share from CSX, an increase of 16% from quarterly earnings a year ago. For the full year, analysts are predicting earnings of $1.68 per share, which would imply year-over-year growth of 24%.
In an age-old industry, such strong earnings growth would seem rare, but these operators are at the top of their game. For starters, solid revenue performance accounts for a portion of the earnings growth. At the end of 2010, CSX's top line grew more than 17%. However, an even more significant driving factor has been the railroads' ability to maintain low costs after emerging from the recent recession. Forced to reduce overhead during the downturn, the railroads reemerged leaner and were able to ramp up volume while adding only minimally to the cost structure. The result has been expanding profit margins and a boost in shareholder returns.
With that in mind, let's take a look at how the railroads have performed for shareholders over the past two-and-a-half years.
It wouldn't be a stretch to say that every operator has left the broader S&P 500 index in the dust. Since emerging from the recession, the average return for the railroads clocked in at 182% versus 47% for the S&P 500.
Along with CSX, railroad operators Kansas City Southern
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