Analysts expect deteriorating demand took a chunk out of earnings at railroad CSX Corp., which reports first-quarter profit after the market closes Tuesday, the Associated Press reports.
Edward Wolfe of Wolfe Research said in a recent note to clients that he believes the eastern railroads -- CSX and rival Norfolk Southern Corp. -- will feel the brunt of a slowing economy on their businesses.
He also suggests that current Thomson Reuters earnings estimates are still way too optimistic. Wolfe said that stocks, including CSX have been driven higher on hopes that the economy has reached a bottom, although there are currently few signs signaling the worst is over. In fact, Wolfe said his early data suggests that March demand was even worse than the month before.
Analysts polled by Thomson currently expect a profit of 51 cents per share on revenue of $2.26 billion.
The Jacksonville, Fla.-based railroad operator will also take a charge in the first quarter to account for the historic but money-losing resort it owns, The Greenbrier The resort filed for Chapter 11 bankruptcy protection last month and announced plans to sell itself to Marriott International Inc.
These one-time charges, while included in net income figures, are generally excluded by analysts in their calculations.
(The preceding Associated Press article appeared on the Web site www.forbes.com on April 14, 2009.)
CSX profit down 30 percent but beats Wall St view; stock up
(Reuters circulated the following on April 14, 2009.)
CHICAGO CSX Corp., the No. 3 U.S. railroad, on Tuesday posted a better-than-expected quarterly net profit, sending its stock up 7 percent as it took steps to cut costs and keep prices steady amid a steep drop in freight volumes due to the recession.
The Jacksonville, Florida-based company reported first-quarter net income of $246 million or 62 cents per share, down nearly 30 percent from $351 million or 85 cents per share in the same quarter in 2008.
Analysts, on average, expected earnings per share for the quarter of 51 cents, according to Reuters Estimates.
In after-market trade, CSX shares were up 7.2 percent at $30.60 from their official closing price on the New York Stock Exchange at $28.39.
Revenue in the quarter fell 17 percent to $2.25 billion from $2.71 billion on a 17 percent decline in freight volumes.
The railroad said the decline was due to "significant weakness in industrial production, housing starts, and consumer spending, as well as in the agriculture and energy sectors" and it was taking action to cut costs.
"We are taking tough actions to right-size our operations in this challenging environment," Chief Executive Michael Ward said in a statement. The railroad said a "wide range" of productivity initiatives had helped it trim operating expenses for the quarter by 17 percent to $1.73 billion from $2.09 billion a year ago.
CSX cut its fuel bill for the quarter to $191 million from $441 million last year.
In a filing with the U.S. Securities and Exchange Commission, CSX said that automotive-related freight volumes were down 53 percent, metal products fell 48 percent, lumber declined 25 percent, while phosphates and fertilizers dropped 34 percent. Coal carloads were down 6 percent.
Revenue per carload -- a telling benchmark for the railroads as it provides an indication of how strong their prices are -- was virtually flat at $1,584 from $1,580 in the first quarter of last year, CSX said in the filing.
Credit Suisse analyst Chris Ceraso described the revenue per carload as a "very big surprise" in a research note to clients. Credit Suisse had expected CSX to post a 9 percent decline in volumes. Ceraso said the drop in fuel costs was also another big surprise.
"We think it is more likely that the railroads fall short of the consensus rather than surprise to the upside," the Credit Suisse analyst wrote earlier in the day in an earnings preview note on CSX.
The major U.S. railroads have all posted robust profits in recent quarters despite weak freight volumes, thanks to strong pricing. But with the precipitous decline in the U.S. economy over the past few months, analysts are watching the railroads carefully to see if they can maintain high prices in the downturn.
According to data released by the Association of American Railroads last week, U.S. railroads saw freight volumes down 16.7 percent in the first 13 weeks of 2009.
(The Associated Press circulated the following on April 14, 2009.)
NEW YORK Railroad operator CSX Corp. expects double-digit declines in shipping volume to continue through the second quarter.
The Jacksonville, Fla.-based company said Wednesday in a conference call with analysts that sales will continue to be hurt as demand to ship goods by rail plummets. Railroads are hurting from stiff competition from trucking companies, which have slashed their rates to remain competitive, as well as overall economic weakness.
CSX Corp. reported on Tuesday its first-quarter earnings dropped 30 percent, as slowdowns in the housing, construction and automotive markets continued. The railroad transports everything from cars to toys, and its performance is considered an indicator of overall economic health.
Wall Street thinks rails 1Q results might surprise
Analysts see a bright light coming down the railroad tracks, as they expect many of the nation's largest railroads to surpass Wall Street's estimates for the first quarter through higher prices, cost cuts and operational improvements.
Wall Street already received one first-quarter earnings surprise with the first rail to report results for the period -- CSX Corp. Jacksonville, Fla.-based CSX said its first-quarter profit fell 30 percent from a year earlier, but the results handily beat Wall Street's expectations as cheaper fuel and lower costs partially countered plunging demand.
All U.S. railroads faced deteriorating demand in the first-quarter. According to the Association of American Railroads, the industry's main trade group, total U.S. rail carloads fell 16.3 percent in the first three months of 2009 compared with a year earlier.
In a note to clients last week, Deutsche Bank analyst Marcelo Choi said that CSX's first-quarter results bode well for the rest of the railroad group. He suggests that analysts may have underestimated the railroads' ability to focus on cost-cutting.
CSX said about half of its reduced operating expenses came from lower fuel costs. Furloughs, faster train speeds and less time spent in the station accounted for the rest.
Lee Klaskow, an analyst with Longbow Research, said he expects railroads' ability to raise prices for its services will continue. During the first-quarter, CSX was able to raise core prices by 6.5 percent, despite a sharp drop in shipments. Klaskow believes the railroad can raise prices by 5 percent to 6 percent this year, but warned the railroad may have trouble with price hikes in 2010 if demand hasn't improved.
The next U.S. railroad to report earnings is CSX's eastern rival, Norfolk, Va.-based Norfolk Southern Corp. on Tuesday after the market closes. The country's two largest railroads, Union Pacific Corp. and Burlington Northern Santa Fe Corp. are expected to release results on Thursday.
(The preceding Associated Press article by Samantha Bomkamp appeared on the Web site www.forbes.com on April 20, 2009.)
