NEW YORK The chief executive of CSX Corp., one of the nation's biggest railroads, on Wednesday reiterated his belief that the recession is likely over, but said that earnings will remain weak if consumer spending doesn't get back on board, the Associated Press reports.
A day after the Jacksonville, Fla., company reported third-quarter earnings, CSX said it believes that consumer demand is stabilizing, although it still doesn't know when it will begin to improve. But several analysts have said that certain drivers in consumer markets aren't sustainable in the current quarter, including retail and vehicle sales. Auto sales were helped in the third quarter by the government's Cash for Clunkers program.
"I wish I had a crystal ball to tell me how the consumer was going for behave," President and CEO Michael Ward said in an interview with The Associated Press.
Consumer spending is a key aspect of railroad performance because so many everyday goods are shipped on the tracks.
Another concern for CSX is the expected weak coal market mostly the result of lower demand from utilities. Less industrial production, a mild summer in the Eastern U.S. and low natural gas prices combined to hurt coal sales in the June-to-September period. And the company predicts the market will stay weak into next year.
Despite an unclear future, investors focused on the good news about stabilizing demand and the hopes that the worst of the recession is in the past.
Shares of CSX were up more than 6 percent in afternoon trading, gaining $2.73 to reach $47.12.
Investors also cheered the company's ability to further cut costs, mostly through furloughing employees. The company's payroll was down by 14 percent in the third quarter compared with a year earlier.
"With CSX leading the way, railroad earnings start off on the right foot," Barclays Capital analyst Gary Chase said in a client note. "We believe the cost and revenue performance should allow investors to focus on opportunity ahead as volumes recover."
He explained that many watchers brushed off the company's negative comments about the coal market because much of that weakness was already expected.
Chase continues to believe that the railroad earnings will come in higher than many on Wall Street currently expect.
(This item was distributed Oct. 15, 2009, by The Associated Press.)
