CSX Corp. Q4 Earnings Meet, Revenues Up on High Volumes

CSX Corporation’s (CSX) fourth-quarter 2014 earnings of 49 cents per share were in line with the Zacks Consensus Estimate but exceeded the year-ago figure of 42 cents. The strong earnings performance was supported by significant volume rise driven by growth across most segments.

Revenues of $3,192 million also came in above the Zacks Consensus Estimate of $3,178 million and increased 5% year over year buoyed by rise in volume. Fourth-quarter operating income rose 11% year over year to $901 million, resulting in an operating ratio (defined as operating expenses as a percentage of revenues) of 71.8% against 73.2% in the year-ago quarter. Meanwhile, operating expenses increased 3.2% year over year to $2,291 million.

Segmental Performance

Merchandise revenues grew 6% year over year to $1,923 million in the reported quarter driven by 5% volume expansion. Volume growth was largely supported by a 15% hike at the Chemicals segment and another 13% at Minerals.

Coal revenues spiked 6% year over year to $722 million on 11% rise in Coal volumes. Volume growth was supported by higher domestic coal demand offset by a decrease in export demand of the commodity owing to weak global market conditions.

Intermodal revenues rose 5% year over year to $465 million on the back of highway-to-rail conversions in the domestic market, increase in service lanes and customer addition. On a year-over-year basis, volumes increased 5% while RPU declined 1%.

Other revenues grossed $82 million, highlighting a 15% year-over-year fall.

Liquidity Position

The company exited the fourth quarter with cash and cash equivalents of $961 million compared with $1079 million at the end of 2013. Long-term debt was $9,514 million against $9,022 million at the end of 2013.

Dividend

In fourth-quarter 2014, total dividend paid amounted to $159 million as against $152 million in the same quarter a year ago.

Guidance

CSX expects to generate double-digit growth in earnings and margin in 2015 and achieve an operating ratio at around mid-60s.

Our Take

We believe CSX is cushioned by a number of profit generating factors that include favorable rail industry pricing, recovery of the construction sector, ongoing truck-to-rail conversion, and the expansion of network and terminal capacity. Additionally, the company’s focus on operational improvements will likely drives profits.

However, declining oil prices may force oil producers to cut production, thereby affecting overall business of the railroad industries. Moreover, regulatory and competitive issues coupled with stiff competition from other railroad operators like Kansas City Southern (KSU), Norfolk Southern Corporation (NSC) and Canadian National Railway Company (CNI) could hurt profits going forward.

CSX currently carries a Zacks Rank #3 (Hold).