CSX Corp. CSX is set to release its fourth-quarter and full year 2015 results after the market closes on Jan 12. Last quarter, this Jacksonville, FL-based railroad operator had clocked a 4% positive earnings surprise. The company has outpaced the Zacks Consensus Estimate in two of the last four quarters, with earnings in line with estimates in the other two. The trailing four-quarter average earnings beat is 2.42%.
However, the company, like its peers in the railroad space, has struggled with respect to its top line due to the ongoing weakness in domestic coal shipments. In the last reported quarter, revenues declined 9% year over year owing to soft coal revenues which plummeted 19%. Volumes slipped 18% due to softer global coal demand and a stronger U.S. dollar.
We expect coal weakness to hurt results of the company in the final quarter of 2015 as well. Let’s delve into the details.
Factors to Watch Out For
CSX Corp. is reeling under the effects of commodity rout. It continues to grapple with weak coal pricing. Since coal is a key revenue-generating commodity for railroad operators, it is only natural that the decline in domestic coal shipments has spelt significant doom in the space.
That coal-related headwinds will continue to hurt CSX Corp.’s results in the fourth quarter as well, is evident from the gloomy prediction unveiled by Frank Lonegro, the company’s Chief Financial Officer, last month at the Credit Suisse industrial conference in Florida. Lonegro stated that the decline in domestic coal shipments was steeper than expected (data was considered upto Nov 30). The uncertainty prevailing in the energy markets has naturally contributed to the current prevailing sorry state of affairs at the railroad operator.
The glum scenario prompted the company to forecast 2015 earnings per share growth at a mere 3% on a year-over-year basis. This presents a significant slash from the previous projection which had hinted at 2015 earnings growth in mid-single digits.
Focus will also remain on revenues generated by CSX Corp.’s intermodal segment in the fourth quarter. We note intermodal revenues had declined marginally in the third quarter. The company is expecting to see an improved performance at the segment in the final quarter of 2015.
Earnings Whispers
Our proven model does not conclusively show that CSX Corp. is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: Earnings ESP for CSX Corp. is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 46 cents.
Zacks Rank: CSX Corp. has Zacks Rank #4 (Sell). Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions, as is the case with CSX Corp. Fourth quarter earnings estimates have declined by over 4% in the last 60 days to 46 cents per share.
Upcoming Railroad Releases
Apart fromCSX Corp., railroad operators like Kansas City Southern KSU and Union Pacific Corporation UNP are slated to unveil their respective fourth quarter results on Jan 22 and Jan 21. We believe results of both these companies will also tend to be impacted by coal-related headwinds, in the same lines as CSX Corp.
A Transportation Gem
With railroads struggling big time, we believe investors interested in the broader transportation space should look elsewhere for companies likely to beat the Zacks Consensus Estimate in the fourth quarter. One such company is Alaska Air Group ALK which sports an earnings ESP of +3.45% apart from a Zacks Rank #1. The carrier is slated to release its fourth quarter results on Jan 21, before market opens.
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