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CSX Shares Rally 8.5% on Forecast for Record Earnings

Thursday, 15 March 2012 04:45 PM

CSX Corp projected record first-quarter earnings thanks to strong intermodal and merchandise business that will more than offset slumping coal consumption caused by warm winter weather and low natural gas prices, the company's chief financial officer said on Thursday.

Shares of the No. 2 publicly traded railroad company closed up 8.5 percent at $21.92, outperforming the 3.3 percent rise in the Dow Jones Transportation average.

The unusually warm winter and decade-low natural gas prices drove down CSX's utility coal shipments by 25 to 30 percent this quarter, CFO Fredrik Eliasson said.

Eliasson, who spoke to Reuters on the sidelines of J.P. Morgan's Aviation, Transportation and Defense conference, also said customer stockpiles of coal are running 35 days above normal.

But more than 70 percent of the Jacksonville, Florida-based company's markets are seen growing year on year, with intermodal and merchandise business more than offsetting domestic coal weakness, he said in comments that were webcast.

CSX expects to "grow the 85 percent of the business that is not utility coal and focus on driving productivity," Eliasson said.

Utility coal volume had fallen by 33 percent to less than 1 million carloads in 2011 from 1.5 million in 2006, yet the company posted record operating income in five of those six years, he noted.

"I don't like to give quarterly guidance, but because we were going to show the world that the utility coal declines are as big as they are, we felt it was needed to assure" investors, Eliasson said.

The company expects the next earnings to be a record for any first quarter in its history.

The company in 2011 shipped a record 40 million of tons of coal for export, and first-quarter volume this year is running about 5 percent above the year-ago pace. Export coal represents about 10 percent of overall business.

The company earlier this week announced a second-quarter tariff cut of about 12 percent on the metallurgical coal it exports for use in steel-making - which accounts for half of its export coal - to reflect a bigger drop in coal prices and to stay competitive in the world market, Eliasson said.

Coal overall represents 23 percent of the railroad's volume and 30 pct of revenue.

"Despite utility coal being down 25 to 30 percent we are going to have a record first quarter," Eliasson said, adding, "even if this continues, we've stress-tested our economic models for the year and we're still going to be able to deliver record earnings."

Rising auto production, a steadily growing economy, and conversion of more traffic from the highway to more fuel-efficient rails are boosting the merchandise and intermodal segments.

Intermodal refers to the shipment of goods in containers that can be moved from one mode of transportation to another.

Analysts on average expect CSX to report first-quarter profit of 38 cents per share, up from 35 cents a year earlier, according to Thomson Reuters I/B/E/S. They look for revenue to rise to $2.94 billion from $2.81 billion.

© 2018 Thomson/Reuters. All rights reserved.

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Thursday, 15 March 2012 04:45 PM
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