CSX Posts Revenue Growth On The Back Of Intermodal And Merchandise Shipments

CSX Corporation’s (NYSE:CSX) revenue grew 5% in the fourth quarter of 2013 and 2% for the whole year to just cross $12 billion. This was mainly driven by growth in revenue and volumes of intermodal and merchandise shipments. ^[1] However, the company’s net earnings for the quarter declined 5%, resulting in a decrease of 2 cents in earnings per share. This was due to the favorable impact that an after-tax real estate gain had in the fourth quarter of 2012. Net earnings for the year were stagnant but earnings per share grew by 4% to reach $1.83. CSX forecasts a compounded average growth rate of 10-15% for its earnings per share over the 2014 to 2015 period. ^[2] Revenue per unit volume declined 1% due to declining volumes of coal shipments as the coal market continues to remain weak.

CSX’s operating ratio, which is its operating expenses expressed as a percentage of revenues, increased by 1.4% compared to the previous year’s fourth quarter to reach 73.2%. ^[1] High incentive compensation costs, inflation and volume-related expenses had an unfavorable impact on CSX’s operating ratio. In addition, a gain on the sale of real estate helped reduce the operating ratio in the previous year, widening the gap between the operating ratio this year. Fuel expenses declined 3% due to lower fuel price and improved efficiency. CSX believes that it is still on track to achieving its target operating ratio of high-60’s by 2015. ^[2]

For the first quarter of 2014, CSX expects a favorable impact on earnings from 82% of its overall volumes, which include agricultural, automotive, chemicals, minerals and intermodal shipments. ^[2] Export coal and waste & equipment on the other hand will have a negative impact.

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Strong Growth In Intermodal Business Revenue

CSX’s intermodal revenue grew 10% in the fourth quarter 2013 due to an 11% growth in volumes. ^[3] However, the revenue per unit declined 1%.  Domestic intermodal volumes grew 13% due to increased highway-to-rail conversions, growth in business with existing customers and improved services. International intermodal volumes were up 9% primarily due to the negative impact that Hurricane Sandy had on last year’s shipments.

We believe that the Intermodal business is a long term growth driver for CSX due to growing global trade and investment in capacity expansion.

Coal Business Continues To Face Heavy Declines

CSX’s coal volumes declined 5% and revenue per unit declined 4% resulting in a 9% decline in coal revenue in the fourth quarter. ^[1] Export metallurgical coal shipments improved 10% due to increased shipments for U.S metallurgical coal compared to last year. This improvement was more than offset by a 9% decline in domestic coal shipments, which continue to face headwinds due to lower natural gas prices and an inventory overhang.

In the first quarter of 2014, CSX expects domestic coal shipments to improve since they do not anticipate heavy declines as in the first quarter of the previous year. ^[2] However, export coal shipments will decline due to lower international prices and weaker foreign currencies.

Shipments To Help Growth In Merchandise Revenue

CSX’ merchandise revenue grew 10% on the back of 7% growth in volume and 3% growth in revenue per unit. ^[1] Growth in shipments of chemicals, agricultural products, automotive, and housing and construction material helped boost revenue for the merchandise business.

Volume growth of 18% in chemicals shipments was driven by an increase in shipments of crude oil, liquefied petroleum gas and frac sand. The shale boom has had a positive impact on growth in chemicals volume since it has provided low cost crude oil and also increased the demand for frac sand which is used in extraction of natural gas from shale rocks. Chemicals shipments are expected to continue to grow in the first quarter 2014 due to the continued positive impact of the shale boom.

Agricultural products volumes grew 16% due to increased shipments of corn, soybean and ethanol. Last year’s corn and soybean production was negatively impacted by the drought in the Midwest. Lower cost of corn encouraged higher ethanol production. The strong harvest in 2013 is expected to have a spillover effect into 2014 and boost volumes in the first quarter. ^[2]

Automotive shipments grew 4% due to increased production of light vehicles in North America. The increase was slightly offset by earlier competitive losses in both finished vehicles and spare parts. The growth momentum in the automotive industry is expected to continue into 2014.

The housing and construction material shipments increased due to a higher demand for lumber generated by the recovery in the housing market. However, declines in shipment of minerals, which include crushed stone, sand and gravel, had a negative impact on housing and construction material shipments. This decline was due to many road construction projects having been completed in the quarter.

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1. CSX Fourth Quarter 2013 Financial Report, January 15, 2013 [↩] [↩] [↩] [↩]
2. CSX Fourth Quarter 2013 Presentation, January 15, 2013 [↩] [↩] [↩] [↩] [↩]
3. CSX Fourth Quarter 2013 Financial Report , January 15, 2013 [↩]