What’s Driving CSX In 2015?

CSX Corporation‘s (NYSE: CSX) revenue grew 5% in the first nine months of 2014, driven by 6% growth in volume. ^[1] Looking at the carloads in the fourth quarter, it seems that 2014 will end on a good note. Going into 2015, we expect to see growth in CSX’s shipment volumes driven by its Merchandise and Intermodal segments. In this article, we take a look at the factors driving growth in 2015 in these segments.

See our complete analysis of CSX here

Merchandise Volumes To Grow

Last year’s strong corn and soybean harvest helped drive CSX’s agricultural shipments up by 12% in the first nine months of 2014. ^[1] An increase in ethanol production, due to low corn prices, also contributed to the increase in agricultural shipments. Corn production is expected to increase 3.5% year-on-year in 2014, to 14.4 billion bushels, and soybean production is expected to increase 18% year-on-year, to 3.93 billion bushels. ^[2] This should help continue to drive growth in CSX’s agricultural volumes through 2015.

Crude oil production in the U.S has been increasing consistently since 2011, thanks to horizontal drilling techniques. ^[3] The U.S Energy Information Administration (EIA) forecasts crude oil production to increase to 9.3 million barrels per day in 2015, compared to 8.6 million barrels per day in 2014. ^[4] This should help drive growth in CSX’s chemicals shipments, which includes crude oil. Though there does remain a threat from declining crude oil prices, CSX remains fairly confident about its chemicals shipments because of the positive feedback from its customers regarding crude oil demand. ^[5] Additionally, the low crude oil prices and abundant shale gas have encouraged higher production of petrochemicals in the U.S., which will also contribute significantly to CSX’s chemicals shipments in 2015.

Housing starts and building permits have had a strong 2014, driving CSX’s housing and construction related shipments up by 4% in the first nine months. The NAHB forecasts a 17% year-on-year increase in housing starts for 2015 driven by strong demand for single family units. An increase in housing activity should continue to drive CSX’s housing and construction shipments in 2015. ^[6]

Tight Trucking Capacity Will Boost Intermodal Shipments

CSX expects to see 5-10% growth in its intermodal shipments each year for the next few years. ^[5] This is primarily due to the tightening trucking capacity in the U.S. Declining fleet sizes and a lack of truck drivers have significantly tempered the freight transport capacity of the trucking industry. ^[7] The Hours-of-Service safety regulation for commercial vehicle drivers has also put pressure on trucking capacity by limiting the number of working hours for truck drivers. Additionally, an increasing number of carloads are shifting from trucks to railroads due to the cost advantage of railroad’s intermodal service. CSX’s domestic intermodal volumes are priced 10-15% below truck rates, giving it a considerable advantage in domestic long haul shipments. ^[8]

Export Coal Will Likely Present Headwinds

The price of coal in the global markets has dropped sharply due to high exports from Australian coal suppliers and low demand from China. U.S. coal suppliers have had to lower their prices in order to remain competitive or have stopped exporting. Because of this, CSX’s export coal tonnage declined 13% in the first nine months of 2014. With the recent announcement that China will impose tariffs on imported coal, the low price environment is expected to continue. ^[9] This should continue to put pressure on U.S. coal, which will further impact CSX’s export coal volumes in 2015.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. CSX’s Q3 2014 Financial Report, www.csx.com [↩] [↩]
2. Crop Production, November 10, 2014, www.usda.gov [↩]
3. US Crude Oil Production Historical Data, www.ycharts.com [↩]
4. U.S. EIA Short Term Energy Outlook, www.eia.gov [↩]
5. CSX Corporation at Credit Suisse Global Industrials Conference, December 3, 2014, www.csx.com [↩] [↩]
6. NAHB Housing and Interest Rate Forecast, December 2014, www.nahb.org [↩]
7. 2014 Trucking Outlook – Q2 Update, April 30 2014, www.spendmatters.com [↩]
8. CSX’s (CSX) CEO Clarence Gooden on Q3 2014 Results – Earnings Call Transcript, October 15, 2014, www.seekingalpha.com [↩]
9. China’s Coal Tariff Prolongs the Pain, October 10, 2014, online.wsj.com [↩]