CSX Q3 Earnings Preview: Higher Rail Traffic Supports Growth

by Trefis Team
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CSX Corporation
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CSX Corporation (NYSE:CSX) will release its third quarter earnings Tuesday, October 18. In the third quarter, we expect CSX to report greater revenues and earnings year-over-year. Improved rail traffic in the last month will likely increase revenue for the company while increased expenditure on expansion projects might put some pressure on the earnings. Its competitors, Union Pacific Corporation (NYSE:UNP) and Norfolk Southern Corporation (NYSE:NSC) will also report their earnings in the next two weeks.

See our complete analysis of CSX Corporation stock here

Rail Traffic Recovery Positive for Railroad Companies

As per a Association of American Railroads (AAR) report, rail traffic in September 2011 increased compared to September 2010. In its release the association stated, “Through the third quarter of 2011, U.S. carloads are at 87% of the levels they were at this point in 2006, the highest year on record for U.S. rail traffic. Intermodal volume in the first nine months of 2011 is 96% of what it was in the peak year of 2006.” [1]

In addition, U.S. rail carload in September 2011 grew by 1.1% compared to in September 2010. Of the 20 commodities tracked by AAR, 13 saw increases in September this year as against last year. [2] This includes U.S. rail carloads of coal, which increased by 1.2%.

This uptick in the traffic activity will help drive revenues for all rail transportation companies like CSX. Rail is the most efficient way to move large natural resources like coal, oil, timber and other heavy freight, and so as the economy slowly recovers, we expect CSX to do well.

Costs Involved in Expansion Projects

In order to expand, CSX has undertaken projects such as the national gateway, scheduled to be completed by 2015, and an ethanol deal with Kinder Morgan, a joint venture to transport ethanol via a train-to-pipeline supply system. These investments are expected to benefit the company and increase capacity to carry more traffic.

See our recent coverage launch article for more on CSX Corp. CSX Corp. Coverage Launch: $32 Trefis Price Estimate.

Our price estimate for CSX is $33.76, which is around 60% ahead of the current market price.

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Notes:
  1. AAR Reports Gains for September Rail Traffic, AAR []
  2. October 2011 - Rail Time Indicators (PDF), AAR []
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