Poor Operational Performance Pulls Down CSX’s 3Q’17 Results; Coal Demand To Drive Future Growth

by Trefis Team
CSX Corporation
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As expected, CSX Corporation (NASDAQ:CSX) posted a weak set of financial numbers for the September quarter on 17th October 2017 ((CSX Corporation Announces Third-Quarter Earnings, CSX News Release)). On the one hand, the Florida-based company’s revenue came in a little lower than the market estimate, while on the other hand, its adjusted earnings per share dropped sequentially from 64 cents to 51 cents. Both the revenue and earnings decline was primarily due to the operational slippages experienced by the company during the quarter. However, Hunter Harrison, CSX’s new CEO, highlighted that the company’s operational performance is back on track and his Precision Scheduled Railroading (PSR) strategy is likely to work efficiently in the coming months. This somewhat pacified the investors, as the company’s stock rose almost 3% post the announcement of the third quarter results. Below are some of the key highlights of CSX’s 3Q’17 earnings release.

See Our Complete Analysis For CSX Corporation Here

Key Highlights of 3Q’17 Earnings

  • Unlike the previous quarter, CSX failed to deliver a strong top line growth in the third quarter, despite the improvement in coal shipments throughout the quarter. The company’s revenue declined by 6.4% to $2.74 billion on a sequential basis, due to the lower shipments and weak fuel surcharge revenue.
  • Further, the railroad company’s operational performance suffered severely on most of its key metrics during the quarter. For instance, the company’s train velocity or speed for the quarter averaged at 14 miles per hour (mph), versus 16.2 mph in the previous quarter.

  • However, despite the deteriorating operational performance during the quarter, CSX managed to bring down its operating ratio to 68.1% as opposed to 69% in the same quarter of last year. This was backed by the impact of the company’s efforts to rationalize its workforce and improve the productivity of its operations. Consequently, the adjusted earnings per share grew to 51 cents, 6% higher on an annual basis.
  • CSX has generated cash flows of $2.8 billion from its operations year-to-date, of which $2.3 billion have been returned to its shareholders in the form of dividends and share buybacks.

Going Forward

  • With the appointment of Mr. Harrison, the company aimed to bring down its operating ratio to around 60%. However, given the operational glitches in the third quarter, the company now expects the ratio to be at the high end of the mid-60% by the end of this year. Also, CSX expects to grow its 2017 earnings per share by 20%-25% compared to the 2016 number.
  • CSX expects the US export coal demand to remain strong in 4Q’17, and the intermodal volumes will continue to grow, backed by strong consumer sentiment, and a tighter truck market. However, the anticipated decline in North American light vehicle production, and the volatility in the crude oil markets could offset the tailwinds from higher coal and intermodal shipments.

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