CSX’s Stock Drops Despite Better-Than-Expected Earnings

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Taking the market by surprise, CSX Corporation (NASDAQ:CSX), the Florida-based railroad company, posted better-than-expected earnings for its December quarter as well as full year 2017 on 16th January 2018((CSX Corporation Announces Fourth-Quarter Earnings Release and Earnings Call, CSX News Release)). This earnings beat was driven by the company’s efforts to bring down its operating ratio by rationalizing its workforce and improving the productivity of its operations. However, despite this, the company’s stock witnessed a drop post the announcement of the results, as it missed the revenue expectations by a small margin due to lower shipments during the quarter. For 2018, the railroad company plans to stick to the Precision Scheduled Railroading (PSR) strategy proposed by its ex-CEO, Hunter Harrison, who passed away a few weeks ago. The company will continue to reduce its operating costs to enhance its profitability and deliver better returns to its investors. Here are some of the key highlights of CSX’s 4Q’17 earnings release.

See Our Complete Analysis For CSX Corporation Here

Key Highlights of 4Q’17 Earnings

  • Similar to the previous quarter, CSX failed to deliver a strong top line growth in the fourth quarter, due to lower shipment volumes during the quarter. While the chemicals, automotive, and agricultural shipments dropped sharply, their negative impact was somewhat offset by the higher coal and intermodal shipments.

  • Further, the railroad company saw a surge in its pricing during the quarter. A majority of this increase was driven by the improvement in coal pricing that was backed by the favorable business practices implemented by the Trump administration.
  • In addition, the company also witnessed a jump in its fuel surcharge revenue due to the recovery in oil prices through the year. The company’s fuel surcharge revenue was $367 million for 2017, which is almost 60% higher than the last year. Consequently, the company’s overall revenue stood at $11.4 billion, 3% higher compared to the previous year.

  • With the implementation of CEO Hunter’s PSR strategy during the year, CSX managed to reduce its operating costs for the year. While the company faced operational issues initially, it managed to adopt to the new system and delivered efficiencies gains of $460 million. As a result, the company’s operating ratio reduced to 67.9% for full year 2017, 100 basis points lower than the prior year, meeting its targeted ratio of high end of mid-60s.
  • CSX posted adjusted earnings of $2.30 per share for 2017, 27% higher than the previous year. This earnings excludes the impact of a tax benefit of $3.6 billion received by the company due to the enactment of the Tax Cuts and Jobs Act of 2017. With this earnings, the company exceeded its EPS growth target of 20%-25% for the year.

Going forward

  • In 2018, CSX expects to improve slightly, backed by the recovery in coal and intermodal shipments.
  • On the cost side, the company will continue to focus on the implementation and execution of the scheduled railroad strategy and further bring down its operating ratio.
  • Besides this, the company expects to spend $1.6 billion in capital expenditure and anticipates its effective tax rate to be around 25% for 2018.
  • The company will shed more light on its guidance for the year at its Investor Day on 1st March 2018.

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