A Snapshot of CSX Corporation’s Business And Outlook

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CSX Corporation (NYSE: CSX) generates its revenues primarily from various commodities freight, including coal, industrial, and agriculture, among others. Industrial Commodities freight account for over one-third of the company’s overall revenues. We believe that the Intermodal segment will grow at a faster pace in the near term, primarily due to capacity constraint in the trucking industry. We have created an interactive dashboard ~ What Are CSX Corporation’s Key Sources of Revenue.  You can adjust the revenue drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Industrial Commodities Freight Accounts For One-Third of The Company’s Total Revenues

The Industrial segment consists of the transportation of chemicals and petroleum products, metals, and automotives. The segment revenues haven’t seen any significant growth in the recent years. Automotive shipments haven’t seen any significant growth, amid a decline in North America light vehicles production. The production was down 4.3% in 2017, and is expected to see a modest decline in the near term. This will likely weigh on the railroad automotive shipments. However, the chemicals shipments should see an uptick, as the U.S. chemicals production is expected to grow by over 3% in 2018 and 2019. Looking at metals, steel production is expected to grow in low single digits, amid price increases due to tariffs being imposed by the U.S. We currently forecast a modest rise in segment revenues, primarily aided by higher average revenue per carload, which will benefit from increased fuel surcharges, given the movement in oil prices in 2018. We forecast a low single digit decline on the volume front.

Expect Modest Growth In Coal Freight 

Coal freight revenues have declined over the past few years, due to lower natural gas prices, which has impacted the overall demand for coal. The revenues grew last year led by a strong 42% jump in export volume. In fact, export coal has been doing well for railroad companies in the recent past, and has offset most of the decline seen on utility coal. We expect this trend to continue in the near term. We currently forecast a low single digit growth in segment revenues in 2018. Note that average revenue per carload for most of the segments will likely trend higher in the near term, given the uptick in oil prices. Oil has been trending higher in 2018, due to several geo-political concerns, among other factors. This will likely translate into higher surcharge revenue for railroad companies.

Intermodal Will Likely See Mid-Single Digit Growth In The Near Term

CSX’s Intermodal segment accounts for roughly 15% of the company’s total revenues. Intermodal freight refers to the shipment of containers that can be moved from one form of transport to another. The segment revenues have grown in the recent quarters, amid volume gains, and we expect this trend to continue in the near term. The ELD (electronic logging device) mandate being fully implemented, has put a constraint on the capacity of the trucking industry. This increases the competitive advantage of railroads over trucks. As shippers move to railroads to ship freight, CSX’s Intermodal shipments will likely increase. We forecast a mid-single digit revenue growth led by gains in both volume and pricing.

The company’s other segments include agriculture, housing & construction commodities, and other services, which combined accounts for around 30% of the company’s overall revenues.

 

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