CSX Corporation’s Q4 Beat Led By Continued Cost Cutting Measures And Pricing Gains But 2019 Expected To See Slow Growth

by Trefis Team
CSX Corporation
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CSX Corporation (NYSE: CSX) recently posted a better than expected Q4 performance with a 10% top line growth and 58% surge in the earnings, led by continued cost cutting measures, along with better pricing across its segments. Q4 growth was primarily led by its Merchandise freight segment. Within Merchandise, all but Agriculture and Fertilizers saw double digit revenue gains. Looking forward, we expect mid-single digit top line growth for the company in 2019, primarily led by Merchandise and Coal segments. Intermodal could see slow growth, given the rationalization of intermodal lanes, as stated by the company’s management. The company also authorized a new $5 billion share repurchase program. We have created an interactive dashboard ~ A Quick Snapshot of CSX Corporation’s Q4 Performance And Trefis Estimates For The Full Year 2019. You can adjust various drivers to see the impact on the company’s earnings, and price estimate.

Expect Revenues To Grow In Low To Mid-Single Digits In 2019

We expect CSX’s coal freight revenues to grow in mid-single digits led by both volume and price gains for the full year 2019. The company shipped over 100 million tons of coal in 2018, led by export coal, which offset the decline seen in the domestic coal shipments. We expect this trend to continue in the near term, as the U.S. coal export segment is seeing growth due to a rise in global benchmark coal prices, which were up roughly 15% in 2018. The decline in domestic coal demand can largely be attributed to attractive natural gas prices. EIA estimates of 640 million short tons (mst) coal consumption in 2019, which is the lowest figure since 1979. However, coal exports have been on a rise and were up 20% in 2018. The exports are expected to see a decline in 2019, which could impact the overall shipments for the railroad companies.

We forecast mid-single digit growth in Merchandise freight, primarily led by chemicals, metals, and forest products. We forecast a growth in construction related shipments in the near term. Total construction starts climbed 7% and 3% in 2017 and 2018, respectively. The growth is expected to be slow in 2019, amid rising interest rates and higher material costs. However, the economy is also expected to see expansion, which should bode well for the construction sector. We also expect Automotive freight revenues to see low to mid-single digit growth, led by higher shipments. Total number of vehicles sold has been hovering around 17 million over the past few years, and it could remain around the same mark in 2019 as well.

While the Intermodal segment has benefited in the recent quarters, due to tight capacity in the trucking industry, CSX will likely see slow growth in 2019, amid intermodal lanes rationalization. The overall top line growth is also dependent on the trends in fuel prices, which have been softer in Q4. Note that fuel surcharges were roughly 5% of the company’s total revenues in 2018. We forecast further expansion in margins, as the company remains focused on bringing down its operating ratio under 60%. This combined with share repurchases will likely result in a mid-teen earnings growth in 2019.

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