How Important Is Merchandise Freight For CSX Corporation?

CSX Corporation (NYSE: CSX) generates its revenues from its coal, merchandise, and intermodal freight. Merchandise is the largest segment for CSX Corporation, and it accounts for over 60% of the total revenues. The segment includes freight from automotive, agriculture, chemicals, metals, minerals, forest products, and fertilizers related shipments. The contribution of merchandise freight to the company’s overall sales will likely see modest declines in the coming years, with the intermodal segment expected to grow at a faster pace. In this note we discuss the importance of the merchandise segment for CSX Corporation. We have created an interactive dashboard ~ How Important Is Merchandise Freight For CSX Corporation’s Stock? You can adjust various drivers to see the division’s impact on the company’s earnings. Also, here’s more Industrials Data.

Merchandise Revenues Have Seen Steady Growth And This Trend Will Likely Continue

Merchandise freight revenues have increased in recent years from $7.1 billion in 2016 to around $7.5 billion in 2018. The growth was led by higher volume and average revenue per carload. 2018 in particular benefited from higher crude oil prices, which resulted in higher fuel surcharge revenue for CSX Corporation. Looking forward, we expect a mid-single-digit growth for all of the sub-segments. Total construction starts climbed 7% and 3% in 2017 and 2018, respectively. While the growth is expected to be slow in 2019, amid rising interest rates and higher material costs, the economy is expected to see expansion, which should bode well for the construction sector. As such, metals and construction related commodities, along with forest products, should drive the near term volume growth. It will be interesting to see the trends in automotive freight revenues. Total number of vehicles sold in the U.S. at 17.33 million last year marked the fourth highest figure. However, the same is expected to slow down in the coming years, and it could impact the overall shipments for the railroad companies. Looking at agriculture freight, the overall volume growth could be slow in the near term, given the trends in the U.S. wheat and soybean export, amid the foreign tariffs.

Merchandise’s Contribution To CSX Corporation’s EPS

We use adjusted net income margin of around 28%, similar to that of CSX Corporation overall, to arrive at $2.60 contribution to the company’s total earnings. To understand the contribution to CSX Corporation’s stock price, we use around 18x forward price to earnings multiple, and arrive at a $47 figure, which accounts for roughly 60% of our stock price estimate for CSX. Our forward price to earnings multiple for CSX is more or less around the same mark for that of the overall sector.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

All Trefis Data

Like our charts? Explore example interactive dashboards and create your own.