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CSX announces steep drop in earnings, blames coal

by Tara Lachapelle
Jan 20, 2010


CSX Corp., the third-largest railroad in the U.S., reported a sharp decline in profit Wednesday, with freight demand falling flat after Thanksgiving. Despite executives' positive outlook for 2010, the stock dropped 6 percent, closing at $47.35.

The Florida-based company, which has a major terminal in Chicago and serves the eastern United States, earned $305 million, or 77 cents per diluted share, in the fourth quarter ended Dec. 31, down 16 percent from $361 million, or 92 cents per diluted share, in the year-earlier quarter.


While CSX outperformed analysts’ estimate of 76 cents per diluted share, analysts are predicting a fall to 71 cents per diluted share for the current quarter.

Sales declined 13 percent to $2.3 billion from $2.7 billion, attributed to falling demand for coal as rising energy conservation curbed electricity usage in North America.

“We expect the demand for coal to remain weak,” said Clarence Gooden, executive vice president of sales and marketing, in a conference call Wednesday. Gooden added that he does expect growth across all of CSX’s other shipping markets and a continued strong demand for phosphates, fertilizers and agricultural products.

Labor costs declined 9 percent due to fewer overtime hours and a 12 percent decrease in head count.

The company also announced full-year 2009 earnings of $1.14 billion, or $2.87 per diluted share, down 24 percent from $1.5 billion, or $3.66 per diluted share, for 2008. Sales also dropped, by 20 percent, to $9 billion from $11.3 billion.

Analysts at Morgan Keegan & Co. Inc. lowered their 2010 estimate to $2.95 per diluted share from $3.10 per diluted share after CSX’s earnings release.

“Given the prospects for only slow and gradual U.S. economic recovery and expected continued weakness in the railroad’s most profitable commodity segment, we believe it is prudent to remain on the sidelines of this name until we see a material, sustained turnaround in the coal market, primarily,” wrote Art Hatfield, Derek Rabe and J. Douglas Atkinson in their post-earnings report.

CSX is the first of the major rails to report earnings, acting as a gauge for the health of the overall economy, since railroad earnings reflect demand and spending on many consumer and industrial products, like food, lumber and paper.