CSX disappointed market with flat fourth-quarter earnings

CSX train
A CSX train

By Yemeng Yang

Fourth-quarter profit of CSX Corp., the Jacksonville, Fla.-based railroad operator, slightly beat Wall Street’s expectation, but shares plunged more than 3 percent because of excessive expectations and the company’s weak guidance for this year.

CSX reported late Tuesday net income of $458 million, or 49 cents per share, in the quarter ended Dec. 30, down 2 percent from $466 million, or 48 cents per share, a year earlier. The quarter included an extra accounting week, helping earnings by 3 cents per share.

The result is a half penny better than analysts’ consensus of 48.5 cents per share compiled by Bloomberg.

Earnings per share adjusted for the extra week came to 48.4 cents per share, missing analysts’ consensus of 50 cents per share. More analysts gave estimates on adjusted earnings than on net income.

Shares of CSX closed Wednesday at $36.88, down $1.21 or 3.18 percent.

“We’d say on an operating basis, CSX should have reported an EPS figure closer to $0.52 – $0.53,” wrote Jeffrey Kauffman, an analyst at Aegis Capital Corp., in a research note.

Benjamin Hartford, an analyst at Robert W. Baird & Co. Inc., said that although CSX’s fourth-quarter earnings were roughly in line, “sentiment wanted more.”

CSX’s revenue in the fourth quarter rose 9 percent to $3.04 billion from $2.78 billion a year ago. It exceeded analysts’ estimate of $2.88 billion.

The company said revenue growth was primarily driven by the extra week and the company’s improved volume. Carload volume in the fourth quarter increased 5 percent to 1.7 million units with the extra week.

Coal shipments increased 8 percent, resulting in revenue growth of 23 percent in the coal business. Without the extra week, coal shipments still rose 3 percent.

Kauffman said strong performance in the coal segment was more of a short-term phenomenon.

Source: CSX Corp. (Yemeng Yang/MEDILL) Volume increased in all three segments in the fourth quarter.
Source: CSX Corp. (Yemeng Yang/MEDILL)
Volume increased in all three segments in the fourth quarter.

For the full year 2016, CSX generated revenue of $11.07 billion, down 6 percent from a year ago. Full year earnings came to $1.71 billion, or $1.81 per diluted share, compared with $1.97 billion, or $2 per diluted share, a year earlier.

Coal shipments fell 21 percent in the full year 2016, resulting in $467 million of coal revenue loss. The company said it was because the industry faced headwinds from low global commodity prices and the strength of the U.S. dollar.

Those factors will continue to exist in 2017, but are likely to be more moderate, the company said during the conference call.

“We expect volume to be flat to slightly up year-over-year in the first quarter, as the industrial economy is stabilizing and energy-related headwinds are moderating slightly,” said Frank Lonegro, CSX’s chief financial officer. “We expect overall conditions for the freight environment to be healthier in 2017.”

Some analysts said CSX’s 2017 outlook is weaker than expected.

“You see the stock come under some pressure like today, because investors are viewing the guidance a little light,” said Jason Seidl, an analyst at Cowen & Co., in an interview.

Photo at top: CSX’s fourth-quarter earnings fell short of investors’ expectation.(Source: CSX Corp.)