CSX reports record fourth quarter and full-year 2014 earnings

Jacksonville, Fla.-based Class I railroad carrier CSX reported record fourth quarter and full-year 2014 earnings today.

CSX reported it had record fourth quarter net earnings of $491 million, which was up 15 percent annually over $426 million for the fourth quarter 2013, with earnings per share up $0.49 for a 17 percent annual increase, matching Wall Street estimates.

Quarterly net revenue––at $3.2 billion––was up 5 percent year-over-year and was driven by solid performance in its merchandise, intermodal, and coal segments, coupled with the addition of operating resources enhancing services during the fall peak shipping season and increased gains in volumes. This, in turn, led to an 11 percent uptick in operating income for the fourth quarter to $901 million, with the quarterly operating ratio seeing a 140 basis point improvement to 71.8 percent.

Full-year 2014 revenue came in at a record-breaking $12.7 billion, with operating income at $3.6 billion, net earnings at $1.9 billion, and earnings per share of $1.92 and operating ratio at 71.5 percent.

Michael Ward, CSX president, chairman, and CEO, said on the company’s earnings call today that the quarterly revenue gains reflect broad-based growth across nearly all of its markets, reflecting continued economic momentum.

“This quarter’s performance is further evidence of CSX’ ability to further capitalize on economic growth, helping to drive strength across the company’s diverse markets,” Ward said. “The past four years have been transformative for CSX, and we have emerged as a stronger company for our customers and our shareholders.”

And the full-year record earnings were described as extraordinary by Ward as it follows a period during which the company lost nearly $900 million in coal revenue as the country transitioned to changes in the energy sector. At the same time the diversity of CSX’ business mix generated revenue that more than offset the coal losses.

Ward also highlighted the company’s strategic infrastructure investments in locomotives and operating employees coming online to result in service levels gradually improve throughout 2015 to superior levels.

In 2015, CSX expects a positive demand environment, with stable to favorable conditions for 96 percent of the markets it services and unfavorable conditions for the remaining four percent, said Fredrik Eliasson CSX Executive Vice President and Chief Financial Officer, on the call.

Chemicals remain a favorable market, as the company continues to leverage opportunities in the domestic oil and gas sector, he said, adding that housing starts are expected to rise considerably in 2015, which should drive a favorable outlook for the construction market, forest products, minerals, and waste equipment. Autos and intermodal are both expected to do well, with Eliasson citing strategic network investments for highway-to-rail conversions.

“We expect the first quarter to be driven by inflation and volume growth in line with the current theme in 2014,” he said. “Fuel expenses in the first quarter will be driven by lower cost per gallon reflected in the current price environment, higher volume and continued fuel efficiency through technology and process initiatives.”

Capital expense outlook: In 2015, CSX plans to invest $2.5 billion into its business, representing a modest increase from 2014, with about half of that investment used to maintain core infrastructure to help ensure a safe and fluid network. Investments in equipment for locomotives and freight cars will ensure CSX has an appropriate amount of rolling stock to meet commercial demand and improve on-time performance levels, said Eliasson.

“We will continue to focus on strategic investments that support long-term profitable growth and productivity initiatives,” he said. “In 2015, we are prioritizing infrastructure projects that will increase our overall capacity on the Northern tier to improve fluidity and system velocity.”