CSX reports third quarter net earnings are down 2 percent

Leading off third quarter earnings results for Class I railroads, CSX last night reported net earnings of $455 million, which was down 2 percent annually and $0.44 per share, which fell short of Wall Street estimates of $0.47 and ahead of last year’s $0.43.

Quarterly operating income was down 3 percent at $854 million and revenue was down 2 percent annually at $2.894 billion. The quarterly operating ratio for CSX of 70.5 percent was slightly ahead of last year’s 70.4. 

CSX officials said that even with strong increases in export coal, intermodal, and automotive shipments, the revenue decline was due to overall lower volume levels, a change in the company’s business mix and lower fuel recovery.

On an earnings call this morning, CSX President and CEO Michael Ward said that lower quarterly revenues were partially offset by outstanding efforts made by the CSX operating team.

“We continue to adjust to near-term market conditions while staying focused on going after big capabilities for the long-term,” said Ward. “As a result, despite substantial headwinds we saw externally, operating income dropped only 3 percent…and our operating ratio held stable. We are encouraged by how this team is dealing with market conditions that are far from ideal. Long-term, this bodes well for what CSX will be able to accomplish when sustainable growth resumes.”

Looking at the economic outlook, Clarence Gooden, CSX executive vice president, sales and marketing, said that leading indicators continue to indicate moderating growth for the U.S. economy for the remainder of the year. And he said transportation for the markets CSX serves was mixed in the third quarter, which is consistent with the broader economic environment.

Third quarter revenue totals reflected continued headwinds in coal and a more moderate economic environment, according to Gooden, with volume-related revenue having an unfavorable impact of $31 million, as volume growth in export coal, automotive, and intermodal was more than offset by the significant decline in domestic coal. And the combined effect of rate/mix was $14 million unfavorable.

In regards to pricing gains, Gooden said that core pricing gains were more than offset by the unfavorable mix associated with higher intermodal growth and declining coal volume.

“Core pricing on a same-store basis remained solid across nearly all markets,” said Gooden. “Same-store sales are defined as shipments with the same customer. Commodity, and car type and the same origin and destination and represent approximately 75 percent of CSX’ shipment base.”

Consolidated same-store pricing in the third quarter was up 1.5 percent annually for CSX, up 3.7 percent when excluding export coal. The sequential decline in pricing through 2012 year-to-date has largely been driven by rate reductions in export coal, where pricing is impacted by changing conditions in the global market.

Gooden said that CSX’ strong service product and the relative value of rail transportation provides a solid foundation for pricing above rail inflation long-term.

CSX’ quarterly volume decline 1 percent annually, with a mixed performance across the markets it serves.

Export coal increased 20 percent, with growth rates down from the first half. Intermodal and industrial sector volumes, up 8 and 5 percent, respectively, were consistent with first half growth patterns. Agricultural and construction volumes were down 4 and 5 percent, respectively, and domestic coal fell 26 percent.