Railroad shipping: CSX reports record second quarter earnings

Class I railroad carrier CSX got things rolling on the tracks with record-setting second quarter earnings of $506 million and $0.46 per share for a 28 percent annual gain. This topped Wall Street estimates in the $0.44 per share range.

Quarterly operating income at $926 million was up 21 percent, and operating income—at a record $926 million—was up 21 percent. Quarterly revenue at $3.019 billion was up 13 percent.

Volume growth was strong for CSX overall in the second quarter, with total volume at 1,646 total units for a 3 percent improvement over 2010. Automotive loadings were down 1 percent, and food and consumer loadings were up 8 percent, and chemicals were up 3 percent. Total merchandise was up 3 percent at 677,000 units. Coal was down 3 percent at 388,000 units, and intermodal continued its solid momentum up 8 percent at 581,000 units.

“Second quarter earnings were driven by volume which grew faster than the general economy and pricing that reflects the value of freight rail transportation and recoveries that off set higher fuel prices,” said CSX President and CEO Michael Ward on an earnings conference call earlier today.

And with the economy in its second year of expansion, positive trends are continuing in the markets CSX serves at a more moderate pace, said Clarence Gooden, CSX executive vice president, sales and marketing. Gooden also noted that the Institute of Supply Management’s July Manufacturing Report on Business was solid in June, with the index above 50 at 55.3, reflecting continued expansion in U.S. manufacturing, while its Customer Inventories index was at 47, explaining that when this index is below 50 indicates inventories are at a level that is supportive of manufacturing growth.

The performance of the markets CSX serves will support profitable growth, said Gooden.

Volume increases for the second quarter drove $86 million in annual growth revenue for CSX, with Gooden noting the combined effects of rate and mix responsible for $150 million of the company’s annual revenue increase.

Quarterly revenue per unit—at $1,834—increased ten percent and was driven by a combination of price, fuel recovery, and mix.

“Same stores sales pricing increased 7.2 percent and continues to outpace rail inflation, which is currently forecasted at 4.6 percent for the year,” said Gooden.

Same store sales are defined as units with the same customer, commodity, and car type and at the same origin and destination. These sales represent about 75 percent of the CSX traffic base.
Avondale Partners analyst Donald Broughton wrote in a research note that CSX did a solid job containing costs in the second quarter and was more than able to make up for cost inflation via price increases.

Prior to its earnings announcement, CSX said it expects to make 2011 capital investments of $2.2 billion, which is consistent with its intentions to reinvest an average of 18 percent of its revenues into its business through 2015 to further enhance the capacity, quality and flexibility of its rail network.  The company added that it remains on target to achieve its current near- and long-term financial guidance, including a high-sixties operating ratio in 2011 and a 65 percent operating ratio by no later than 2015.