Railroad shipping: CSX reports record third quarter earnings

Building on the momentum which occurred over the first two quarters of the year, Class I railroad carrier CSX reported record third quarter results earlier today.

Third quarter earnings for the Jacksonville, Fla.-based company at $414 million and $1.08 per share (beating Wall Street estimates of $1.04 per share) were up 48 percent compared to the third quarter of 2009, which had revenues of $290 million and $0.73 per share.

Quarterly revenue was up 16 percent annually at nearly $2.6 billion, with a ten percent volume increase. And CSX said revenue and growth and operating leverage led to a 39 percent increase in operating leverage at $825 million and an operating ratio of 69.1 percent.

Quarterly volume growth was again impressive for CSX at 1,609 million units for a ten percent year-over-year increase. Automotive loadings remained strong with a 44 percent increase, metals were up 4 percent, and chemicals were up 5 percent. Total merchandise was up 7 percent with 643,000 units, with coal at 392,000 units up 3 percent. Intermodal was up 19 percent at 574,000 units, highlighting the continued ongoing strength in that segment, which has held up relatively well during a down economy.

“Approximately two-thirds of our quarterly increases came from higher volumes,” said Michael J. Ward, CSX President and CEO on an earnings call this morning. “We adapted to higher traffic levels profitably as our employees continued to improve safety and efficiency while delivering reliable service to our customers.

Ward also said that CSX is increasing its capital spending in 2010 from a previously-announced $1.7 billion to approximately $1.8 billion for projects that will create competitive advantages for CSX customers and help them effectively grow their business, create jobs and add shareholder value.

In the third quarter, an improving economy helped nearly all the markets CSX serves recover from the lows experienced in 2009, said Clarence Gooden, CSX executive vice president, sales and marketing said on the call. Gooden cited continued growth in the Institute of Supply Management’s manufacturing index showing expansion for the 14th straight month, coupled with inventories remaining below expected levels.

“As the economy and our traffic levels continue to improve, we are committed to delivering a safe and reliable service product, and we remain focused on capturing the value of our services,” said Gooden.

When discussing the 16 percent quarterly revenue increase, Gooden explained that volume growth, core pricing gains and the impact of higher fuel costs reflected in CSX’ fuel surcharge program paced overall growth. Volume increases alone drove $225 million of annual revenue growth for CSX, and the combined effect of rate and mix accounted for $114 million of revenue increase, reflecting yield gains across all markets CSX serves, as the company continues to sell the value of rail transportation, said Gooden. Higher fuel costs increased quarterly fuel recovery by $38 million.

Same-store sales pricing, which are defined by CSX as shipments with the same customer, commodity, car type, origin, and destination, were up 6.6 percent year-over-year and responsible for 75 percent of CSX’ total traffic base. Increased fuel recovery accounted for roughly one-quarter of the change in revenue per unit. Revenue per unit at $1,657 was up 5.7 percent over last year’s $1,562.

In the coming quarters, Gooden said CSX continues to expect core price increases to exceed rail cost inflation on a sustainable basis.