Written by: William C. Vantuono, Editor-in-Chief Citing “macroeconomic and energy headwinds impacting most markets,” CSX posted third-quarter 2016 net earnings of $455 million, or $0.48 per share, down from $507 million, or $0.52 per share, in the same period last year, and a 69.0% operating ratio, year-over-year 70 basis points increase. These results—which beat Wall Street consensus estimates—“reflect continued strong cost performance,” CSX said. Revenue for the quarter declined 8%, consistent with volume declines of 8% overall, including coal volume declines of 21%. Operating income declined 10% to $841 million. Expenses improved 7% in the quarter, primarily driven by $112 million in “efficiency gains” and $53 million of “volume-related cost reductions.” “CSX continues to drive strong cost performance and efficiency in this dynamic market environment while meeting or exceeding customer expectations,” said Chairman and CEO Michael J. Ward. “Our financial results demonstrate CSX’s ability to deliver value for shareholders and customers in the current business climate as we position the company to maximize opportunities in 2017 and beyond. While the U.S. dollar strength and low global commodity prices persisted in the quarter, CSX is positioning itself to maximize shareholder value by leveraging network improvements, technology enhancements and superior service to capture growth opportunities and achieve a mid-60s operating ratio longer term.” “CSX reported a 3Q16 top-to-bottom beat to our and consensus estimates, as better-than-expected cost management and efficiency gains helped offset volume declines and tempered pricing,” said Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “Pricing continued to moderate, but we believe it is approaching bottom and could begin to tick up slowly in 2017.” CSX’s operating ratio deterioration by 70 basis points to 69% “was 80 bps better than our assumption and 90 bps better than the implied consensus OR,” Seidl noted. “CSX achieved an impressive $112 million in efficiency gains, following $96 million in 2Q16 and $133 million in 1Q16. This brings the YTD total to $341 million. We remind investors that at our September conference, the company raised its guidance for 2016 efficiency gains from ‘approaching $350 million’ to ‘exceed $350 million.’ Given the impressive YTD gains, we believe efficiency gains could end the year well above $350 million. “All-in pricing came in at 2.3%, representing a 60 bps moderation from the 2.9% achieved in 2Q16, which was a 20 bps moderation from 3.1% in 1Q16, which in turn followed 4.1% in 4Q15. The sequential 3Q16 moderation is consistent with our proprietary 3Q16 Rail Shipper Survey, in which shipper expectations registered at 2.1%, down from 2.9% in our 2Q16 survey. CSX’s merchandise and intermodal pricing was 3.6% in 3Q16, down from 4.0% in 2Q16. While the company’s overall pricing result is still above rail inflation, we are somewhat concerned that it appears to have been driven in good part by intermodal, an area facing stiff competition from a weak truck pricing environment. That said, our Oct. 10 private trucking call pointed to a normal seasonal improvement in truck demand in September and stronger spot rates. If this proves sustainable, intermodal pricing could begin to increase in the coming quarters.” Continue reading...
