Jacksonville, Florida-based CSX Corp. (NASDAQ: CSX – $24.99) announced first quarter net earnings of $356 million, or $0.37 per share, down from $0.45 per share in the same period of last year and in line with Street estimates. Revenue for the quarter declined 14%, reflecting lower fuel recovery, a 5% volume decline and a $95 million year-over-year decline in other revenue. These impacts more than offset pricing gains across nearly all markets from an improving service product and volume growth in automotive, intermodal, minerals and waste and equipment. Expenses decreased 12%, driven by efficiency gains of $133 million and lower volume-related costs of $64 million as CSX reduced its cost structure in the face of the challenging market environment. In addition, the reduction in the price of fuel decreased fuel expense by $78 million for the quarter. CSX expects coal volume to decline more than 20% in 2016 and sees most other markets also declining year-over-year. Some 20% of CSX’s revenue last year came from coal versus an industry average of about 15%. While CSX delivered strong efficiency gains in the first quarter, the company expects full-year earnings per share to decline in 2016 as a result of ongoing coal headwinds combined with other market fundamentals. Current estimates are for full-year earnings of $1.83 vs. $1.98 in 2015.
Patient investors, however, should be well rewarded over the long run, as the low stock valuation, an above-average dividend yield of nearly 3% as well as share buybacks, place a floor on the good quality issue at current levels. Despite the bleak commodity transportation outlook, the company’s intermodal business remains a good long-term growth story and the shares can be held for recovery.