CSX Beats Earnings for 2Q; Outlook Remains Sluggish
Despite a strong U.S. dollar, low commodity prices and headwinds in the energy markets, rail and intermodal carrier CSX Corp. (NASDAQ: CSX – $28.45), posted better-than-expected revenue and earnings for the second quarter. Revenue for the quarter declined 12% to $2.7 billion driven primarily by an overall 9% volume decline that impacted nearly all markets, including coal declines of more than 30%, which more than offset pricing gains from an improving service product. Analysts predicted revenue of about $2.68 billion. Earnings per share, while lower from the year-ago $0.56, were better than expectations and settled at $0.47 per share, three cents above consensus. Expenses improved 9% in the quarter, driven by efficiency gains of $96 million, lower volume-related costs of $86 million as CSX further aligned its cost structure with current and future market dynamics, and $56 million from reduced fuel prices. The shares rebounded on the earnings news, higher by about $1.43 on the day.
Looking forward, CSX continues to expect 2016 full-year earnings per share to decline, reflecting the ongoing transition in the energy markets, along with the other aforementioned challenges for the period. While the shares in the short-term look fairly valued given the difficult operating environment for this large east coast carrier, longer-term appreciation potential is tempting. The company should close out 2016 with earnings of about $1.75 per share and next year looks encouraging at closer to $1.92-$2.00. The company maintained its quarterly dividend rate at $0.18 per share and yields 2.7%, at current levels.