East-coast rail and intermodal carrier CSX Corp. (NYSE: CSX – $30.21) reported a lower quarterly net profit than a year ago, citing an 8% drop in revenue and freight volumes, with coal freight down 21% in the three months ending Oct 31. The notable exception was automotive shipments, where revenue was up 6% thanks to continued robust U.S. auto sales. Jacksonville, Florida-based CSX reported third-quarter net income of $455 million or $0.48 per share, down nearly 8% from $507 million or $0.52 per share in the third quarter of 2015. Revenue was $2.71 billion, down from $2.94 billion from a year ago, but better than the Street view of $2.69 billion. Analysts on average expected earnings per share of $0.45 and the stock gained about 3% in after-hours trading. Expenses improved 7% in the quarter, primarily driven by $112 million of efficiency gains and $53 million of volume-related cost reductions. The company also said that it continues to drive strong cost performance and efficiency in an otherwise lackluster market environment while meeting or exceeding customer expectations. The company is on track to post earnings for the full-year at $1.75 per share and $1.95 is a reasonable target for 2017.
Strength in the U.S. dollar and low global commodity prices persisted in the quarter, but CSX is positioning itself to maximize shareholder value by leveraging network improvements, technology enhancements and superior service to capture growth opportunities. Investors that can accept some risk may want to hold on to the shares for further long-term price recovery and modest dividend growth.