CSX Earnings Plow Through the Polar Vortex - Analyst Blog

CSX Earnings Plow Through the Polar Vortex

U.S. railroad transporter CSX Corp CSX, reported earnings after the bell, posting an EPS of $0.40, and revenues of $3.0 billion.  The EPS was ahead of the Zacks Consensus Estimate of $0.38, and revenues came in just above the Zacks Consensus revenue of $2.98 billion.

The major concern going into earnings was the total impact of this winter's Polar Vortexes had on the company's top and bottom lines.  The increased snow, and infrastructure maintenance caused higher operational costs for the company.  During the Polar Vortexes, CSX had to increase both crew members and the total number of operating locomotives, in order to remove the snow off the tracks, and to do weather related maintenance projects.  Due to the weather, CSX saw overtime increase of 50%, causing increased operational costs; which accounted for about one third of the total company's operational costs.  Moreover, with the increased usage of locomotives, fuel expenses have risen as well.  Another knock to the operational costs.  Finally, the horrible winter weather also slowed down their shipping times, which therefore saw fewer deliveries than in previous fourth quarters.   

Management stated that, “For the quarter, CSX saw operational income decline 16% to $739 million, and the operating ratio increased 520 basis points to 75.5%, primarily due to the impact of harsh weather.  CSX estimates that weather-related disruptions increased expenses by approximately six cents per share, and impacted revenue contribution by about two to three cents.”

On the positive, management has seen the demand for core railroad products increase over the past few weeks due to depleted supplies.  The most common items where demand has increased is in the coal and grain shipments.  

Previously, Natural Gas has superseded coal in demand due to its low prices, but with Natural Gas storage levels becoming lower, and the subsequent price increase of Natural Gas, the demand for coal has increased.  CSX estimates that if Natural Gas stays above $3.50 per gallon, about 50% of CSX's domestic coal business will remain profitable.  And as Natural Gas prices increase, CSX's domestic coal business becomes more profitable.  

Looking forward, management “expects modest full-year earnings growth for 2014 on the strength of broad-based merchandise and intermodal gains, and an improving domestic coal environment.”  Moreover, “the company remains confident in its ability to sustain double-digit earnings growth and margin expansion for its shareholders in 2015 and beyond.”  Finally, management announced that its Board of Directors have approved a 7% increase in the company's quarterly dividend; raising from $0.15 to $0.16, as of June 13, 2014.  

In afterhours trading, CSX price has slightly increased (less than 1%) on light volume.  

Zacks will post a detailed report on CSX's earnings tomorrow morning.  

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