Rail Stocks Earnings In Focus

This week, many railroad stocks including behemoths CSX Corp. CSX and Union Pacific UNP are expected to report earnings. Railroad stocks are great measures of economic performance because, as they move more goods, it generally implies that the economy is growing as we produce more. Thus, these earnings are key, especially to those followers of the Dow Theory and its focus on the Dow Transports Index.

Tuesday morning, Kansas City Southern KSU reported fourth quarter adjusted earnings of $0.92 which topped analyst forecasts of $0.82 by 12.06 percent. Sales were also mostly in line at $568.4 million on estimates of $564.438 million. Shares rose over 4 percent in Tuesday trading on the strong earnings.

The strong earnings from the $10 billion company pave the way for giants CSX Corp., Union Pacific, and Norfolk Southern NSC to report their respective fourth quarter earnings. CSX and Norfolk Southern are expected to report Tuesday after the close and Union Pacific is expected to report on Thursday. Union Pacific, being the largest of the companies, should garner the most attention with investors focusing not only on past performance but on future guidance and forecasts for both the company and the broader economy.

CSX Corp. is expected to report fourth quarter EPS of $0.389 after the close Tuesday compared to $0.43 a year ago. Revenue is expected to come in at $2.845 billion for the quarter, less than the $2.951 billion from the same period a year ago. For the full year 2012, CSX is expected to report EPS of $1.741, higher than the EPS for 2011 of $1.67 with sales falling slightly to $11.72 billion from $11.743 billion in 2011.

Also after the bell Tuesday, Norfolk Southern is expected to report earnings as well. The company is expected to report fourth quarter EPS of $1.189 on sales of $2.672 billion. For the same period in 2011, the company reported EPS of $1.39 on sales of $2.797 billion. For the full year 2012, Norfolk Southern is forecast to report EPS of $5.269, less than the $5.35 reported for 2011, on sales of $11.027 billion, less than the $11.2 billion in revenue from 2011.

Lastly, the biggest of all of the railroad companies Union Pacific is set to report earnings Thursday. The company is set to report fourth quarter EPS of $2.16 vs. $1.99 a for the same period a year ago. Sales are expected to climb to $5.297 billion from $5.108 billion during the same period a year ago. For the full year, Union Pacific is set to report 2012 EPS of $8.244 on sales of $20.983 billion compared to 2011 EPS of $6.548 and sales of $20.983 billion.

As the Dow Transports Index has strongly outperformed the Dow Jones Industrial Average over the past two months or so, the earnings for these stocks could set the tone for the next market leg. Should earnings remain strong, such was the case with Kansas City Southern, transports could rally further, driving the broad market with it.