CSX earnings show an uptick from last year

By Roy Blanchard

CSX leads off the railroads’ earnings season with record first-quarter revenue, operating income and operating ratio. Total freight revenue increased 11 percent to $2.5 billion as merchandise carloads (all but coal and intermodal increased to 55 percent of the total and coal dipped to 30 percent with intermodal treading water at 13 percent from 12 percent year-over-year. Merchandise carload revenue shot up 17 percent thanks in part to jumps of 41 percent and 32 percent in fertilizers and metals. Chemicals, the perennial volume leader for short lines, increased 14 percent over first quarter 2009.

Merchandise carloads increased 12 percent leveraging a five percent gain in revenue-per-unit. Fertilizers and metals were the leading volume gainers, up 32 and 27 percent respectively; chemicals car-counts rose seven percent. Of particular interest to CSX short line paid on the junction settlement model, same-store revenue per unit grew six percent in the quarter, a marked change from the seven percent decline posted in the 2009 fourth quarter. On the call Chief Marketing Officer Clarence Gooden cited particular strength in fertilizer, ag, chemicals and metals.; housing and construction-related markets continue to be weak. CSX short lines seem to be following pretty much the same commodity pattern though the sequential quarter-to-quarter story is stronger than year-over-year.  

Domestic intermodal increase 10 percent on truck conversions and new service lanes; international increased on export and inventory replenishments. The mix is now 55-45% domestic over international. Export coal up 21 percent on China demand; one short line that touches CSX export coal says March 2010 was their highest volume ever and expects 2010 volumes to be up ten percent year-over-year.

On a sequential basis, first quarter 2010 from fourth quarter 2009, total revenue and revenue-per-unit increased seven and eight percent respectively on essential no change in revenue units, proving once again that customers will pay up for perceived value relative to alternative vendors. Keeping operating expense under control was a big contributor, up eight percent. Operating income rose 22 percent to 34 mm and the operating ratio came down 220 basis points to 74.6, though it had been below 74 at the bottom of the downturn in 209’s Q2 and Q3. Total revenue ton-miles increased five percent yet fuel burn was up only percentage point.

Below the line, other income was $11 mm on real estate and “miscellaneous income” (PWX please note where the adults put real estate sales -- it is not revenue) and CSX took a hit of $7 million related to the retiree health cost mandates under ObamaCare. Still, net earnings came in at $306 million, up 24 percent year-over-year, ditto earnings-per share at 78 cents vs. 62 cents. The only down-side was the degradation in operating performance metrics. On-time departures and arrivals, cars-on-line and yard dwells were a bit worse off vs. first quarter 2009, though train velocity and OT arrivals were better than they were in the 2007 first quarter. In sum, I see CSX as a continuing work in progress with the tools at hand to increase earnings per share at a double-digit clip for the rest of 2010 and beyond.