Earnings time (CSX)

[MP173]

The 2Q 14 results are in and while revenue and profit are up for CSX there are some interesting trends and results.

1.  C% CSX is adding frontline personnel and investing an additional $100m over 2014 budgeted capex.  Hmm, perhaps they do need that extra capacity afterall.

2.  Operating ration stabilized at 69.3% vs nearly 75% for 1Q.  Still, the OR is higher than last year for 6 month (72.3% vs 69.7%).

3.  Coal volumes increased 6% but revenue per carload fell by 9%.  CSX is dropping rates in order to generate volume for coal traffic.  Per carload revenue dropped from $2450 per car to $2250 per car.

4.  Chemical volumes, fueled by oil increased 18% with revenues up 17%.  However, revenue per carload dropped 1%.

5.  Intermodal volumes grew by 6% yet the revenue per unit fell 1%.  Notice the trend here?

6.  On time originations fell from 91% in 2q13 to 56% in 2q14.

7.  On time arrivals dropped from 82% to just 42% in the quarter.

8.  Dwell time in terminals grew from 21.9 hours to 25.9 hours.

So, overall CSX handled more volume yet found the carload rates dropped.  Their on time arrivals and departures were pretty lousy.

One must wonder if some of the revenue per carload erosion was based on performance issues in the form of rebates, or whether the pricing is simply beginning to erode?

Ed 

[schlimm]

MP173

6.  On time originations fell from 91% in 2q13 to 56% in 2q14.

7.  On time arrivals dropped from 82% to just 42% in the quarter.

8.  Dwell time in terminals grew from 21.9 hours to 25.9 hours.

If that trend continues, troubles lie ahead.  #6 and 7 are really huge negative changes.   Comparison with other lines will be critical.

[jeaton]

Reduced revenue per car doesn't necessarily reflect pricing actions (reduced rates). An increase in the percentage of traffic moving in unit trains can reduce system averages per car as unit train rates are usually lower than rates on comparable moves in single or small multiple consignments. Rates are often a function of the length of haul, so an increase in relatively short haul traffic can also result in lower revenue per car.

[Ulrich]

Overall CSX is a good solid business. They've got their challenges like everyone else does, and I don't think those quarterly numbers portend anything ominous.. They've got a good management team and have had success on a number of fronts, including the new intermodal terminal in Ohio and in sourcing business to replace the shortfall in coal. They're p/e has been a little lower than the others too, all in all a good investment opportunity. 

[Anonymous]

Ulrich

Overall CSX is a good solid business. They've got their challenges like everyone else does, and I don't think those quarterly numbers portend anything ominous.. They've got a good management team and have had success on a number of fronts, including the new intermodal terminal in Ohio and in sourcing business to replace the shortfall in coal. They're p/e has been a little lower than the others too, all in all a good investment opportunity.

Most of the financial analysts that I know, including myself, believe that a year is a minimum data set period to identify trends and determine how well a business is performing.  Management, on the other hand, sometimes needs to pay attention to shorter time frames.

Investors in CSX, of which I am one, have done well over the past year. The value of their shares has increased 27.98 per cent, which has bettered the industry averages slightly and outperformed the S&P 500 by roughly 7 to 8 per cent.  Equally important, the analysts as a group are bullish on CSX. Of the 16 analyst's opinions corralled by Investar, seven have rated the stock buy or out perform whilst the remainder are neutral. No one took a sell position.

[MP173]

Jay:

I understand that the movement to unit trains can reduce carload revenue.  However, most of CSX's coal already moves in unit trains...I believe they are under pricing pressure from their coal customers to keep business that might go away.

Not sure if this is both on Applachian and PRB coal (due to nat gas) or not.

The intermodal pricing reduction seems odd also unless it is due to shorter hauls.

Ed 

[jeaton]

MP173

Jay:

I understand that the movement to unit trains can reduce carload revenue.  However, most of CSX's coal already moves in unit trains...I believe they are under pricing pressure from their coal customers to keep business that might go away.

Not sure if this is both on Applachian and PRB coal (due to nat gas) or not.

The intermodal pricing reduction seems odd also unless it is due to shorter hauls.

Ed 

Ed I agree and you are certainly correct on coal and unit trains. I had in mind the total traffic mix rather than just coal. However, I still have the opinion that the drop in revenue per car is more likely due to changes in the traffic mix as opposed to rate reductions. It seems to me that a weakening of a railroad's pricing power would be the subject of some news reporting. Still, I won't say it is not possible. Jay