Strong merchandise and intermodal business in the first quarter helped CSX Corp.
offset a continuation of weak coal demand. And in the process, the Class I set four Q1 financial records.
Net earnings increased 2 percent to a record $459 million, earnings per share (EPS) ratcheted up 5 percent to a new high 45 cents, operating income rose 2 percent to an all-time-high $875 million and the operating ratio improved 0.7 points to a record 70.4. In addition, total operating expenses declined 1 percent to $2.08 billion compared with first-quarter 2012 as labor and fuel costs were flat.
The results show the company's underlying strength and disciplined fundamentals, and are emblematic of the railroad's ability to survive despite a very soft market, said CSX Chairman, President and Chief Executive Officer Michael Ward during the Class I's earnings conference this morning.
Surviving the weak coal sector was key since total revenue was flat at $2.96 billion and total volume decreased 2 million to 1,578,000 units. Coal revenue dropped 13 percent to $726 million and volume fell 10 percent to 297,000 units as domestic business was impacted by utilities' high stockpile levels and export business was affected by softer thermal coal demand.
The coal sector headwind likely will continue through 2013 but subside by year's end, said Executive Vice President of Sales and Marketing Clarence Gooden. Slightly more than 80 percent of CSX's overall business is non-coal business.
Merchandise revenue rose 2 percent to $1.7 billion even though volume dipped 1 percent to 666,000 units primarily because of increased crude oil shipments, he said. Intermodal revenue climbed 4 percent to $404 million and volume rose 3 percent to 615,000 units as truck diversions drove domestic business (up 14 percent) and new international services helped offset carrier port shifts.
Looking ahead — based on the current view of the economy, the changing coal market and the company's proven ability to withstand a range of business conditions — the Class I now expects to achieve a high-60s operating ratio by 2015, said Ward. The railroad had set a goal a few years ago to reach a mid-60s ratio by 2015, but now plans to remain focused on attaining that objective in the longer term.
CSX also expects to produce average annual EPS growth of 10 percent to 15 percent through 2015 off of what becomes the 2013 base, which is expected to be flat to slightly down from prior-year levels, said Ward.
— Jeff Stagl
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