Will The Recent Outlook Hit The CSX Stock?

(RTTNews) - Although this railroad operator revised down fiscal 2015 earnings per share growth to mid to high single-digit, from an earlier forecast for double-digit growth, the announcement was not exactly unexpected. In early March, when CSX had projected double-digit earnings growth for fiscal 2015, it had also stated that achieving the goal would be more challenging with the expected decline in coal movements.

The Stock On Track

CSX Corp. (CSX) provides rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers.

CSX's principal operating subsidiary, CSX Transportation Inc. network or CSXT encompasses about 21,000 route miles of track in 23 states, the District of Columbia and the Canadian provinces of Ontario and Quebec.

CSX serves major markets in the eastern United States and has access to over 70 ocean, river and lake port terminals along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St. Lawrence Seaway. The company also has access to Pacific ports through alliances with western railroads.

Lines of Business

During 2014, the company services generated $12.7 billion of revenue and served three primary lines of business:

* The merchandise business shipped over 2.9 million carloads and generated about 60% of revenue and 42% of volume in 2014.

* The coal business shipped nearly 1.3 million carloads and accounted for nearly 22% of revenue and 18% of volume in 2014.

* The intermodal business accounted for about 14% of revenue and 40% of volume in 2014.

* Other revenue accounted for about 4% of the company's total revenue in 2014. This revenue category includes revenue from regional subsidiary railroads, demurrage, revenue for customer volume commitments not met, switching and other incidental charges.

Other Entities: In addition to CSXT, the company's subsidiaries include CSX Intermodal Terminals, Inc., Total Distribution Services Inc. or TDSI, Transflo Terminal Services Inc., CSX Technology Inc., and other subsidiaries.

Latest Q1 Performance

* Third Consecutive Quarter Of Double-Digit EPS Growth

* Strong U.S. Dollar; Coal Markets Reflecting Natural Gas Prices

* Operating Income Up 14%, Operating Ratio Improves 330 bps

* Shareholder Distributions

This transportation services company reported first-quarter net income of $442 million or $0.45 per share compared to $398 million or $0.40 per share last year.

On average, 26 analysts polled by Thomson Reuters expected earnings of $0.44 per share for the quarter. Analysts' estimates typically exclude certain special items.

Revenues for the quarter rose to $3.03 billion from $3.01 billion a year earlier. Analysts had a consensus revenue estimate of $3.02 billion for the quarter.

CSX said revenue increase reflects growth across many of its markets and an improved pricing environment, partially offset by the impact of low natural gas prices, lower fuel recoveries and the strong U.S. dollar.

Total volumes improved 1% to 1.64 million units, while revenue per unit dropped slightly to $1,851 from $1,859 last year.

"In this dynamic economic and business environment, CSX's core earnings remain strong and we are continuing our drive to provide excellent service for our customers and value for our shareholders," said Chief Executive Michael Ward.

Total expenses dropped 4% to $2.18 billion from $2.27 billion last year, helped by lower fuel prices and cost-saving initiatives.

CSX lifted its quarterly dividend by 13% to $0.18 per share, payable on June 15 to shareholders of record on May 29. The company also approved a new $2 billion share repurchase program, which is expected to be completed over the next 24 months.

Looking Ahead...

The company expects second-quarter earnings per share to be flat-to-slightly-up on a year-over-year basis, and updates 2015 guidance to mid to high single-digit earnings per share growth, noting that coal headwinds have increased for the remainder of the year.

In early March, CSX had forecast double-digit earnings growth for fiscal 2015, but noted that achieving the goal would be more challenging with the expected decline in coal movements.

On average, analysts polled by Thomson Reuters expect the company to earn $0.58 per share for the second quarter and $2.11 per share for fiscal 2015. Analysts' estimates typically exclude special items.

Further, the company expects a generally flat demand environment in the second quarter as it cycles the strong surge in pent-up demand during last year's second quarter then volume increased 8%. Overall the company projects favorable conditions for 49% of its markets in the second quarter and stable to unfavorable conditions for the remaining 51%.

CSX continues to expect its domestic coal volume for the full year to decline at least 5%, reflecting the stronger U.S dollar, relatively mild winter weather and lower natural gas prices.

The company also noted that the outlook for 29% of its second-quarter volume, including domestic and export coal, forest products, metals, and phosphate and fertilizer, is unfavorable.

FY14 Highlights - CSX

* Produced Record Financial Results

* Increased The Value Of CSX Stock Nearly 30%

* Progressed A $1 Bln Share Repurchase Program

* FY14 Total Shareholder Return Of 32%

In early 2014, this railroad operator experienced historic winter conditions followed immediately by a significant surge in freight volume that lasted throughout the remainder of the year straining resources across the network.

Despite these challenges, the company was able to deliver record results for revenue, operating income, net income and earnings per share for the year 2014, reflecting investments in critical resources and the strength of a diverse business mix bolstered by economic momentum.

Annual Financial Data

The company's net income from continuing operations increased to $1.93 billion or $1.92 per share in 2014, from $1.864 billion or $1.83 per share in 2013, $1.864 billion or $1.79 per share in 2012, $1.85 billion or $1.70 per share in 2011, and $1.56 billion or $1.35 per share in 2010.

Annual revenue totaled $12.7 billion in 2014, higher than the $12.0 billion generated in 2013, $11.76 billion in 2012, $11.79 billion in 2011, and $10.6 billion in 2010.

Currently, CSX is well positioned from a liquidity standpoint. It ended the year 2014 with $961 million of cash, cash equivalents and short-term investments. CSX has a $1 billion unsecured, revolving credit facility backed by a diverse syndicate of banks. Additionally, in 2014, CSX issued a total of $1 billion of new long-term debt.

Summary

The company believes that its core strategy, diverse business and employees mix together create sustainable value, even in an evolving and challenging business environment with compelling benefits for shareholders, customers and the communities it serve.

CSX stated that in 2015, it will remain focused on delivering highly regarded service to its customers, which drives its ability to grow its merchandise and intermodal businesses faster than the economy, price above rail inflation, and drive improvements in asset utilization.

The company expects the positive trends it witnessed over the past few weeks to gain momentum in the second quarter and accelerate in the second half of the year as it progress towards the record levels of service the company saw in 2012 and 2013.