pricing -- not locomotives -- pulled the railroad to record profits during
the third quarter.
The Jacksonville, Florida, company reported third-quarter income of $414
million, a 43% jump good for $1.08 per share. The increase was driven by a
16% gain in revenue, which benefited most from strong export coal and
automotive shipments, as well as higher average prices for most other
commodities.
The strong performance, reported shortly after markets closed Tuesday, is
evidence of improving economic conditions, CSX chief executive Michael Ward
said in a statement.
"These positive financial results are enabling the company to increase
investments that create competitive advantages for customers, grow the
business, create jobs and deliver shareholder value," Ward said.
The numbers tell a more nuanced story, with the railroad itself pointing out
its "ongoing emphasis on pricing above rail inflation and yield management,
along with higher fuel recovery associated with the increase in fuel prices,
drove revenue-per-unit increases in nearly all markets." CSX has been among
the most aggressive of US railroads in terms of pricing, regularly telling
investors that it intends to beat inflation and, in the process, it has
racked up several rate challenges before industry regulators at the Surface
Transportation Board.
"CSX definitely is one of the more aggressive railroads on pushing price,"
Dahlman Rose analyst Jason Seidl said. "I think that's why you've seen them
get into a few more rate cases than others and I think that they have been
very public about rail-cost inflation plus pricing. ... I guess the question
is what [rail-cost inflation] is going to be going forward."
While revenue growth during the quarter hit double digits for seven of CSX's
11 commodity categories, rail traffic remained relatively weak during the
quarter. A 44% gain in automotive shipments and 19% uptick for intermodal
carloads led to a 10% across-the-board gain. But the other nine commodities
combined for only 3.2% growth.
Average per-car revenue, meanwhile, jumped 6.1% to $1,657 across all
commodities, with a 20% increase (to $2,130) for export coal and 12% jump for
automobiles (to $1,372).
A CSX spokeswoman declined to answer questions in advance of an investors'
conference call with executives scheduled for Wednesday morning.
Coal shipments edged up 2.1% for the quarter to 43.3 million short tons,
despite a year-over-year drop in domestic utility shipments -- off 3.8% to
30.2 million st. Export shipments jumped 20% to 6.6 million st during the
quarter, a trend Seidl sees continuing, if not strengthening.
He pointed to heavy rains in Australia as a potential catalyst for even
stronger volumes and demand-fueled price increases by the railroad for the
remainder of the year and into early 2011.
"If we get a very bad cyclone season down in Australia, demand's going to
keep high or spike on US coal to Europe," Seidl said. "You can continue to
drive prices on export coal, which as you well know is a very profitable
piece of business for the eastern railroads."
Also during the quarter, the company continued repurchasing its stock, buying
back 5.7 million shares for $300 million. So far this year, CSX has spent
$1.1 billion on stock buybacks.
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