NASDAQ:CSX Stock and Profitability Discussion

https://www.washingtonpost.com/business/energy/csx-leads-industrial-earnings-off-the-rails/2019/07/19/0168f348-aa60-11e9-8733-48c87235f396_story.html?noredirect=on&utm_term=.9f1197572ed4]WashingtonPost.com[/url]

CSX Leads Industrial Earnings Off the Rails

It’s going to be unbearably hot across much of the U.S. this weekend, but the early returns on industrial earnings have been decidedly cool. A nearly 30% run in CSX Corp. shares heading into its second-quarter earnings report suggested this was a company where investors thought they could find shelter amid a growing body of worrisome manufacturing data. They were wrong. The shares slumped more than 10% the day after CSX reversed a forecast for low single-digit growth in revenue this year and predicted instead that revenue would dip as much as 2%. The East Coast railroad says it’s being cautious, but the time for conservatism is when you start the guidance-giving process, so that strikes me as an inadequate explanation for such a deep cut. CEO James Foote said the macroeconomic backdrop was one of the most “puzzling” he’s ever experienced and that there are no concrete signs of improvement in weak coal, intermodal and industrial volumes.
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It seems like in the march to PSR - with EHH and then Foote showing the door to the prior institutional knowledge of CSX - the institutional knowledge of the Finance Department has left the building and the replacements have not learned the former's pencil sharpening techniques so the CSX ALWAYS beat 'The Street' on the financial estimates.

Bad quarters are to be expected from time to time - to not 'beat the street' is a failing of monumental proportions.

The Fool's take: Fool.com (Motley Fool)

Is CSX a Buy?
It was a disappointing set of earnings, but is the stock worth buying now, or should investors dump it?

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What moves CSX stock
Railroad stocks are cyclical and always will be, and their revenue will follow trends in the economy. However, in recent years, the wide-scale adoption of Precision Scheduled Railroading (PSR) has led to significant improvements in profitability.

In a nutshell, PSR is a set of principles whereby railroads tend to run fixed scheduled trains from point A to point B rather than a hub and spoke approach. Even though CSX's revenue growth is undoubtedly going through a cyclical slowdown, PSR has brought about significant improvements in its operating ratio (operating expenses divided by revenue, therefore a lower number is better), and that's helping to counteract weakness in revenue growth.

The impact of these productivity improvements (train velocity increased and terminal car dwell was reduced -- both positives) can be seen in the reduction in operating expenses during the second quarter. Ultimately, this helped CSX offset a fall in revenue and meant the railroad could increase its operating income in the quarter.
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https://seekingalpha.com/article/459399 ... ortunities

CSX: A New Strategy And Buying Opportunities
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Hinrichs aims to reverse this trend and revitalize the rail industry by prioritizing customer service and fostering positive relationships with employees and clients alike. While his goal is somewhat obvious (it should be his goal), he is getting tailwinds from supply chain re-shoring, as I discussed in this article (among many others).

"Our emphasis is on the employees and the customer service," Hinrichs said in an interview in his 15th-floor office at CSX's Jacksonville, Florida, headquarters. "If we take care of the employees and they're engaged and excited and motivated to deliver great service to our customers, the shareholders will be rewarded for that."

What's interesting is that Hinrichs aims to reverse the traditional approach of tying growth targets to US industrial production, which has often lagged behind the broader economy driven by consumer spending, and instead wants to increase rail carloads at the same rate as the US economy, which expanded 2.1% in 2022.
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The 2023 first quarter CSX figures are in. Traffic volume on CSX is down 1% compared to 22.That doesn't seem that bad on the face of it. Coal traffic ,the dying traffic lion roars one more time, is actually up 19%.
The supposed to be growth traffic, you know, the service that's supposed to capture tons of traffic off the highways and make up for the ultimate demise of coal, intermodal, was down 9%.
The bottom line for the carrier that thrives on prosperity through avoiding growth is that while volume was down 1% in the first quarter, revenues were magically up 9%. We can safely assume that the increase in revenue comes from increasing rates.

When considering 2023 first quarter CSX figures, the important segment of merchandise, be it for volume, revenue or growth, has to be factored into the mix. It's 44% of CSX's 1Q23 volume (vs. 44% intermodal, 12% coal); 66% of CSX's 1Q23 revenue (vs 15% intermodal, 19% coal); and provided 71% of CSX's 1Q23 revenue growth (vs. 29% coal).

As such, merchandise volume growth in the Ag/Food; Auto; Minerals; Forest; and Metals markets impacted revenue growth.

So, putting aside the pitfalls of assumptions, safe to say that more than half of their 1Q23 year-over-year revenue growth was from volume growth and that's with intermodal facing headwinds from truck overcapacity among soft domestic truckload demand and lower international container shipments.

https://finance.yahoo.com/news/csx-corp ... 14072.html

Is CSX Corporation (NASDAQ:CSX) Potentially Undervalued?

Let's talk about the popular CSX Corporation (NASDAQ:CSX). The company's shares saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$34.34 and falling to the lows of US$30.19. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether CSX's current trading price of US$30.63 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at CSX’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
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https://finance.yahoo.com/news/heres-wh ... 00243.html

Hold, and coal is NOT dead?

Here's Why Investors Should Hold on to CSX Stock Currently

CSX Corporation’s CSX measures to reward its shareholders, even in this uncertain scenario, are encouraging. Upbeat coal revenues and liquidity represent other tailwinds. However, intermodal woes and high operating costs represent major challenges.
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CSX’s top line is benefiting from higher export coal volumes, domestic intermodal shipments and volume growth as well as pricing gains. Evidently, coal revenues increased 36% in 2022 driven by strength in export coal. High export coal prices and fuel surcharge revenues are expected to bolster the top line in the near term.
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CSX’s operations are being hurt by supply chain disruptions, including labor and equipment shortages. Weakness in the merchandise segment due to semiconductor shortage is concerning. In the first nine months of 2023, intermodal revenues declined 13% year over year.
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Coal is not dead, but is less relevant than a decade ago. In 2013 it generated 24% of revenue on 18% of unit volume whereas first 9 mos. 2023 17% of revenue on 12% of unit volume, undoubtedly with even greater impact in diminished contribution to the bottom line.

First 9 months 2023, merchandise traffic revenue is up 5% on 2% volume gains, largely driven by automotive 18% revenue growth on 17% volume growth, metals 13% revenue growth on 8% volume growth, and minerals 12% revenue growth on 8% volume growth. Merchandise generated 59% of revenue on 43% of unit volume and coal revenue is up 3% on 10% volume growth.

CSX’s operations are being hurt by supply chain disruptions, including labor and equipment shortages. Weakness in the merchandise segment due to semiconductor shortage is concerning. In the first nine months of 2023, intermodal revenues declined 13% year over year.

These risks seem a bit outdated by a year or more. There are no equipment shortages and no anticipated major disruption in auto production due to semiconductor shortage. During this fourth quarter of 2023 CSX is anticipating continued merchandise performance into 2024 including within the auto market though with some weakness now showing with metals traffic. It'll be interesting to see what 2024 will bring with intermodal, less relevant to CSX than NS though important nonetheless, and with growth potential from capital investments in the I-95 corridor, Pan Am acquisition, and Meridian & Bigbee CPKC gateway not yet realized.

Heading into next year sounds as if CSX anticipates labor cost inflation headwinds with some pockets of continuing labor shortages. Their new COO is pursuing fuel efficiency and train start utilization gains in response, respectively.

CSX Q2 2024 earnings (flat year over year) were not impressive and the earnings conference call was pretty low key. There might have been an oblique positive reference to the continued investment in and integration of the Pan Am property with this comment "...Our Forest Products business began to accelerate driven by demand in pulp board and recent wins in the northeast portion of our network. ..." But there was no mention of expected benefit of the pending CPKC interchange via G&W's Meridian & Bigbee RR which had been heavily promoted a year or so ago. And to close out the con call there was this ominous sounding (?) reply by COO Mike Cory to analyst Jeff Kauffman's question re: will operating margins improve in H2 2024. Here's the question and CSX response:

Jeff Kauffman

Thank you very much for squeezing me in. Mike, just a quick question. You talked about excess capacity. Actually, it might have been Kevin mentioned that. We have plenty of capacity on the line. And I noticed that, dwell was up a little bit.

So, I guess my question is, are there opportunities you said you’re testing the railroad, here and there, seeing what it can do, to run with fewer locomotives or fewer cars or maybe technology can help you drive efficiency on the asset side. I’m not talking so much about the people side here because you mentioned that earlier.

But I was just kind of wondering, because cars online were up about 3,000 cars sequentially. I don’t know if that was seasonal or not. But what kinds of opportunities do you see for improved asset utilization on the rail?

Mike Cory

Thanks, Jeff. Just to clarify, what I what we’re speaking about before was an intermodal shift. So, I was speaking specifically about our intermodal trains and the capacity that we have in that network. But everything you talked about, the answer is, yes. Do we want to run with fewer locomotives? Will there be technology that enhances what it is we’re doing? Absolutely. The biggest thing we’re focused on right now is outside of the day to day sweeping the corners, making sure people understand what the standards are and how to go about, achieving them.

We’re looking at infrastructure that we have. And so there there’s some opportunities to reduce out of route miles, reduce a lot of handlings, essentially create mass where we don’t have it today. This railroad has customers everywhere versus it being linear where you can accumulate all your traffic, you can switch it out, and it runs.

So, we’re going to try. We are looking at our network to see areas where we can bring and create mass in certain places and eliminate all those touches that we do. We do a lot of work online and road with trains block swapping because we just don’t have the mass at the origin terminal.

So, there’s opportunities there and at our in our Investor Day or when we get together, we’ll lay out far more than just me talking about it. We’ll show you what we’re talking about there.

CSX Earnings presentation for Q2 2024: https://s2.q4cdn.com/859568992/files/do ... EBCAST.pdf

On the other hand, CSX 2Q24 earnings were not unimpressive, just beating analyst expectations and reflected in the market's response, resulting in a~15% rail margin as well service performance advantage over NS; no change in capex; no/slow growth expectation from MNBR and PAR still in investment phase this year; and, plenty of common headwinds from coal, truck overcapacity, and overall economic activity as well as labor cost inflation.

With the 2nd best margin of the Class 1's this quarter, no more concerning about threats from margin improvement pressures and Mr. Cory's strategies at CSX than those found at NS, perhaps BNSF as well.

It'll be interesting to see some of the details when presented at their November investors' day conference. In the meantime, here's the start of their new COO's strategy:

https://www.csx.com/index.cfm/about-us/ ... land-yard/

CSX has undertaken an important project to improve the infrastructure at its Cumberland, Maryland rail yard.
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By increasing the network’s capacity and improving the flow of freight-rail traffic, we can eliminate thousands of touches and millions of out-of-route miles for Midwest-bound traffic.
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CSX expects to undertake similar infrastructure enhancements at its Willard, Ohio, and Hamlet, North Carolina yards.