CSX Railway: Third-Quarter Domestic Coal Shipments to Continue to Fall

Researched by Industrial Info Resources (Sugar Land, Texas)--Executives with eastern U.S. railway CSX Corporation (NYSE:CSX) (Jacksonville, Florida) say they expect to see a drop in shipment volumes in the third quarter, largely driven by a 15% reduction in domestic coal shipments. CSX reported a 5% increase in second-quarter net earnings, as it benefited from a 37% drop in fuel costs and efficiency savings.

Industrial Info is tracking 40 CSX projects with a total investment value of $2.63 billion, dominated by yearly statewide maintenance and upgrade projects.

The railway, which operates in 23 states, the District of Columbia and the Canadian provinces of Ontario and Quebec, reported $553 million in net earnings, compared with $529 million in the same quarter a year earlier. Second-quarter revenues totaled $3.06 billion, a 6% reduction from $3.24 billion in second-quarter 2014. CSX said it benefited from a $153 million drop in fuel costs, but also saw second-quarter fuel surcharge revenue fall by $183 million.

During the second quarter, coal and coke revenues fell 15% from the same quarter a year earlier to $630 million. Total coal volume dropped 10% to 33.7 million tons. Domestic utility coal volume fell mainly because low natural gas prices continued to make it preferable for power generators, the railway said. Coal exports were down due to weak global markets.

Looking to the third quarter, Chief Financial Officer Fredrik Elliason said the railway will continue to see headwinds from the ailing domestic coal market. Domestic coal volumes for the third quarter are expected to be 15% less than the same quarter last year. For the full fiscal year, domestic coal volumes are expected to be 10% less than in 2014.

CSX has targeted $2.5 billion in capital expenditures for this fiscal year. However, Elliason said during the company's earnings conference call that as a result of the coal market situation, the railway will "really be looking long and hard" year at its capital expenditures next year for coal-related items.

Elliason said he also expects to see a substantial drop in some chemical-related market shipments in the third quarter due to lower drilling activities, which has resulted in less shipments of frac sand and crude oil. However, he said, strength in liquid petroleum gas (LPG) and plastics will keep the railway's portfolio stable.

Intermodal transportation is expected to remain strong in the third quarter, he said.

CSX Chief Executive Officer Michael Ward said more than 600 employees have been furloughed this year as the railway continues efforts to control costs. At the same time, the company has focused on rebuilding its fleet by purchasing 200 locomotives and rebuilding 150 others.

During the second quarter, a brownfield intermodal terminal project in Glassport, Pennsylvania, was scheduled for construction kickoff. Located on the 70-acre site of the former Pittsburgh and Lake Erie Railroad Yard, the $50 million project involves construction of an intermodal terminal to provide western Pennsylvania shippers direct intermodal access, helping to shift long-haul freight from highway to rail. Project completion is set for first-quarter 2017.

For related information, see January 15, 2015, article - CSX Railroad Reports 15% Jump in Fourth-Quarter Earnings, Targets $2.5 Billion Capex for 2015.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.