CSX Maintains Positive Outlook After Narrow Improvement in First-Quarter 2013, but Coal Market Still Weak

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Researched by Industrial Info Resources (Sugar Land, Texas)--Rail operator CSX Corporation (NYSE:CSX) (Jacksonville, Florida) reported overall results for first-quarter 2013 that were mostly in line with the same period last year, as gains in the Merchandising and Intermodal segments offset ongoing declines in the Coal segment, with particularly strong results from the chemicals and crude oil businesses. Net earnings were reported to be $459 million, a 2.23% increase from first-quarter 2012.

Total revenues stood at $2.96 billion for the quarter, basically unchanged from the same period last year. Volumes declined 2% overall, with a 14% drop in domestic coal and a 5% drop in the agricultural sector, which was attributed to last year's drought. Increased shipments of crude oil helped to boost volumes in the industrial sector 2%, and increased truck conversions helped to boost intermodal sector volumes 3%. The Coal segment was negatively affected by high domestic inventory levels and low pricing for global thermal and metallurgical coal, although strong domestic pricing made up for some of the losses from exports.

Industrial Info is tracking $1.87 billion in active projects involving CSX, including major, freight rail network upgrade and rehabilitation programs in Jacksonville, Florida, and Louisville, Kentucky. Both programs involve upgrading and rehabilitating state-wide freight rail systems, including rail yards (three in Florida, two in Kentucky), intermodal terminals (three in Florida, one in Kentucky), TRANSFLO terminals (four in Florida, two in Kentucky), and automotive distribution centers (four in Florida, one in Kentucky). Florida's project is estimated to be $95 million, while Kentucky's is estimated to be $85 million.

"The underlying strength of our business continues, even with the transitions that is taking place in the domestic coal market," said Michael Ward, the chairman, president and chief executive officer of CSX, in a conference call. "The operating team is producing industry-leading results in safety, and is driving excellent service and efficiency for our customers and shareholders."

Ward said that CSX will invest an estimated $2.3 billion in 2013 transportation projects. Executives say the overall economic backdrop is positive for the company, as the Merchandising and Intermodal segments are expected to continue to show strength, and improving or steady markets represent almost 90% of CSX's second-quarter volumes.

For the remainder of 2013, the Merchandising segment is expected to benefit from strong drilling activity and a slowly recovering housing sector, although the impact of the drought will continue to reverberate in the agricultural sector. Domestic volumes are expected to continue their decline in the Coal segment, while falling export prices are expected to moderate. In the long term, CSX executives hope to remain focused on pricing above rail inflation.

"Looking ahead, domestic coal headwinds persist, although we expect volume to be relatively stable on a sequential basis," said Clarence Gooden, the executive vice president of sales and marketing for CSX, in the conference call. "For the full year, we continue to anticipate that domestic [coal] volume will decline about 5% to 10%. At the same time, our best estimate for 2013 export coal volume remains about 40 million tons, and year-over-year pricing declines should moderate throughout the year."

For more information, visit Industrial Info's North American Industrial Manufacturing Project Database.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, 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.