CSX Corp Jumps after Releasing Fresh Earnings Guidance

Railroad operator CSX Corp (NASDAQ:CSX) is trading modestly higher this afternoon, up 3.43 percent at the time of writing. Before the market open this morning, the company updated investors with a new fourth-quarter earnings and volume forecast. Shares of CSX have already gained 18 percent in the last month.

The new financial guidance was provided by CSX’s Executive Vice President and Chief Financial Officer, Frank Lonegro – who spoke at the fourth of Credit Suisse’s Annual Industrials Conference.

“We now expect fourth-quarter earnings per share on a reported basis to be flat to slightly up, as macroeconomic headwinds impacting the company’s volume are moderating,” Lonegro said. “At the same time, a recent operating property sale will now offset the impact of a debt refinancing charge announced earlier in the quarter.”

The company’s volume has dropped three percent since the beginning of the quarter, and several markets are showing more moderate declines than in earlier quarters – according to the company’s press release. Coal is looking like its volume is stabilizing sequentially, and is basically flat this quarter-to-date. In the previous quarter, CSX’s coal volumes declined 21 percent.

Lonegro also noted that total volume is projected to fall in the low-to-mid single digits in the fourth quarter – and will be either flat or slightly higher if including the additional week that is part of the company’s fiscal 2016 calendar.

Donald Trump’s US presidential election win is certainly working in CSX’s favor, as demand for coal is ticking upward – given the president-elect’s campaign promises to revive the coal sector. The coal surge will likely taper off, however, as cleaner energy will continue to get cheaper regardless – and many industry experts speculate that Trump won’t be able to achieve such a lofty and unpopular goal.

“Demand is likely to moderate into the second quarter of 2017,” said Jim Nicolson, Senior Vice President Asia of Argus Media Singapore Group, earlier this month at an industry conference in Manila. “The expectation is that the coal price will decline from the current peak and will stabilize around in the middle of next year.”

Apart from updating investors with adjusted earnings, the Lonegro also highlighted some of the company’s cost-cutting efforts – which helped CSX beat the consensus estimate while its volumes weakened. During the third quarter, the company generated roughly $550 million in cost savings. The savings includes both efficiency-improvement efforts and volume-related austerity.

Lonegro reiterated the company’s guidance for its full-year 2016 cost savings, which will be about $400 million: $100 million from structural adjustments in its coal operations, $150 million from regular productivity changes, and the remaining balance from activities like lengthening its trains – which have gotten 20 percent longer in the past two years.

The author has no positions in the above mentioned companies.

Tim is a contributing analyst for EconomicCalendar.com and specializes in equities trading and public offerings. He is a graduate of UCLA and began his career doing capital markets research for a top investment banking software provider.