Railroad titan CSX expects the economy to be ‘challenging’ in 2016

CSX, one of the largest railroad companies in the US, said Wednesday that it expects the economy to be “challenging” in 2016.

In a release, CFO Frank Longero also said the company’s first-quarter earnings could significantly drop, as coal volumes decline “in the mid-high single digits”.

Railroad volumes are down significantly over the past year, partly due to the lower use of coal for energy, which is a lifeblood of the railroad industry.

Combine that with a drop in commodity prices across the board, and rail companies have taken it on the chin.

But apart from the coal industry’s challenges, which Longero expects will persist, Longero says CSX’s earnings could also be dented by a tough economic environment.

From the release (emphasis ours):

he intensifying coal headwinds and the impact of the strong U.S. dollar and low global commodity prices that impacted CSX in 2015 are expected to further challenge results in 2016. CSX expects coal volume to decline more than 20 per cent and most other markets to continue posting year-over-year declines this year.

Railroads are a good bellwether for the economy and Warren Buffet has cited rail car volumes as his “desert island indicator” of how the economy is doing.

Longero did however highlight one of the stronger aspects of the industry: The movement of finished goods and consumer products. This was one of the few categories to see a pickup in volume in 2015.

After the statement was released, the stock initially dropped around 2.5%. Since then, however, it has trended higher and is currently up around 1.2% at $25.03.

It has fallen 30% over the last 12 months.

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