- CSX reported second-quarter results on Tuesday that missed Wall Street’s expectations on both top and bottom lines.
- The freight railroad also slashed its forecast for the coming year, citing President Donald Trump’s ongoing trade war with multiple countries.
- “The present economic backdrop is one of the most puzzling I have experienced in my career,” James Foote, CSX’s chief executive, told investors and analysts on a conference call.
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Shares of the Florida-based freight operator fell by as much as 7% overnight after it reported it’s first drop in annual sales since 2016, as well as earnings and revenue for the three-month period that both missed investor expectations on Tuesday.
The company also warned that things won’t get any better without a pickup in economic pace.
“The present economic backdrop is one of the most puzzling I have experienced in my career,” James Foote, CSX’s chief executive, told investors and analysts on a conference call. “Both global and US economic conditions have been unusual this year, to say the least, and have impacted our volumes.”
CFO Mark Wallace went even further with his economic warnings, urging a resolution to the ongoing disputes between the US and countries including China, Mexico, Europe and more.
“What would help in the back half would be a resolution or clarity on trade and tariffs,” he said, ” but that is obviously beyond our control.”
Wall Street analysts, many of whom lowered their forecasts for the railroad following the bad news on Tuesday, said that the company’s planned cost cutting likely won’t be enough.
“CSX identified multiple cost takeout opportunities including combining trains / leveraging distributed power to run longer trains and overtime reduction in their track and equipment maintenance groups,” Thomas Wadewitz, an analyst at UBS, said in a note to clients Wednesday morning. “However, while we expect CSX to reduce costs, the lower revenue outlook is a headwind which causes us to lower our EPS estimates for 2H19 and 2020.”
The dreary results could ripple through the entire industry as well, especially given that freight volumes have fallen drastically in recent months, according to industry statistics.
“The softness in rail volumes from late 2Q has persisted in the first few weeks of 3Q and will likely be a headwind to revenue growth in 2H19,” UBS said.
Shares of Union Pacific and Norfolk Southern fell about 2.4% overnight, while Canadian Pacific fell about 1.7% following CSX’s gloomy outlook.
“Tell me what the economy is going to do in the back half of the year, I’ll tell you what Intermodal is going to do,” Wallace said on the call, referring to one the railroad’s most important freight segments.
CSX is far from the first company to warn of damage inflicted by the White House’s economic policies, which have injected much anxiety to the business climate, executives say.
For more than a year, some of the world’s largest shippers, including Maersk and FedEx, have consistently sounded the alarm.
“We’ve been very disappointed over the last few years with the assumptions that we made on the growth in international trade, particularly with the Trump administration,” FedEx CEO Fred Smith said on an earnings call with executives and analysts in June.
“Global trade has slowed as trade frictions have exerted a negative impact on sentiment and of course the manufacturing sector,” another FedEx executive said on that call.