Rail giant CSX Corp. will report quarterly results tomorrow after the market closes, with expectations for earnings per share of $0.38 on revenue of $2.9 billion.CSX offers an impressive look at how the nation’s businesses and manufacturers are moving goods: meaning increased demand or sudden destocking will show through in the company’s numbers.
Already, investors are prepared for weak results on shipments of coal, which has been adversely affected by warmer seasonal weather and cheaper energy alternatives like natural gas.
Here’s what analysts are saying:
Justin Yagerman, Deutsche Bank: “We believe the transports are poised to post solid Q1 earnings as weather, core pricing gains, and operating leverage should overwhelm the fuel cost headwind. We are most optimistic about the rails and UPS … Our sense is that the [Less Than Truckoads] are better positioned than the [Truckloads] in Q1. LTLs will benefit more from weather, and higher fuel prices likely acted as a tailwind for the LTLs due to their fuel surcharge mechanism versus a headwind for the TLs. With few transports giving guidance we see little risk to downward 2012 EPS revisions. However, given limited visibility and increasing market volatility, we expect volume outlooks to be conservative even as pricing is expected to remain strong.”
Brandon Oglenski, Barclays: “In the east, we still like the prospects for CSX and expect improved cost performance should begin to develop as the year progresses. Non-coal related growth remains robust in the industrial related segments, which should provide varying degrees of offset for most carriers. We acknowledge the coal earnings risk, however, and forecast the eastern networks will face the largest hurdle in the first quarter. But our long-term preference for the group remains, as we expect broader pricing gains, efficiency improvement and intermodal conversion should continue supporting higher returns over time.”
Christopher Ceraso, Credit Suisse: “Our EBIT growth rate assumption increased primarily on our view that the decremental margin on lost coal volumes will not be as severe as we initially anticipated. Given the unit train economics, when coal shipments are not being made, the trains do not need to run, crews are not needed to manage the trains and fuel will not be burned. Furthermore, the assets can be redeployed elsewhere into the system. We initially thought that the decremental margin on coal would be in the 60% range, we now believe the margin to be in the 40% range. Our revised view on decremental margins, along with our forecast for greater revenues which in turn drive greater operating leverage, translated into slightly more favourable EBIT margins for CSX and NSC.”
Fadi Chamoun, BMO Capital: “Aside from a 12% decline in tariffs affecting 25% of export coal shipments, pricing isvibrant in the intermodal and merchandise segments and consistent with RCAFfor utility coal. We believe that effective management of costs in a shrinking utility coal franchise and leveraging of existing labour and infrastructure resources to onboard incremental non-coal volumes at low costs should drive record EBIT and EPS in 2012.”
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