Wednesday, March 12, 2014

CSX: “More modest full-year earnings growth”

Written by  William C. Vantuono, Editor-in-Chief
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CSX CFO Fredrik Eliasson CSX CFO Fredrik Eliasson
Speaking at the March 12, 2014 J.P. Morgan Aviation, Transportation and Industrials Conference in New York City, CSX Corp. Chief Financial Officer Fredrik Eliasson said the company expects full-year earnings growth in 2014 to occur “at a more modest rate than previously anticipated, with the underlying strength in our merchandise and intermodal markets combined with visibility to several million new tons of domestic coal helping to offset the first quarter impact.”

Eliasson discussed a variety of financial and market-specific topics, including the first-quarter 2014 weather impact on CSX, macroeconomic drivers of company growth, and long-term earnings guidance.

 “The severe weather has challenged CSX operations and volume, with the impact on first-quarter earnings now expected to approach 10 cents per share,” he said. “After several years of excess inventory at coal-fired utility plants in CSX’s service territory, inventories are now close to normal levels as a result of the colder than normal winter weather. In addition, broad-based growth in the company’s merchandise and intermodal markets in 2014 will continue on the strength of macroeconomic expansion, opportunities afforded by the process of natural gas drilling, and conversions from highway to intermodal service.


To continue to promote modal conversion (truck to rail), Eliasson said CSX “is making strategic investments to capitalize on an estimated nine million truckloads in the East that would benefit from intermodal service. To leverage that opportunity, the company is expanding its Northwest Ohio Intermodal Terminal to leverage growth in the small- and mid-sized markets CSX now reaches as a result of its combined corridor and hub-and-spoke strategies.

”Long-term, the company expects to continue generating sustainable, profitable growth for investors by leveraging its diverse business portfolio while continuing to price above inflation and drive efficiency gains of at least $130 million per year.

 With this as a foundation and with coal headwinds subsiding, CSX expects to deliver double-digit EPS growth on a sustainable basis. However, it is not clear whether the double-digit EPS growth expected in 2015 will be sufficient, in combination with the more modest earnings growth expected in 2014, to produce a compound annual growth rate of 10% to 15% over the two-year period. At the same time, CSX continues to target a high-60s operating ratio by 2015, which the company believes is still attainable. Longer term, the company remains focused on achieving a mid-60s operating ratio.

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