For CSX, 1Q21 Revenue Down Slightly, Volume Growth Expected in 2021 (Updated, Cowen)

Written by Marybeth Luczak, Executive Editor
Intermodal and other revenue growth in first-quarter 2021 “was more than offset by declines in merchandise, coal and fuel surcharge revenues,” CSX reported.

Intermodal and other revenue growth in first-quarter 2021 “was more than offset by declines in merchandise, coal and fuel surcharge revenues,” CSX reported.

CSX, the second Class I railroad to report first-quarter 2021 financial results, earned $706 million, or $0.93 per share—down 8.31% from the 2020 period’s $770 million, or $1.00 per share.

First-quarter revenue of $2.813 billion fell 1.47% from the prior year’s $2.855 billion. Intermodal and other revenue growth “was more than offset by declines in merchandise, coal and fuel surcharge revenues,” CSX reported.

Expenses were up 2.09% year-over-year to $1.712 billion and operating income declined 6.54% for the quarter to $1.101 billion.

CSX’s operating ratio came in at 60.9%, compared with 58.7% in first-quarter 2020.

Looking ahead, CSX reported that it expects to achieve “double-digit full-year revenue growth,” noting that it continues “to project full-year volume growth in excess of GDP.”

In addition, capital expenditures remain targeted in the $1.7 billion to $1.8 billion range for 2021, CSX said.

CSX President and CEO James M. Foote

“I am extremely proud of how our team of railroaders handled the challenges presented by the difficult operating conditions this quarter,” President and CEO James M. Foote said. “Looking forward, the strengthening economic momentum is providing added visibility into volume growth, and we are taking the necessary steps to ensure we are ready to handle these volumes and provide our customers with an industry-leading service product.”

CSX’s Investor Relations page provides more details on earnings.

Cowen Insight: ‘Light Q1, But Remain Positive on 2021’

Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl

“The first quarter fell short of expectations as cost pressures due to COVID, storms and fuel surcharge lag negatively affected OR by ~200bps year-over-year,” reported Cowen and Company analysts Jason H. Seidl (Managing Director and Railway Age Wall Street Contributing Editor), Matt Elkott and Elliot Alper. “Intermodal was the highlight in the quarter as inventory replenishment, East Coast port growth and tight truck capacity continue to be a theme. Management anticipates double-digit top-line growth in 2021 off soft 2020 comps. [We] [r]eiterate Market Perform and $98 PT.”

Cowen’s Key Takeaways:

• “CSX reported EPS of $0.93, below the consensus forecast of $0.95 and our forecast of $1.02. OR came in at 60.9%—worse than our forecast of 58.8%, due to a spike in COVID cases, winter storms and fuel surcharge that increased costs in the quarter. Revenue declined 1% despite carloads increasing 1%. Intermodal was up 11% as CSX is clearly taking business off the highway, which appears to be working. We also give credit to the company for not closing any of its gates through the winter storms, one of the few rails to do so. ‘Other’ category increased 42% in the quarter, driven by higher revenues from storage at intermodal facilities. Automotive declined the most in 1Q (-16%) as a result of lower vehicle production and material shortages, a trend we have been seeing in our weekly carload data.

• “Fuel surcharge revenue in the quarter was $99MM, partially offset by the fuel lag that negatively impacted CSX by $26MM in the quarter. The fuel lag, which is the difference between highway diesel prices and fuel surcharge prices, are generally on a two-month lag. Assuming diesel price increases moderate, it should not be a significant headwind in the second quarter.

• “Management remains committed to its buyback program, repurchasing 6MM shares in the quarter at an average cost of $89.93. We believe CSX will remain opportunistic on buybacks given the significant amount of free cash flow (and existing strong cash position on its balance sheet) the company generates, especially as shares may be under short-term pressure after a softer than expected Q1.

• “Headcount was sequentially flat in the first quarter, but expect headcount to increase every quarter for the rest of the year, [with the] hiring [of] between 400-500 employees in 2021 to support volume growth. However, we expect increased productivity from the workforce as the year progresses.

• “In 2Q, CSX is expected to book a gain of approximately $350M due to the sale of interest in CSX-owned line segments. Total cash proceeds will total $525MM over time with ~$400MM in total expected in 2021.

• “We are adjusting our 2021 EPS estimate to $4.45 from $4.47, while maintaining our 2022 EPS estimate of $5.00. Using our 18.5x multiple and our 2022 EPS target, our price target remains $98. Reiterate Market Perform.”

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