CSX, the second Class I railroad to report fourth-quarter 2020 financial results, earned $760 million, or $0.99 per share—virtually flat with the 2019 period’s $771 million, or $0.99 per share. The earnings include a $48 million charge, or $0.05 per share after-tax, related to early retirement of debt.
Fourth-quarter revenue of $2.83 billion fell 2% from the prior year’s $2.89 billion. Intermodal growth, CSX said, “was more than offset by lower fuel surcharge revenue and coal declines.”
Expenses were down 7% year-over-year to $1.61 billion, “driven by lower fuel expense and efficiency gains,” the railroad noted. Quarterly operating income of $1.22 billion increased 5% from $1.15 billion for the same period last year.
CSX’s operating ratio came in at 57.0%, setting a company record, compared with 60.0% in 2019. The full-year operating ratio was 58.8%, exceeding initial guidance of 59.0%, despite lower economic activity and operating challenges brought about by COVID-19, the railroad reported.
Looking forward, CSX reported that it expects volumes to outpace GDP growth with merchandise volume growth exceeding industrial production; intermodal volumes growing faster than merchandise; and the coal market improving from 2020 “trough levels.” It added that it is “targeting capital expenditures in the $1.7-$1.8 billion range.”
“I am extremely proud of how CSX’s team of railroaders continuously rose to the challenges this year presented,” CSX President and CEO James M. Foote said. “Throughout this difficult period, they have shown an unwavering commitment to our customers and remained focused on ensuring the delivery of critical goods to millions of Americans.”
Cowen Insight: ‘Solid 4Q, Outlook Improving’
“CSX topped Street expectations, fueled by intermodal and agriculture & food products volumes,” reported Cowen and Company analysts Jason H. Seidl (Managing Director and Railway Age Wall Street Contributing Editor), Matt Elkott and Elliot Alper. “[The] outlook for 2021 remains optimistic with volumes expected to outpace GPD growth, and a potential dead cat bounce in coal. We are increasing our price target to $91 from $84 and reiterate Market Perform.”
Cowen’s Key Takeaways:
• “CSX reported adjusted EPS of $1.04, roughly in line with our estimate of $1.05 and slightly above the consensus figure of $1.01. CSX incurred a $48MM charge in the quarter related to early retirement of debt, for $0.05 of adjusted EPS. Operating income of $1,215MM was above the Street estimate of $1,180MM and slightly below our estimate or $1,231MM. Revenue was down 2% Y/Y but beat consensus expectations. OR of 57.0% declined ~300 bps Y/Y and fell 50 bps short of the consensus forecast.”
• “Intermodal and ag and food product volume drove revenue growth in the fourth quarter, both growing at 6%. Strength in Ag was attributed to higher shipments of export grains, food, consumer, and ethanol, while intermodal was attributed to continued tight truck capacity and inventory replenishments, which were in line UNP’s comments yesterday. Coal dragged on volume, declining 18%, the largest segment decliner. Although QTD coal trends appear to still be under pressure, management expects the coal market to improve from 2020 ‘trough’ levels. While 2021 may be a bounce back year for coal we view its longer term outlook as negative.
• “Management remains committed to its buyback program, and anticipates will purchase shares at opportunistic levels in 2021; with $6 billion of buyback authority, we are currently modeling 2 billion of share repurchases in 2021.
• “While the current environment remains challenging and COVID marking significant impacts, CSX is preparing for growth and expects headcount will exceed attrition in the first half of the year, to provide flexibility in demand surprises, especially in 2H21. The company stated it expects to return to growth in 2021 along with the U.S. economy, as current COVID headwinds may turn into stimulus tailwinds, and the company believes it will grow volumes faster than GPD growth in 2021.
• “CSX expects fuel surcharge to be a headwind until at least the first quarter, and 2H21 may see less of a headwind. The railroad continues to pilot programs and invest in technologies to improve fuel efficiency, and believes it will widen the advantage over truck and continue to improve its sustainability.
• “We are adjusting our 2021 and 2022 EPS estimates to $4.47 and $4.90 from $4.40 and $4.80 respectively. We are increasing our multiple by a turn to 18.5 which increases our pt to $91 from $84. We reiterate our Market Perform.”