Higher prices, coal demand help CSX results; railroad’s stock rallies

Revenue for CSX
CSX,
+0.82%
rose 9% to $3.71 billion. That compared with $3.4 billion in the prior-year quarter. Management said the sales gains were “driven by solid volume growth in merchandise and coal, higher fuel surcharge and pricing gains.”

Shipping volumes overall fell 1% during the quarter, dragged lower by CSX’s large intermodal business, which connects customers shipping things to rail via other modes of transportation, like trucks. However, volumes for coal jumped 19%. Volumes rose for things related to autos, metals and equipment, as well as food and agricultural products.

Analysts polled by FactSet expected adjusted earnings per share of 43 cents, on revenue of $3.58 billion. They expected shipping volumes to dip 0.9%.

“Our One CSX initiatives are driving positive engagement among our employees and customers, which is lifting our service performance and providing us with exciting opportunities to win business and move more freight while maintaining our fundamental commitment to safe operations,” Chief Executive Joe Hinrichs said in a statement. One CSX is a company initiative intended to improve operations and contain costs.

Shares rose 2.8% after hours.

CSX reported after its Western-U.S. peer Union Pacific Corp.
UNP,
+0.30%
put out quarterly results earlier in the day. Those results beat expectations, even as higher costs and and severe weather — including flash-flooding in California and freezing weather in the Midwest — weighed on profits.

Both rail operators reported as scrutiny intensifies over railroad safety following the derailment in February of a Norfolk Southern
NSC,
+0.94%
train carrying toxic materials in Ohio, and companies’ handling of railroad crews. However, some analysts noted that CSX’s rail service had gotten better.

President Joe Biden in December signed legislation preventing a railroad-worker strike, following worker dismay over what they said was scant paid sick time. The industry, after slimming down crews on trains in an effort to cut costs and compete with rival forms of shipping, has now struggled to attract, bring back and retain workers.

Rail operators are still trying to work out agreements with their unions. CSX has reached deals with several unions this year.

“Going forward, we’re closely watching if paid-sick leave agreements can extend to all railroad unions, and the impact these agreements will have on attrition,” Bascome Majors, an analyst at Susquehanna, said in a note to clients on Wednesday.

Any strike risked halting shipments and damaging the economy, even if it were to have lasted for only a few days. Meanwhile, inflation and concerns of a recession have cut into the amount of items railroads and trucks haul from one place to another.

“Coming into this year, our near-term conviction investing in the rail sector was low due to a weak freight market, higher inflationary costs, moderating assessorial revenue, increased regulatory pressure and the need for the industry to maintain higher resource levels (headcount) during this downturn to improve service performance / resiliency through the cycle,” Stephens analysts said in a note last month.

“We believe all of these narratives have played out in recent months (weighing on 1Q23 results), with an added layer of uncertainty around the potential regulatory response to the recent NSC derailment,” they continued.

Shares of CSX are down 12.7% so far this year. By comparison, the S&P 500 Index
SPX,
-0.60%
has fallen 7.7% over that period.