Tuesday, July 14, 2009

CSX -What Does This Tell Us?

The first of the major railroads, CSX, reported last night. I like to look to railroads for a accurate representation of the broad economy, and CSX beat expectations.

-Railroad operator CSX said Monday that second-quarter earnings fell 20 percent as it collected fewer fuel surcharges and shipments continued to drop.

-The results still topped Wall Street's expectations, as the company slashed expenses by 27 percent.

-The Jacksonville, Fla.-based company, which runs its signature blue and yellow locomotives from Canada to Florida and west to the Mississippi River, said Monday it earned $308 million, or 78 cents per share, compared with $385 million, or 93 cents a share, last year.

-Revenue fell 25 percent to $2.19 billion.

-CSX's shipping volume fell 21 percent in the period, compared with 22 percent industrywide. Railroad shipping volumes are viewed as a key economic indicator because so many consumer and manufactured goods are moved on the tracks.

-"While the economy continues to significantly impact our business, there are some signs that we may be seeing the bottom in many markets," CEO Michael Ward said. "Even in this difficult business environment, we are still strengthening our operations, optimizing our resources and making the right investments to prepare our network for the future."

My take:

Although their are a lot of headwinds, they also had significantly lower fuel prices, which had to help. Obviously lower auto-related shipments hurt (specifically Eastern carriers like CSX and NSC). Metals were down, as well as coal, which is just broad weakness in the economy. The CEO's comment was what I expect to hear from about 90% of industrial companies this quarter. They'll say there are some signs of a bottom, and although their numbers don't necessarily reflect it, they think things are improving.

For whatever its worth, CSX shares are up 5.5% this morning. It was a fairly significant beat on the bottom line, but revenue's were pretty weak. Clearly expectations are still low and this could bode well for stocks as we get further into earnings' season. I'll continue to track these companies as a sort of barometer of the real economy.

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