How Did Eastern US Rail Giant CSX Perform in 4Q16?

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Part 4
How Did Eastern US Rail Giant CSX Perform in 4Q16? PART 4 OF 5

Why CSX’s Merchandise Revenue Rose in 4Q16

CSX’s merchandise revenue

CSX’s merchandise revenue rose 6% to $1.8 billion in 4Q16, compared to $1.7 billion in 4Q15. 

In 2016, the company’s merchandise revenue rose to 64.5% of its total revenue, while its merchandise revenue made up 61.5% of its total revenue in 4Q15.

Why CSX’s Merchandise Revenue Rose in 4Q16

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CSX’s merchandise business and volumes

In 4Q16, CSX’s total merchandise volumes were 737,000 units, a rise of 4% from 708,000 in 4Q15. On the volumes front, automotive bore the major share of rising volumes. Automotive volumes rose 11%, followed by fertilizer volumes at 8%. On the other hand, metals and equipment volumes fell 3% in 4Q16. Remember, CSX had an extra week in 4Q16.

Why volumes rose

Automotive volumes rose due to North American vehicle production and sales growth. The continued growth in truck and SUV sales, which outpaced passenger car sales, drove automotive volumes for CSX in 4Q16.

Agricultural and food products volumes fell in 4Q16. A robust southeastern crop hindered demand for grain via rail from the midwest to the southeast. This hindrance offset the gains realized via the strong US soybean harvest. Agricultural volumes were also affected by falls in ethanol volumes and feed products resulting from inventory pileup and weakness in commodity prices.

Chemicals volumes fell owing to continued challenges in the crude-by-rail market. However, slightly improved liquefied petroleum gas and fractionating sand volumes offset the chemicals volume slump.

Metals volumes fell on lower steel production and fewer imports due to the strong US dollar. The energy market slump also negatively impacted pipe shipments.

Management’s outlook

CSX expects growth in automotive freight due to increased light vehicle production. On the minerals front, the company expects a boost due to a new fly ash remediation project. Highway construction activity is expected to fuel aggregates’ freight hauling prospects.

CSX anticipates a fall in chemicals shipments as a result of shaky energy market movements. Though crude oil prices have improved, the rig count situation has reduced drilling activity. However, CSX’s management is hopeful for a core chemicals market in the near future.

CSX’s peer group’s industrial revenue

General merchandise occupies a major share of the freight revenues of major US Class I railroad companies. However, this freight source’s growth has recently been a matter of concern for these companies, which include Norfolk Southern (NSC), Union Pacific (UNP), Kansas City Southern (KSU), and Canadian National Railway (CNI). Given the sluggish growth in the US economy, Class I railroad companies are assessing alternative ways to improve their businesses.

All the US-born Class I railroad companies form 5.5% of the portfolio holdings of the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR).

In the coming article, we’ll take a look at CSX’s 4Q16 operating margin.


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