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CSX Merchandise Declines on Volume, Price

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Merchandise revenue

CSX Corporation (CSX) draws the majority of its merchandise revenue from the I–90 and Southeastern corridors. The company transports agricultural products, industrials, and housing and construction.

The Merchandise division generated almost 62% of the company’s revenues in 3Q15 compared to 61% in the prior quarter. The division reported total revenues of $1.8 billion, down by 6% compared to 3Q14. Volume and revenue per unit declined by 4% and 2%, respectively, primarily due to lower industrial activity in the third quarter.

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Agricultural products

Volumes for agricultural products declined by 5% in 3Q15. This was mainly due to decreased ethanol shipments resulting from oversupply in the Eastern ethanol markets, continued weak international demand for phosphates and fertilizer due to lower corn prices, and weakness in the canned goods market.

Declines were partially offset by strength in feed grain and domestic soybean from the continued effects of the prior productive harvest and strength in rice and beans due to changing consumer preferences. Revenue per unit increased marginally by 1% for agriculture products.

Industrial sector

Industrials recorded a 3% decline in volumes in 3Q15. Volume was flat for chemicals due to the slowdown in crude oil and frac sand on account of reduced drilling activity. This was partially offset by growth from new business and strong gains in LPG (liquified petroleum gas).

The finished vehicle volume for automotive remains flat as North American light vehicle production increased. This was partially offset by the typical summer shutdown this year. However, volumes for metals declined due to a strong US dollar, which encouraged higher imports and lower domestic demand, predominantly within the energy sector.

Housing and construction sector

Volumes for the construction sector declined by 3%. Volumes declined for waste, equipment, and forest products. This was partially offset by an increase in minerals.

Over the last 12 months, CSX’s return on equity was 18%. Its peers reported the following return on equity for the same period:

  • Union Pacific (CSX): 24.8%
  • Canadian Pacific Railway (CP): 24.3%
  • Canadian National Railway (CNI): 24.2%
  • Norfolk Southern (NSC): 16.3%
  • Kansas City Southern (KSU): 14.1%
  • Genesee & Wyoming (GWR): 10.8%

Together, these companies form 9.3% of the Industrial Select Sector SPDR ETF (XLI).

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