uploads///CSX Merchandise

How CSX’s Merchandise Revenues Fared in 1Q17

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Apr. 25 2017, Updated 7:37 a.m. ET

Merchandise segment’s revenues

After discussing CSX’s (CSX) Intermodal segment’s performance in 1Q17, we’ll turn to its General Merchandise business. Revenues from the company’s Merchandise segment rose 6% to $1.8 billion in 1Q17 against $1.7 billion on a year-over-year basis. For CSX, the share of Merchandise revenues fell to 64.1% in 1Q17 from 66.2% in 1Q16.

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Merchandise segment’s business and volumes

In 1Q17, CSX’s total Merchandise volume totaled 699,000 units, up 4% from 673,000 units in 1Q16. Most of the volume rise was shared by minerals, where volumes grew 21% in 1Q17, followed by its metal and equipment volumes, which increased 13%. Automotive freight followed, where volumes rose 5%.

The company’s automotive volumes increased due to the North American vehicles production and sales growth. The continued growth in truck and SUV sales, outpacing the passenger car sales, drove the volumes for CSX in 1Q17. 

Metals saw increased volumes due to improved domestic steel production, which fueled construction-related activities. The mineral volumes rose due to higher shipments of aggregates. The demand for salt shot up due to severe snowstorms that exhausted stockpiles in the Northeast.

Most of CSX Corporation’s (CSX) Merchandise revenues came from the I-90 and Southeastern corridors. The company transports agricultural products, industrial materials, and housing and construction materials.

Management outlook

CSX expects its Merchandise business to grow at or above the US economy’s growth rate. The company anticipates good growth in the core chemical markets in 2017. However, it foresees reduced crude-by-rail shipments in the rest of 2017. The company remains skeptical about the automotive carloads in 2017 because it believes auto production could flatten in the current year.

Industrial merchandise freight commands a major share of the operating revenues of major US railroads. Recently, this freight source’s growth had been a matter of concern for all major US railroads, including Norfolk Southern (NSC), Union Pacific (UNP), Kansas City Southern (KSU), and Canadian National Railway (CNI). With the not-so-sluggish growth in the US economy, the Class I railroads stand a good chance of improving their industrial merchandise carloads.

All US-based Class I railroads comprise 5.2% of the portfolio holdings of the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR).

In the next part, we’ll look at CSX’s 1Q17 operating margins.

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