CSX’s 1Q17 coal revenues

In this part, we’ll look at CSX’s (CSX) coal revenues in 1Q17. The company achieved coal revenues of $522.0 million, up 30.8% from $399.0 million in 1Q16.

Although this is encouraging on a year-over-year basis, this conclusion could be premature on a sequential basis. Let’s explore whether this could be considered a trend reversal in coal.

Does the Rise in CSX’s 1Q17 Coal Revenues Signal Recovery?

CSX’s coal volumes

CSX’s coal volumes rose to 205,000 units in 1Q17, up 3% from 200,000 units in 1Q16. Coal’s share in fiscal 2016 was 16.5% compared with 19.5% in fiscal 2015. Notably, the revenue per unit from coal increased to $2,546, up 28% in 1Q17.

The volumes of domestic utility coal declined to 15.0 million tons in 1Q17 due to mild winter weather and the loss of short-haul interchange traffic. Domestic utility coal formed 47% of CSX’s coal tonnage in 1Q17, comprising almost half of its total coal tonnage.

The volumes of domestic coke and iron ore fell due to production retooling performed by CSX’s principal customer. Export coal volumes—both metallurgical and thermal—rose mostly due to favorable circumstances for US coal producers in global supply and pricing. CSX hauled 8.7 million tons of export coal in the first quarter of 2017.

Management outlook for 2017

CSX expects export coal to benefit from China’s production cuts, which would also favor US-based producers. Metallurgical coal prices have risen recently, creating a favorable 2017 outlook for US producers. For 2017, CSX anticipates export coal tonnage in excess of 20.0 million.

However, the company expects a downward trend in domestic coal. With the higher coal stockpile coupled with a mild winter, CSX expects to haul ~15.0 million tons of domestic coal volumes in 2Q17. The company predicts that a short haul competitive loss of 6.0 million tons could impact domestic coal volumes in fiscal 2017.

Can coal turn positive for railroads in 2017? 

The U.S. EIA[1. Energy Information Administration] anticipates increased coal production in the Western, Appalachian, and Interior regions in 2017. The EIA expects the Interior region to witness the highest growth in coal production among the three regions.

The recent rise in coal prices has revived the hauling and pricing prospects for Class I railroads such as Norfolk Southern (NSC), Union Pacific (UNP), Genesee & Wyoming (GWR), and Canadian Pacific (CP). All major US railroads are part of the portfolio holdings of the WisdomTree Earnings 500 ETF (EPS).

In the next part, we’ll analyze CSX’s Intermodal business in 1Q17.

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