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CSX’s Double-Digit Coal Revenue Rise in 3Q17

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CSX’s coal revenue in 3Q17

In this part of our series, we’ll analyze CSX’s (CSX) coal revenue in 3Q17. Coal’s share of the company’s overall 3Q17 revenue rose to 18.7% from 17.2% last year. CSX’s overall revenue was $2.7 billion, up 1%. Notably, CSX missed analysts’ revenue estimates in 3Q17.

For almost all Class I railroads, coal remains the single largest freight source. In the third quarter 2017, CSX’s coal revenue was $514.0 million, up 10% from $467.0 million in 3Q16.

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CSX’s coal volumes in 3Q17

Domestic utility coal accounted for 47% of CSX’s coal tonnage in 3Q17. Domestic utility coal tonnage fell 11% to 11.7 million tons from 13.2 million tons in 3Q16. The fall was mainly due to a loss of short-haul interchange traffic. The tonnage also fell due to Hurricane Irma–related damages, which resulted in outages at CSX’s southeastern coal customer facilities.

Domestic coke, iron ore, and other tonnage fell 12% to 4.4 million tons in 3Q17 from 5.0 million tons in 3Q16. The fall was due to reduced iron ore volumes resulting from a production cut by CSX’s key account.

The much-needed respite in coal volumes came from export coal with a whopping 60% rise in tonnage. The tonnage grew to 8.8 million tons in 3Q17 from 5.5 million tons last year. Shipments rose due to a robust market for US export coal. The worldwide export coal supply scenario and pricing conditions fueled the solid growth for US coal.

Coal outlook

According to the EIA, “In 2018, natural gas’s generation share is expected to rise to 32%. Coal’s forecast generation share rises from 30% last year to 31% in 2017 and is expected to stay at that level in 2018.” With the rise natural gas prices, coal should a renewed focus from utility producers on coal. Improved prices and a better outlook have kept hopes for Class I railroads alive in terms of coal. Major railroad stocks (XLI) such as Norfolk Southern (NSC), Union Pacific (UNP), and Kansas City Southern (KSU) should expect better coal hauling prospects.

Next, we’ll focus on CSX’s intermodal vertical’s performance in 3Q17.

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