uploads///CSX OpMargin

Will CSX See Better Margins in 3Q17?


Oct. 11 2017, Updated 2:06 p.m. ET

Estimated 3Q17 operating margins

CSX has been in the spotlight since Hunter Harrison took over as its CEO in March 2017. Hunter Harrison’s prowess lies in operational improvements, which he showcased at Canadian Pacific Railway (CP) before joining CSX. The company believes that the PCR technique will improve operating margins substantially going forward.

Analysts are expecting CSX to report an operating margin of 33.3% in 3Q17. In the same quarter last year, the company’s operating margin was 31%. So on a year-over-year basis, analysts anticipate a 2.3% rise in operational margins. Interestingly, on a sequential basis, they are projecting CSX’s operating margins to plummet 3.5% in 3Q17.

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CSX’s margin guidance

On a full-year basis in 2017, CSX projects the operating ratio to be at the high end of the mid-60s, which means the company is expecting lower operating margins for fiscal 2017. The operational level issues had also impacted its revenues in the third quarter of 2017.

Note that the damages caused by Hurricane Irma will be reflected in the company’s 3Q17 earnings. Even though the company said it restored most of its services throughout Florida, the intangible impact remains to be seen.

The railroad industry (XTN) uses two key metrics to measure operational performance: trained speed and terminal dwell. The latter refers to the time spent by a railcar to load and unload at the rail terminal. The less time, the better. Despite the impacts of Irma, CSX’s terminal dwell times have gone down for seven consecutive weeks, whereas the train velocity has steadily risen over the four weeks ending September 21, 2017.

Storms to pull down railroads’ margins

Hurricanes are expected to pull down major US railroads’ operating margins in 3Q17, which is evident in analysts’ estimates for Class I railroads’ operating margins. Major railroads such as Union Pacific (UNP), BNSF Railway (BRK-B), and Kansas City Southern (KSU) could report lower margins in 3Q17.

However, Canadian railroads like Canadian National Railway (CNI) and Canadian Pacific will likely be relatively immune to operating margin deterioration in 3Q17.

Keep reading to learn about analysts’ estimates for CSX’s per-share earnings in 2Q17 and ahead.


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