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Can CSX Meet Wall Street’s Revenue Estimates in 4Q17?

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Analysts’ revenue estimates for 4Q17

CSX’s (CSX) adaption of the Precision Scheduled Railroading model met with a lot of ire from some customers. They raised service- and network-related concerns with the Surface Transportation Board—the top US rail regulator. Meanwhile, there was news of some of CSX’s customers switching over to arch-rival Norfolk Southern (NSC). CSX remains the only Class I railroad (IYJ) to report the lowest traffic gains of 0.2% in 2017 on a YoY (year-over-year) basis. In fact, the company’s carload traffic went down 1.4% in 2017 compared with its previous year—unlike any other Class I railroad. All these facts should impact the top line for CSX negatively in 4Q17.

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Thomson Reuters surveyed analysts who estimate that CSX will report $2.9 billion revenue in 4Q17. In 4Q16, the company earned revenue of $3.0 billion, which represents an estimated fall of ~5%. So we can conclude that the analysts have factored in the volume loss and competitive loss. For 2018, they expect CSX to attain revenues of $11.8 billion, reflecting a 3% rise YoY.

Will CSX surpass revenue estimates?

Though CSX maintained that it expects two-thirds of its business to grow or remain stable, we don’t think so. Coal volumes were somewhat down in 4Q17 compared with the previous quarter. Domestic utility coal volumes remain subdued, though export coal offers some hope. The intermodal business remains challenging due to competition with the trucking industry.

The projected decline in North American light vehicle production could get in the way of revenue growth in 4Q17. Plus, hurricanes that impacted US transportation stocks in 3Q17 could also leave a mark on CSX’s fourth-quarter 2017 revenues.

Peer group’s 4Q17 estimated revenues

Amid volume growth dullness, pricing bottlenecks remain for CSX and its peer group. Railroads’ top line can grow only when pricing moves in tandem with higher volumes. Take a look at the yearly change in analysts’ 4Q17 revenue estimates for the major US railroads.

  • Norfolk Southern (NSC)—up 5.5%
  • Union Pacific (UNP)—up 4.6%
  • Kansas City Southern (KSU)—up 9.7% due to a strong Mexican business pipeline
  • Canadian National Railway (CNI)—up 2%
  • Canadian Pacific Railway (CP)—up 3.5%
  • Genesee & Wyoming (GWR)—up 10% due to the consolidation of acquired railroads

In next part of this series, we’ll go through analysts’ projections for CSX’s 4Q17 operating margins.

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