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Why CSX Likely Won’t Meet Analysts’ Revenue Estimates in 1Q18

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Analysts’ revenue estimates for 1Q18

Analysts polled by Thomson Reuters have estimated revenue of $2.8 billion for CSX (CSX) in 1Q18. Compared to the railroad company’s ~$2.9 billion revenue in the same quarter of 2017, analysts’ estimate reflects a 2.6% fall YoY (year-over-year), suggesting that analysts have factored volume losses and competitive losses into the company’s 1Q18.

For 2018, analysts expect CSX to register $11.5 billion in revenue, reflecting a 1.2% rise on a yearly basis. The company’s shift toward the Hunter Harrison–led precision scheduled railroading technique created service-related issues and customer dissatisfaction, negatively impacting CSX’s volumes. In 1Q18, while the volumes the railroad company reported to the Association of American Railroads witnessed an overall rise of 2.6%, it recorded a 3.5% fall in overall volumes compared to 1Q17.

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Factors affecting CSX’s revenue

Earlier, CSX said that it anticipated revenue growth in two-thirds of its carload commodity groups. However, this may not be the case. Though President Donald Trump’s initial push reignited hopes in the coal (ARCH) production domain, it seems these hopes have been short-lived. The EIA (U.S. Energy Information Administration) released its short-term energy outlook on April 10, 2018.

The EIA expects US coal (BTU) production to fall 5% to 738 million short tons (or MMst) in 2018 due to an estimated 4% fall in coal usage in US electricity generation this year. Worldwide demand for US coal is also expected to fall in 2018 as well as in 2019. All these factors have led to a forecast of lower coal production in 2018.

Coal accounted for 18.5% of CSX’s total operating revenue in 2017. Notably, CSX’s coal and coke volumes fell 2.5% in 1Q18 compared to the same quarter last year.

However, there’s a silver lining to the dark matter called coal, and it’s come in the form of the current momentum in crude oil (UNG) prices. The geopolitical risks involving Syria and Yemen have pushed crude oil to a three-year high. WTI (West Texas Intermediate) crude for May delivery settled at $66.82 per barrel on the New York Mercantile Exchange on April 11, 2018. If oil continues to rally and maintain these levels, it could directly benefit railroad companies (NSC), including CSX. Rail intermodal lost its sheen when crude fell in 2017 and 2016.

In the next article, we’ll assess analysts’ operating margin estimates for CSX.

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