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CSX Stock Hovers over All-Time High on New Operating Model Gains

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Aug. 9 2018, Updated 6:32 a.m. ET

CSX’s operational plan

Lower volumes on the back of weak coal shipments in 2016 forced all Class I railroad companies to take the appropriate countermeasures. Companies (XTN) resorted to idling locomotives, reducing low-profit networks, and combining business segments to reduce their operating costs. CSX Corporation (CSX) went a step further and completely changed its rail operating model.

The company has reiterated that its transition to a Precision Scheduled Railroading model is a move in the right direction. This new operational turnaround model should help CSX achieve revenue growth on increased shipments and pricing gains from the intermodal and general merchandise segment. In the past year, the company has added 47% to its investors’ wealth through stock price appreciation. On August 6, CSX stock closed at $72.15, hovering near its 52-week high of $72.89.

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Snapshot of CSX’s second-quarter results

In the second quarter, CSX’s adjusted EPS of $1.01 exceeded analysts’ estimate of $0.87 by a wide margin of 17%. The company’s adjusted EPS rose a solid 58% from the $0.64 it reported in the same quarter last year. CSX’s revenue in the quarter was $3.1 billion—up 5.8% YoY from $2.9 billion in the second quarter of 2017. Its reported revenue surpassed analysts’ estimate by 3.5% in the quarter. CSX’s revenue carloads rose 2% YoY, while its revenue per unit rose 4% YoY in the second quarter. The markets gave the company the thumbs up for its robust pricing gains and its winning back customers’ confidence.

CSX’s operating margin set an all-time quarterly record for the company in the second quarter. CSX reported an 8.8% expansion in its second-quarter operating margin, which stood at 41.4% compared to 32.6% in the second quarter of 2017. CSX’s operating margin expanded 490 basis points on an adjusted basis in the second quarter compared to 36.5% in the comparable period last year.

Based on its operating margin parameters, CSX was in a race for industry leadership in the second quarter. The company’s operating margin expansion left major railroad companies such as Canadian Pacific Railway (CP), Union Pacific (UNP), and Norfolk Southern (NSC) in the dust.

Next, we’ll assess Kansas City Southern (KSU), the smallest US Class I railroad company.

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