Morningstar | CSX Reaches Best-Ever OR for a U.S. Class I Railroad; Progress Faster Than We Anticipated
CSX increased fourth-quarter adjusted EPS by 58% and delivered record 60.3% operating ratios for both the fourth quarter and full year. The latter marks an all-time U.S. Class I railroad record and testifies to the strength of late CEO Hunter Harrison’s brainchild, Precision Scheduled Railroading. Clearly with Harrison’s successor CEO Jim Foote and team, CSX is in capable hands. As CSX is realizing operating ratio improvement and collecting cash earlier than we projected, we expect to increase our fair value estimate by a couple of percentage points as we true up our model to reflect reality. We maintain our wide moat rating.Demand and revenue per unit gains were both strong in the period. Among major commodity classes, only fertilizer declined (by 12%, due to a customer plant closure), and forest products and metals/equipment both improved at double-digit rates. Intermodal units improved 2% even though the firm rationalized lanes that represented 7% of intermodal business, and coal volume grew 3% year over year on continued strong export growth (in fact, 2018 was in line with CSX’s three top export coal volume years of 2011-13). The rail improved revenue per unit by 3%-10% in all major commodities except metals, which declined 3%. All in, CSX grew units 3% and revenue 10%. Moreover, CSX accomplished this growth with 10% fewer active locomotives and 6% fewer employees on average, generating the record-low (good) OR.
Foote said he does not see economic weakness and cannot identify any current trend that would weaken CSX’s business in 2019. Intermodal growth may be muted due to the firm’s continuing management of intermodal lanes, and naturally coal export pricing could decline, but even in coal, management expects demand to be healthy overall. Management also indicated it expects to improve the OR in 2019; we model 59% for 2019. As Foote has been prone to declare on recent conference calls, these are good days to be a railroader.
CSX provides rail-based freight transportation services. The company's principal operating subsidiary, CSX Transportation, Inc., provides a link to the transportation supply chain through its rail network, which serves centers in states east of the Mississippi River, the District of Columbia and the Canadian provinces of Ontario and Quebec. The company's CSX Intermodal Terminals, Inc. subsidiary owns and operates a system of intermodal terminals, primarily in the eastern United States and also performs drayage services (the pickup and delivery of intermodal shipments). The company's Total Distribution Services, Inc. subsidiary serves the automotive industry with distribution centers and storage locations.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.