CSX Corp. remains optimistic the railroad’s profits will improve over the next two years, even though coal demand has remained stubbornly weak.
Officials at the Jacksonville, Fla.-based railroad said Wednesday that shipments of intermodal containers and merchandise will continue to be a larger part of their business.
“All in all, we’re looking at the economy and it looks like it’s poised to continue to grow. Still, there’s a lot of room to grow yet,” said Michael Ward, CSX’s chairman, president and CEO.
CSX officials expect the economy to grow slowly next year, driving shipment expansion. The railroad has seen robust growth in shipments of crude oil and products related to housing construction. CSX is also trying to persuade more shippers to use rail instead of trucks.
CSX said Tuesday its third-quarter net income rose 2 percent to $463 million, or 46 cents per share, as revenue rose 4 percent to nearly $3 billion. That beat Wall Street expectations.
S&P Capital IQ analyst Kevin Kirkeby maintained his “Buy” recommendation on the stock, because of CSX’s prospects for growth in grain chemical and construction shipments. But Kirkeby trimmed his earnings-per-share prediction for 2013, because expenses were higher.
The railroad predicts this year’s earnings per share will improve slightly over last year, and expects annual growth of between 10 to 15 percent from 2013 through 2015.
But CSX will have to continue grappling with diminished demand for coal, which once accounted for nearly 30 percent of its business. All the major freight railroads have been struggling with weak coal demand over the past two years, as cheap natural gas prices prompted many utilities to switch fuels.
CEO Ward said he expects coal will eventually stabilize at around 18 percent of CSX’s carloads, close to what it was in the third quarter. But utility demand will remain soft at least for the first several months of next year, because stockpiles remain high in the territory CSX serves.
“Since the beginning of 2012, the CSX team has successfully overcome almost three-quarters-of-a-billion dollars in coal-revenue loss due to the transition taking place in the energy market. As you heard this morning, we expect that this transition will continue into next year,” Ward said Wednesday.
In the third quarter, CSX’s coal revenue fell 9 percent to $720 million, but intermodal revenue improved 8 percent and other merchandise shipments grew 7 percent to more than offset the coal decline.
Shipments of crude oil and supplies for hydraulic fracturing have grown, and chemical shipments were up 12 percent in the quarter.
Ward said CSX is currently delivering about one train a day of crude oil to refineries in New York, New Jersey and Pennsylvania.
CSX Corp. operates over 21,000 miles of track in 23 Eastern states and two Canadian provinces.
Another major U.S. railroad, Union Pacific, will release its third-quarter earnings report Thursday.