CSX Corp. (CSX) is trading lower today (-5%) after reporting Q2 earnings results after the close yesterday. In terms of quick background, CSX is a large railroad operator. It provides rail, intermodal and rail-to-truck transload services to customers across a broad array of markets, including energy, industrial, construction, agricultural, and consumer products. Its network connects every major metro area in the eastern US, where nearly two-thirds of the nation's population resides. It also links more than 240 short-line railroads and more than 70 ocean, river and lake ports with major population centers and small farming towns.
Turning to the Q2 results, non-GAAP EPS came in at $0.64, which was better than market expectations. Revenue rose 8.5% year/year to $2.93 bln, which also was better than market expectations. CSX also reaffirmed its prior guidance of +25% non-GAAP EPS growth for the full year.
Revenue growth was achieved across nearly all markets and was primarily driven by coal-related gains, strength in core pricing and volume across the other markets, and increased fuel recovery. CSX also delivered improved asset utilization, cost control and fuel optimization. These operational improvements, coupled with the benefits from the management restructuring that was completed early in Q2, drove $90 mln in efficiency gains. These gains more than offset the cost of inflation in the quarter.
CSX says it is on track to achieve record efficiency gains and a step-function improvement in its key financial measures for the year given continued economic growth and stable coal markets. As a result, the Board announced last night that it authorized an additional $500 mln for the current share repurchase program, which now totals $1.5 bln. As part of this program, nearly $500 mln of company shares were repurchased in Q2.
On the call, while not providing specific Q3 guidance, CSX said a few of its markets will experience YoY volume declines in Q3 due to market-specific headwinds. Auto shipments are expected to be impacted by softening production as reflected in the forward views of North American light vehicle production. Crude oil trains have essentially gone to zero more than offsetting the growth CSX expects in the core chemicals markets. Also, domestic coal remains challenged.
So why is the stock trading lower despite the Q2 beat? It could be that investors are a bit disappointed management did not raise full year EPS guidance after reporting a beat in Q2. You would think they should bump up guidance at least a little. Also, the Q2 beat was not as large as the Q1 beat so maybe investors were expecting more on that front. Also, the cautious commentary on the call about Q3 may also be weighing on the stock a bit. Finally, as mentioned above, the company is undergoing a pretty substantial restructuring so there will be bumps along the way.
With that said, the stock has been in a nice uptrend over the past year, going from roughly $28 a year ago to $52 currently. The surprise election win for President Trump was seen as a nice tailwind with the hope for more coal and energy shipments and general economic improvement. The Q2 results were a bit of a bump in the road but the outlook for CSX is generally positive looking forward.