CSX (CSX 64.02, -1.36, -2.08%) is trading modestly lower despite reporting solid
fourth quarter results last night.
The Eastern Class I rail reported fourth quarter revenue up 10% as volume grew 3% combined with 7% pricing gains. Earnings grew 58% and came in just above estimates.
The company's Precision Railroad Scheduling initiatives are paying off. Importantly, safety and operating metrics were strong. The accident rate fell; train velocity was up 17% year/year, reaching record levels for a fourth quarter in a row; locomotive miles per day increased by 22% while cars online, a count of the number of active freight cars on company-owned lines, fell 10%.
Expenses grew 2%, adjusted for the impacts of restructuring and tax reform benefits last year. CSX's operating ratio set a company fourth quarter record, falling 480 basis points to 60.3%. Still, that was just shy of Wall Street's expectations, and the metric’s miss of consensus seems to be weighing on the stock this morning. CSX's full year 2018 operating ratio of 60.3% was a U.S. Class I railroad record.
The company's outlook was also encouraging. CSX guided for low-single digit revenue growth in 2019, which was in-line with consensus. The company said that the pricing environment remains strong.
Most importantly for the broader market, the company does not see evidence of a significant slowdown, which portends well for the economy as transportation companies tend to have a good read on things.
Less than one year ago, the company said it would hit a 60% operating ratio by 2020. CSX now expects to beat that mark this year.
Management sees room to further room to improve productivity and free cash flow going forward. In addition, concurrently with its fourth quarter earnings report, the company’s Board also authorized $5 bln in share repurchases, to follow the completion of the existing authorization.
CSX trades at ~15x EPS estimates for 2019, a very narrow discount to rail peers and roughly in-line with the S&P 500.
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