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Railroad operator CSX (CSX) is off-track this morning after reporting Q4 results that were merely in-line with expectations after competitor Union Pacific (UNP) beat Q4 EPS estimates yesterday on cost efficiencies and strength in its intermodal business. Accounting for about 15% of CSX's total revenue, the struggling intermodal business has weighed on the company's results, but there was some hope that Q4 would show some solid improvement after UNP's earnings report. Unfortunately, that wasn't the case as intermodal revenue fell by 5% following last quarter's 2% dip, reflecting the ongoing softness in domestic trucking prices.

This year isn't looking too much better, either, with CSX predicting international intermodal volume to moderate due to uncertainty regarding tariffs and trade policy under the Trump Administration. Overall, the company is forecasting volume growth in the low-to-mid single-digits for FY25 following modest growth of 2% in FY24. In Q4, CSX's volume edged higher by just 1%.

• Another major headwind for CSX and the railroad industry overall is the down cycle that's still occurring in the coal market. Competition from natural gas, which has become much more affordable after prices rocketed higher in 2022 following Russia's invasion of Ukraine in February 2022, is pressuring demand for coal. As such, coal volume decreased once again, falling by 7% with no reprieve on the near-term horizon. In FY25, CSX is forecasting coal volume to be down again due to planned facility shutdowns and coal producer issues.
• On the positive side, the agriculture/food, chemicals, and minerals categories are experiencing healthy demand. In Q4, minerals volume was up by 4%, making it the second strongest category, trailing only chemicals at 6% growth.
• Furthermore, CSX is keeping a tight lid on costs. Labor & Fringe expense was down by 3% to $788 mln driven by lower incentive compensation. Meanwhile, lower fuel costs also provided a significant boost. Overall, the company's expenses were down by 3% yr/yr to $2.4 bln.
• Still, Q4 adjusted operating margin slipped by 290 bps qtr/qtr to 34.3% and non-GAAP EPS fell by about 7% to $0.42 as the pedestrian volume growth and 3% drop in revenue more than offset the cost savings.

Overall, this was a rather lackluster earnings report from CSX and is viewed as a disappointment in light of UNP's better-than-expected results on Thursday. Business conditions remain mixed-at-best, but the company's cost control efforts will continue to be supportive to earnings until underlying trends in coal and intermodal improve.