QUOTE AND NEWS
Motley Fool  Aug 28  Comment 
The railroad industry has seen volume improve markedly, and CSX stands ready to capture its share of the spoils. Find out how.
Motley Fool  Aug 26  Comment 
CSX has been working hard to keep its business up despite challenges in the coal industry. Find out what the railroad expects going forward.
SeekingAlpha  Aug 22  Comment 
By Balanced Investing: According to the American Association of Railroads "AAR", railroads stand alone make up to 40% of the intercity freight volume. Apart from being the most popular mode of freight transportation, it is also an efficient and...
Motley Fool  Aug 21  Comment 
The railroad company has done a good job, but it has also lagged behind its competition. Will CSX bounce back?
SeekingAlpha  Aug 15  Comment 
By Josh Arnold: CSX Corp. (NYSE:CSX), a mid-sized North American railroad operator, has seen its shares up huge in the last two years, posting gains of $11 off of the $19 level it traded for in December of 2012. In other words, shareholders in CSX...
SeekingAlpha  Aug 13  Comment 
By Kyler Hasson: In my last article on CSX Corporation (NYSE:CSX), I made the case that returns on capital should be similar across major railroads, and if all railroads earn similar returns on their PP&E, then they should logically trade at...
SeekingAlpha  Aug 10  Comment 
By Kyler Hasson: CSX Corporation (NYSE:CSX) has been a strong performer since late 2012, with shares going from about $19 to $29, while earnings have remained about flat. Even with these relatively poor business results and the large run-up in the...
The DIV-Net  Aug 6  Comment 
Based in Jacksonville, Florida, CSX Corporation (CSX) has roots dating back to the early nineteenth century – starting in 1827 when the nation’s first common carrier was chartered between the Baltimore and Ohio Railroad Company.  Today...
SeekingAlpha  Aug 1  Comment 
By Mitu Anand: CSX's (NYSE:CSX) performance on the stock market hasn't been as good as peers Norfolk Southern (NYSE:NSC) and Union Pacific (NYSE:UNP). In fact, CSX has gained just 6% so far in 2014 while its peers have appreciated in the double...
Market Intelligence Center  Jul 29  Comment 
A covered call identified by MarketIntelligececenter.com's patented algorithms on CSX Corp (CSX) could yield about 8.80% (15.60% annualized, for comparison purposes only) in 206 days. Pair a long position in the stock with the Feb. '15 $32.50 call...




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CSX Corporation (NYSE:CSX) is one of the nation's leading transportation companies. CSX's 30,000 employees operate a rail network comprised of more than 21,000 miles of track, 4,100 locomotives, 216,000 freight cars, and nearly 33,000 intermodal units.[1] The company transports everything from chemicals to automotive parts. Its main divisions are Merchandise, coal , Intermodal (a combination of rail and truck transportation), and Automotive. The company earned $9 billion in revenue and $1.1 billion in net income in 2009.[2]

Like its counterparts in the railroad industry, CSX is subject to economic cycles. When the economy is doing well, more goods tend to be shipped, and when the economy is doing poorly, fewer goods tend to be shipped. Moreover, the volume of goods being shipped by a particular industry tends to vary directly in proportion to the health of that industry. For instance as housing markets have declined, the demand for the transportation of housing related goods has also decreased. As the price for a barrel of crude oil rises, diesel fuel and trucking becomes much more expensive. Rail prices are much less sensitive to fuel costs, and a massive movement to rail-based transport developed. Volume has exploded the last two quarters for this sector.

Although CSX has made progress in some areas, it still lags its competitors in key performance areas such as train speeds, on-time arrivals and departures, accidents, and re-crews. This is largely due to the complexity of CSX's rail road system. The company's current incarnation is the result of a merger of two separate railroads. CSX also acquired a significant interest in Conrail in 1997; the integration of these three networks results in more operational difficulties than its competitors. As a result of these operational lags to its competitors, hedge funds TCI and 3g Partners acquired large stakes in the company and launched a proxy battle to secure seats on the board of directors.


Business Growth

FY 2009 (ended December 25, 2009)[2]

  • Net revenue fell 20% to $9 billion due to declines in volume and lower fuel surcharge revenue which more than offset core pricing gains.
  • Net income fell 24% to $1.1 billion.

Trends and Forces

Fuel

As with all transportation industries, the price of oil and other fuels have a tremendous impact on CSX's bottom line. A decrease in fuel hedge benefits, coupled with higher diesel prices directly increase CSX's expenses. According to CSX, approximately 85% of its revenue is subject to fuel surcharges or price increases.

Derailments & Accidents

Derailments are a common expense for railroads but the magnitude of the accident can have a significant impact. In addition, because railroads are required by law to transport hazardous materials, there is a possibility of future derailments of this magnitude.

Legislation & Regulation

Railroads are subject to various regulations from multiple government departments, all of which could significantly impact business should they choose to change any of the current regulations. Railroads, and the domestic transportation infrastructure in general, are vulnerable to terrorist attacks and as such, federal, state, and local governments are adopting legislation that will strengthen security. In conforming to new regulations, CSX would undoubtedly incur extensive expenses.[3]

Network Difficulties

CSX is the product of a merger of two separate railroads and has also acquired a 42% economic interest in Conrail. Ensuring the compatibility of these three networks is a difficult task and a constant hindrance to improving train speeds and other operating metrics. The network is also subject to natural disasters, such as Hurricane Katrina, which resulted in more than $170 million in insurance claims. CSX currently spends an average 13%-14% of annual revenue on capital projects, primarily on track maintenance as opposed to expansion.

Unions

Most of the 30,000 employees belong to labor unions, making CSX's relationship with the unions of utmost importance. The rail industry has been fortunate in the past, almost always reaching an agreement during negotiations before a strike becomes necessary. In the last thirty years, there were only six days of work stoppage due to labor negotiations.[4]

Competition

Like other rail lines, CSX directly competes with the trucking and shipping industries. Trains are three times more fuel-efficient than their trucking competitors, but have less short-haul flexibility. As shipping imports from Asia continue to increase, analysts expect increased volume at many East Coast ports because West Coast ports already experience heavy congestion. Higher volumes flowing through the Suez and Panama canals also seem to support this assumption. In the rail industry, CSX's main competitor is Norfolk Southern (NSC), another East Coast rail line. CSX maintains a larger rail network, but Norfolk Southern consistently tops CSX in two of the three the main operating metrics: Train speed and average dwell time (the average time a car resides at the specified terminal location); CSX consistently has more cars online. Norfolk Southern also has a significantly better operating ratio (operating expenses / operating revenue) than CSX - 72.8% vs. 77.8%.

References

  1. CSX 2009 10-K "CSX Rail Network" pg. 18-21
  2. 2.0 2.1 CSX 2009 10-K "Selected Financial Data" pg. 27
  3. CSX 2009 10-K pg. 11
  4. CSX 2009 10-K pg. 12
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