CSX Profit Gain Shows Pricing Power With Volumes Little Changed

CSX Corp. (CSX) led off U.S. railroads’ third-quarter earnings reports with a 12 percent gain in profit that showed industry pricing power even with shipping volumes little changed.

Net income rose to $464 million, or 43 cents a share, CSX said yesterday. That matched the average estimate of 43 cents from 25 analysts surveyed by Bloomberg and snapped a streak of 10 quarters in which earnings exceeded estimates at CSX, the biggest railroad in the eastern U.S.

Revenue from each unit climbed 15 percent in the intermodal business, which hauls containers that can move by rail, road or sea, while volumes were unchanged, according to Jacksonville, Florida-based CSX. Intermodal containers often carry goods bound for retailers, making the shipments a proxy for consumer demand.

“The leading indicators do not point to significant growth” in the U.S. economy, Walter Spracklin, an analyst with RBC Capital Markets in Toronto, said in a telephone interview. “But they also do not point to declines, so this is consistent with that view.”

Union Pacific Corp. (UNP), the biggest U.S. railroad by sales, is scheduled to release its results Oct. 20 and Norfolk Southern Corp. (NSC) plans to report Oct. 26. Burlington Northern Santa Fe is owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) and typically issues a quarterly filing when Berkshire does.

Peak Season

CSX’s total shipments increased less than 1 percent, according to a company statement yesterday. The railroad said it expects a “more moderate peak shipping season this year” than in 2010, referring to the typical gains in intermodal volumes from retailers’ boosting Christmas holiday inventory.

CSX dropped 39 cents to $20.95 after the close of regular trading in New York yesterday. The shares slid 0.9 percent this year before today. Spracklin rates CSX as “sector perform.”

Third-quarter sales of $2.96 billion topped the average estimate of $2.95 billion from 19 analysts in a Bloomberg survey. A year earlier, CSX reported net income of $414 million, or 36 cents a share.

Revenue from each coal shipment gained 16 percent as volumes dropped 1.5 percent, CSX said. Rising yields reflect the railroad’s ability to charge higher prices. Auto, metals and forest-product deliveries increased.

Operating ratio, a measure of operating expenses over sales, was 70.4 percent, compared with 69.1 percent a year earlier. CSX reaffirmed its target of a 65 percent operating ratio by 2015.

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net