CSX Drops as Falling Coal Cargoes Lead Market Challenges

CSX Corp. declined after predicting two of its biggest markets, coal and agriculture shipments, would be depressed this quarter by the U.S. drought and competition from cheap natural gas.

The biggest eastern U.S. railroad expects unfavorable conditions for about a third of its businesses, Chief Commercial Officer Clarence Gooden said. Total volume will be unchanged from a year earlier in the quarter ending December, he said.

“Utility coal volume will continue to be challenged by low gas prices and high utility stockpiles,” Gooden said on a conference call with analysts and investors. “Although we expect these headwinds to moderate somewhat through the balance of the year, they will continue well into 2013.”

CSX, based in Jacksonville, Florida, fell 2 percent to $21.19 at the market close in New York. That was the biggest decline since Sept. 20.

The move erased gains in after-hours trading yesterday, when the railroad posted third-quarter earnings that beat analysts’ estimates. The performance allayed concerns sparked by rival Norfolk Southern Corp.’s prediction of lower earnings than analysts had estimated.

Beating Estimates

“After Norfolk Southern’s pre-announced miss, there was a real fear that the CSX number could be a lot worse,” Donald Broughton, an analyst at Avondale Partners LLC in St. Louis, said in a telephone interview at the time. He has a market outperform rating on the stock.

CSX’s third-quarter net income was $455 million, or 44 cents a share, according to a statement. That topped the average estimates of $447.6 million, or 43 cents, according to data compiled by Bloomberg.

The performance was driven by an 8 percent volume gain in the intermodal business, which hauls containers that can move by rail, road or sea, and 17 percent growth in automotive shipments.

The gains tempered a decline in coal volumes, which fell 16 percent on an originated basis during the quarter as the pace of global economic growth slowed. The decline was the biggest among the largest North American carriers, according to the Association of American Railroads.

Economic Recovery

“We don’t see in any case the economy bounding back strongly,” Chief Executive Officer Michael Ward said in a telephone interview. “Everything we see points to moderate growth. Europe is clearly going to be struggling for some period of time, and in China there’s mixed signals as well.”

CSX fought back against the market challenges with operational improvements. While total shipping volume fell 1 percent, the speed of its trains increased 10 percent and the amount of time they spent waiting in terminals declined 9 percent, the company said in a regulatory filing.

Volume at Norfolk Southern, the second-biggest eastern U.S. railroad, probably declined about 2 percent in the third quarter, with coal dropping 13 percent and general merchandise down 1 percent, the company said last month.

Quarterly profit at the Norfolk, Virginia-based company will be $1.18 to $1.25 a share, according to a statement. That was short of the $1.63-a-share average estimate of 27 analysts before the announcement.

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