CSX Corp. shares tumbled the most in more than two years after the biggest railroad in the eastern U.S. posted a profit that trailed analysts’ estimates for the first time in eight quarters as coal shipments slumped.
The stock fell 6.8 percent to $27.24 in New York, the biggest decline since September 2011. The shares were the second-biggest decliner on the Standard & Poor’s 500 Index.
The company cast doubt on its earnings potential during a conference call when Chief Financial Officer Fredrik Eliasson said demand for coal shipments will have to rebound by 2015 in order for the company to reach the low end of its forecast for compound annual earnings per share growth of 10 percent to 15 percent over the next two years.
“It’s going to be a big challenge for them to get to even the low end of their earnings target,” said Mark Levin, an analyst at BB&T Capital Markets in Richmond, Virginia.
CSX’s results led off earnings reports for the rest of the U.S. rail industry, with Union Pacific Corp., Norfolk Southern Corp. and Kansas City Southern coming next week. A shift to natural gas from coal at U.S. power plants hurt CSX, with a 5 percent drop in shipments of the fuel, the railroad’s biggest individual freight category.
“The thought of coal ever coming back to what it was or adding meaningfully to growth, that’s not going to happen,” Logan Purk, an analyst with Edward Jones & Co. who has a buy rating on CSX, said in a telephone interview. “Coal will just continue to be in a somewhat secular decline, and that’s largely due to the abundance of natural gas in the U.S.”
Domestic coal volumes fell 9 percent in the quarter and 7 percent for all of 2013.
CSX Chief Executive Officer Michael Ward said on a conference call he expects earnings growth in the first half of this year to be “flat to slightly down.”
John Larkin, an analyst at Stifel Nicolaus & Co., cut his rating on the stock to hold from buy, citing little potential in returns over the next year.
“We thought in ’14 the coal market would be settled down, and on the domestic side we think it is, but the world coal market is over-supplied,” Ward said in a telephone interview after the results were announced. “We think there’s a reasonable likelihood we can achieve the growth we’ve talked about or we would change the guidance.”
The company has been building facilities to handle intermodal business, which includes shipping by truck, rail or ship and has been growing between 7 percent and 8 percent on a yearly basis, Ward said.
“As the highways become more congested and the infrastructure is improved in the highway system, then we will have more and more chance to work with trucking companies to convert business to intermodal,” he said.
Net income slid 5.1 percent to $426 million, or 42 cents a share, Jacksonville, Florida-based CSX said yesterday in a statement. That missed the 43-cent average of 25 analyst estimates compiled by Bloomberg.
CSX’s earnings last fell short of analysts’ estimates in the fourth quarter of 2011 as rising fuel costs sapped profit, according to data compiled by Bloomberg.
Sales climbed 4.7 percent to $3.03 billion, exceeding the $3.01 billion average estimate of analysts. Shipments of intermodal freight climbed 11 percent while chemical carloads, including crude oil, grew 18 percent, CSX said.