Shares of CSX Corp. fell after hours on Thursday as the company reported second-quarter sales that missed expectations. The decline in sales was attributed to lower fuel and coal prices and weaker shipping volumes.
Financial Performance
CSX Corp, whose rail network serves a large portion of the eastern U.S., reported a net income of $996 million for the second quarter, which translates to 49 cents per share. This is a decrease from the $1.18 billion, or 54 cents per share, that the company reported in the same quarter last year. Additionally, revenue fell by 3% to $3.69 billion, compared to $3.82 billion in the prior-year quarter.
Analysts polled by FactSet had expected the company to report earnings per share of 49 cents, on revenue of $3.73 billion.
Factors Contributing to Sales Decline
CSX Corp. attributed the dip in sales to lower fuel and coal prices, as well as lower volumes in its intermodal business. The intermodal business connects shipping customers to railroads through other modes of transportation. CEO Joe Hinrichs stated that the intermodal business “remains challenged.”
However, management reported that shipping volumes increased for coal and merchandise such as chemicals, food, crops, and cars.
Market Reaction
Shares of CSX Corp. slid 3.9% after hours on Thursday.
Weaker Shipping Demand and Labor Tensions
Analysts have noted weaker shipping demand among the nation’s railways, which is a result of weaker consumer spending due to inflation causing shoppers and businesses to tighten their budgets. Additionally, labor tensions at West Coast ports in the U.S. and Canada, as well as the possibility of a strike at United Parcel Service Inc., have posed threats to the infrastructure that transports goods.
Future Expectations
Analyst Benjamin Nolan from Stifel anticipates that railcar volumes will continue to decline. However, he believes that rail stocks, especially for the major players, have the potential to rebound in the second half of the year.
Nolan also mentions that rail companies have been focused on improving service to grow their businesses. While service has improved during periods of lower freight, increased head counts incur additional costs.
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