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Yesterday, the third-largest U.S. Class I reported first-rate financial results for the second quarter — strong enough to best Wall Street expectations and set a few records.

CSX Corp. reported that earnings from continuing operations jumped 51 percent to $414 million, or $1.07 per share, and revenue soared 22 percent to $2.66 billion compared with second-quarter 2009 figures. Analysts polled by Thomson Reuters had expected earnings of 98 cents per share and revenue of $2.63 billion. In addition, CSX’s traffic volume rose 13 percent to 1.6 million units, operating income increased 33 percent to a record $768 million and operating ratio improved 2.4 points to a quarterly record 71.2.

For the fourth time in six quarters, CSX beat consensus expectations by more than 10 percent, said Robert W. Baird & Co. Inc. analysts in a report issued this morning.

"Momentum in the business remained high through the second quarter, with volume growth accelerating, real pricing growth solid and continued operating execution driving sustained operating margin expansion," they wrote. "CSX’s record operating ratio ... reflects the momentum in the underlying business [and] supports our view that a mid- to upper-60s operating ratio is within reach."

Markets overall continue to improve in a recovering marketplace, said CSX Chairman, President and Chief Executive Officer Michael Ward during an earnings webcast and teleconference held this morning.

Coal revenue jumped 26 percent to $835 million as volume rose 7 percent to 401,000 units; merchandise revenue soared 24 percent to $1.46 billion as volume increased 14 percent to 659,000 units; and intermodal revenue went up 7 percent to $304 million as volume jumped 18 percent to 538,000 units.

“The real volume story is strengthening in the coal market,” said Executive Vice President of Sales and Marketing Clarence Gooden, adding that coal traffic posted a year-over-year increase for the first time since fourth-quarter 2008.

Increased export demand driven by the Asian market, higher industrial demand associated with strong steel production and moderating domestic inventory levels helped boost coal volumes, he said. In terms of merchandise traffic, a 17 percent jump in ethanol carloads and strong agricultural products volume were the primary drivers, said Gooden.

However, the volume increase had a slight impact on operating expenses, which rose 18 percent to $1.9 billion compared with second-quarter 2009 expenses. Headcount increased 1 percent year over year to 30,052 and hiring costs rose slightly, which played roles in driving up labor and fringe expenses 10 percent to $721 million. Materials, supplies and other costs rose 24 percent to $551 million and fuel costs jumped 64 percent to $304 million. The cost per gallon for fuel increased 45 percent in the quarter, said EVP and Chief Financial Officer Oscar Munoz.

Through the year’s first half, CSX’s financial results are consistent with the company’s expectation for strong performance in 2010, he said, adding that volume figures to remain on the rise and operating leverage will continue to drive efficiency.

CSX already has demonstrated that it can be successful in a wide array of economic conditions, said Ward.

“And that’s what we will continue to do,” he said.

— Jeff Stagl