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A strong coal headwind, moderately growing economy and unfavorable intermodal-high, coal-low traffic mix were too much for CSX Corp. to overcome in the third quarter. As a result, revenue dipped 2 percent to $2.9 billion, operating income fell 3 percent to $854 million, volume declined 1 percent to 1.6 million units and net earnings dropped 2 percent to $455 million compared with third-quarter 2011 results.

On the positive side, earnings per share inched up 2 percent to 44 cents, operating expenses decreased 2 percent to $2 billion and the operating ratio remained flat at 70.5 (versus 70.4 in the year-ago period) primarily because safety, service and productivity maintained record levels and resources were properly adjusted, CSX senior executives said during an earnings conference held this morning.

Efficiency gains will help CSX register more than $180 million in productivity savings by year's end, showing the senior team is committed to achieving shareholder value in any economic environment, said Chairman, President and Chief Executive Officer Michael Ward.

"CSX continues to respond well to moderating economic conditions and challenges in our domestic coal business," he said.

In terms of the railroad's three major business sectors, coal revenue fell 17 percent to $791 million and volume declined 16 percent to 323,000 units; merchandise revenue increased 3 percent to $1.6 billion and volume was flat at 655,000 units; and intermodal revenue climbed 10 percent to $399 million and volume rose 8 percent to 622,000 units.

Export coal volume increased 20 percent but domestic coal volume fell 26 percent primarily because natural gas prices remained low, said Executive Vice President of Sales and Marketing Clarence Gooden. But softening international demand for metallurgical coal means export coal volume likely will decline in the fourth quarter, he said.

In the intermodal sector, domestic volume rose 6 percent to a record level due to successful highway conversions and Maersk traffic helped propel international volume growth, said Gooden.

Breaking down the drop in operating expenses, EVP and Chief Financial Officer Fredrik Eliasson said labor and fringe benefit costs dipped 1 percent to $754 million, materials and supplies costs dropped 7 percent to $525 million and fuel costs decreased 4 percent to $397 million. Headcount rose 2 percent from third-quarter 2011's level to 32,204 but declined 1 percent from the second quarter's count, and the average price of diesel was relatively flat at $3.16 per gallon versus $3.13 in the year-ago period and $3.14 in 2Q, said Eliasson.

Looking ahead to CSX's volume prospects for the fourth quarter, an analysis of all 11 markets shows the outlook is neutral, said Gooden. Although the outlook for three-quarters of the markets are either favorable or neutral, overall volume likely will be flat, he said. A prolonged drought will negatively impact the fall corn harvest, low natural gas prices will keep dampening demand for utility coal, and volume will decline for construction aggregates and waste materials, said Gooden.

— Jeff Stagl