Coal-business crunch continued to pinch CSX's financial results in 4Q

Weak coal business was the main culprit among several factors that negatively impacted CSX Corp.'s financial results last year, a trend that continued through the fourth quarter.

Coal traffic declined 5 percent to 289,000 units and revenue fell 9 percent to $679 million in the fourth quarter on a year-over-year basis. As a result, operating income was flat at $813 million, net earnings decreased 5 percent to $426 million, earnings per share declined 5 percent to 42 cents and the operating ratio increased 1.4 points to 73.2 compared with fourth-quarter 2012 figures.

However, broad-based strength in the railroad's merchandise and intermodal groups helped offset some of coal's impacts on 4Q financial results, said CSX Chairman, President and Chief Executive Officer Michael Ward during an earnings conference held this morning. Overall, revenue rose 5 percent to $3 billion and volume increased 6 percent to 1.66 million units primarily because of those sectors, which now account for 83 percent of total volume.

Merchandise revenue climbed 10 percent to $1.8 billion and volume rose 7 percent to 707,000 units on a year-over-year basis. Industrial products revenue increased 10 percent — driven by strong energy-related markets such as crude oil and frac sand — agricultural products revenue rose 5 percent and construction-related materials revenue increased 4 percent, said Executive Vice President of Sales and Marketing Clarence Gooden.

Intermodal revenue climbed 10 percent to $437 million and volume jumped 11 percent to a record 666,000 units primarily because of continuing highway-to-rail conversions and international growth driven by Hurricane Sandy's "cycling impact," he said.

In terms of 4Q operating costs, total expenses increased 7 percent to $2.2 billion as labor and fringe benefit costs rose 7 percent to $803 million — driven up by higher incentive compensation — and materials, supplies and other costs climbed 17 percent to $632 million. Fuel costs declined 3 percent to $408 million mostly because the average price of diesel fell from $3.33 per gallon in fourth-quarter 2012 to $3.10 per gallon in fourth-quarter 2013.

Summarizing the 4Q results, Ward said: "Revenue growth did not drop to the bottom line as we would have liked." In addition to coal doldrums, real estate gains and high incentive compensation played roles in that somewhat discouraging outcome.

CSX's financial outcomes for the full year include a 2 percent revenue gain to a record $12 billion, flat operating income at $3.4 billion, flat net earnings at $1.9 billion, a 2 percent climb in earnings per share to $1.83, a 3 percent rise in operating expenses to $8.5 billion and a 0.5-point increase in the operating ratio to 71.1 compared with 2012 results. Coal revenue dropped by $295 million in 2013 versus more than $500 million in 2012, reflecting an easing in coal business declines, said EVP and Chief Financial Officer Fredrik Eliasson.

During the conference, Eliasson also shared CSX's capital spending plan for 2014. The Class I has budgeted $2.3 billion for capex, which is flat versus the 2013 budget, he said. About half of the 2014 budget is allocated to maintain core infrastructure and 16 percent of it is committed to equipment such as locomotive and rail-car purchases. CSX also plans to spend $300 million on positive train control implementation this year, leaving about $500 million of the total $1.7 billion project left to be spent beyond 2014, said Eliasson.