Strong demand helped CSX in 2Q but railroad had to scramble to keep up with volume

OMAHA, Neb. – CSX is optimistic about its long-term performance, but the railroad’s profit during this quarter will likely be relatively flat.

The company discussed its second-quarter results Wednesday after edging out Wall Street profit expectations.

CSX saw a surge in demand, particularly for hauling coal and crude oil, at the same time that it was attempting to clear a backlog of shipments delayed by severe winter weather.

Those frigid temperatures led to a 6 per cent increase in coal shipments because utilities in the Northeast had a smaller window in which to ship coal over the Great Lakes. That’s encouraging for the railroad because it signals fewer utilities are switching power plants from coal to natural gas, which can be shipped through pipelines.

“These results are evidence of both broad-based economic momentum across most markets, and a transition in the energy markets that is largely behind us,” said CEO and Chairman Michael Ward.

CSX expects volume to continue growing, and it’s investing an additional $100 million in equipment to handle the load. The company expects only modest profit growth this year with most of that coming in the fourth quarter.

The railroad expects that its third-quarter profit will be in line with the 45 cents per share it delivered last year. That, however, is 3 cents shy of what analysts surveyed by FactSet were looking for, and shares slipped 6 cents to $31.09 in midday trading Wednesday.

CSX said Tuesday its second-quarter profit improved 2 per cent to $529 million, or 53 cents per share, from $521 million, or 51 cents per share, last year.

The railroad is now hauling about 20 trainloads a week of crude oil to refineries on the East Coast. Those shipments of oil from the Bakken region of North Dakota and Montana have been a bright spot for railroads, but new safety regulations currently being pieced together could prove costly.

Federal regulators are expected to propose new rules for tank cars sometime later this year, and the Transportation Department has been developing other rules to address safety concerns after several fiery rail accidents involving crude oil.

Ward said he is excited about the prospect of new regulations calling for the railroad tank cars hauling crude oil to be redesigned and strengthened, but he’s worried about the possibility of a 30 mph speed limit being imposed on trains carrying crude oil.

“That would be severely limit our ability be to provide reliable freight service for customers and to support the timely, efficient passenger or commuter service,” Ward said.

Railroads already have voluntarily lowered speeds from 50 mph to 40 mph in urban areas.

CSX Corp., based in Jacksonville, Florida, operates more than 21,000 miles of track in 23 Eastern states and two Canadian provinces. It is the first major railroad to release results.

Norfolk Southern will report earnings next Wednesday, and Union Pacific will release its quarterly earnings report next Thursday.


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