But the Jacksonville, Fla.-based railroad is still predicting its earnings will grow 10 to 15 per cent in 2014 and 2015, as the economy continues improving and shipments of crude oil and the sand used in shale oil mining keep growing.
CSX executives discussed their outlook Wednesday, one day after the company reported profit of $535 million, or 52 cents per share, on $3.07 billion in revenue for the second quarter. That's up from $512 million, or 49 cents per share, on $3.01 billion in revenue in last year's April-June period.
The results were helped by several one-time items, such as $16 million in payments from utilities that didn't ship as much coal as agreed. Excluding such items, CSX beat Wall Street's estimate by a penny.
CSX stock gained 44 cents, or 1.8 per cent, Wednesday to sell for $25.08 in afternoon trading.
The company's earnings have grown in five of the past six years, said CEO Michael Ward, even as CSX "has lost over half of its domestic coal business over this period and its merchandise business is still down from pre-recession levels."
Railroads have been dealing with a sharp decline in coal demand over the last couple years because relatively cheap natural gas prices and environmental concerns prompted a number of utilities to switch power plants from coal to gas.
But it appears that coal demand is beginning to stabilize. CSX said domestic coal shipments increased 5 per cent in the quarter as natural gas prices rose. But coal exports fell 23 per cent, particularly to Europe.
Citi Research analyst Christian Wetherbee said he thinks CSX's outlook is somewhat conservative given the railroad's ability to control expenses and the revenue growth outside of coal.
CSX officials say the railroad was helped by some one-time items in the first half of the year, which is why they're predicting relatively flat earnings per share compared with last year's $1.79.
S&P Capital IQ analyst Kevin Kirkeby said he still recommends buying CSX stock because of the long-term positive trends for the railroad. Kirkeby said the railroad's comments about the prospects for its construction, agriculture and coal businesses were encouraging.
Investors watch what major freight railroads are carrying closely because railroads are indicators of the nation's economic health.
Ward said the railroad industry will learn from the oil train derailment in Canada that is presumed to have killed 50 people, but he's not sure if the accident will inspire new regulations.
He offered his condolences to everyone affected by the July 6 crash of an oil-laden train into the Quebec town of Lac-Megantic.
"It was a terrible accident," Ward said. "First responders did a great job responding to that horrible accident."
But Ward added that until investigators determine what caused the crash, it won't be clear whether new regulations are needed.
CSX said train accidents cost it $16 million during the quarter, and two railroad employees lost their lives last week in accidents. In May, a CSX freight train derailed and a couple of its cars exploded near Baltimore after striking a trash truck. Officials have estimated that high-profile accident caused at least $625,000 damage to the train and tracks, as well as to buildings nearby.
CSX operates over 21,000 miles of track in 23 eastern states and two Canadian provinces.
It was the first major U.S. freight railroad to release second-quarter earnings. Union Pacific Corp. will release its first-quarter results on Thursday, and Norfolk Southern Corp. will follow next Tuesday.
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