CSX Corporation’s (CSX - Analyst Report) third-quarter 2014 earnings of 51 cents per share surpassed the Zacks Consensus Estimate of 47 cents, also exceeding the year-ago figure of 45 cents. The stellar earnings were supported by volume rise driven by growth across most segments.

Csx Corporation - Earnings Surprise | FindTheBest

Revenues of $3,221 million also came in above the Zacks Consensus Estimate of $3,160 million and increased 8% year over year buoyed by 7% growth in volume.

Second-quarter operating income rose 16% year over year to $976 million, resulting in an operating ratio (defined as operating expenses as a percentage of revenues) of 69.7%, up 220 basis points (bps). Operating expense decreased 5% year over year to $2,245 million.

Performance across Business Lines

Merchandise revenues grew 12% year over year to $1,927 million in the reported quarter driven by 9% and 3% expansion in volume and revenue per unit (RPU), respectively. Volume growth was supported by Chemicals (up 20%) and Agricultural Products (up 13%).

Coal revenues remained flat year over year at $721 million on 6% decline in RPU. Coal volumes increased 7% year over year in the reported quarter. Volume growth was supported by higher domestic coal demand offset by decrease in export coal demand due to weak global market conditions.

Intermodal revenues rose 5% year over year to $613 million driven by highway-to-rail conversions in the domestic market, increase in service lanes and customer addition. International intermodal business also performed well on continuous strength in existing customers and increased global container shipment transportation to inland routes. On a year-over-year basis, volumes increased 6% while ARPU declined 1%.

Other revenues grossed $340 million, up 13% year over year.

Liquidity Position

The company exited the third quarter with cash and cash equivalents of $479 million compared with $592 million at the end of 2013. Long-term debt decreased to $9,387 million from $9,022 million at the end of 2013.

Dividend

At the end of the quarter under review, total dividend paid amounted to $470 million as against $448 million in the same period a year ago.

Our Take

We believe CSX is cushioned by a number of profit generating factors that include favorable rail industry pricing, recovery of the construction sector, ongoing truck-to-rail conversion, and the expansion of network and terminal capacity. Additionally, the company’s focus on operational improvement will likely drive profitability.

However, a subdued coal business that is resulting in declining coal revenues as well as regulatory and competitive issues could hurt the company’s performance in the near term.

CSX currently carries a Zacks Rank #2 (Buy).

Other Stocks

Other transportation stocks that warrant a look with a similar Zacks Rank are Kansas City Southern (KSU - Analyst Report), Norfolk Southern Corporation (NSC -Analyst Report) and Union Pacific Corporation (UNP - Analyst Report).

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