4Q 2009 Rail Earnings Reports

January 2010


CSX: (reported January 19, 2010)

Price: $50.51

Price direction after earnings report: DOWN significantly

á      Reported earnings per share of $.77, but this included a one-time state tax benefit ˆ actual continuing earnings per share were closer to $.73

á      This was worse than consensus estimate for earnings of $.76 per share

á      Revenues were down 13% over last year

o     In the last quarter, revenues were down 23%, so this shows a consecutive improvement

á      Volumes declined by 7% as drops in coal volume more than made up for increases in intermodal and automotive

á      Operating expenses were down 12% in the quarter

á      For the full year, CSX posted a record operating ratio of 74.7%

á      ŇSame-store pricingÓ grew by 5.3%, which was a slower rate than in previous quarters

o     Mostly because of the drop in coal volumes, which are higher-margin

o     Pricing expectations for 2010 are still a solid 4-5%, which is higher than many analysts were predicting

á      Management made some very negative comments about the legislation currently being put forth by the Senate, claiming it is highly unbalanced

o     Analysts take these comments with a grain of salt given that negotiations are ongoing and so the rails have no incentive to say anything positive about the bill at this time

á      Weak coal volumes could continue to be a trend and a drag on operating leverage for many of the rails until mid-2010 at least

o     ManagementŐs negative tone on coal volumes were a major reason behind the stockŐs 6%+ drop on the news

á      Analyst Opinion:

o     Ed Wolfe of Wolfe Research: Rating is Peer Perform (hold) with price target in high-50Ős

o     Tom Wadewitz of JP Morgan: Rating is Overweight (buy) with price target $61

o     Matthew Troy of Citigroup: Rating is Hold with target price $51

o     Gary Chase of Barclays: Rating is Equal Weight (hold) with price target $52