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CSX Corp. Message Board

  • theolprofit theolprofit Oct 15, 2013 7:57 AM Flag

    ...CSX investors are getting the short end of this stick.

    Three challenges are derailing the company's momentum
    One of the issues that is holding back CSX is also hurting Norfolk Southern. Both companies reported declines in coal revenue. Luckily for CSX investors, the company's 6% year-over-year decline was nothing relative to the 17% annual decline at Norfolk Southern.

    If Union Pacific was hurting from a coal revenue decline as well, we could write this off as an industry problem. However, Union Pacific reported a 12% increase in coal revenue, which calls into question the idea that this is an industry problem and suggests that maybe this is more of an east coast issue.

    The second challenge facing CSX investors is that the company is retiring shares at a slower pace than its competition. From June 2012 to June 2013, CSX was the only railroad of the big three to retire less than 2% of its diluted shares. With Union Pacific and Norfolk Southern retiring relatively more shares, CSX investors are getting the short end of this stick.

    The third issue that CSX needs to find a way to solve is that the company is using more of its core free cash flow (net income + depreciation – capital expenditures) on dividend payments. Using core free cash flow gives investors a clearer picture of a company's cash situation as it strips away non-cash items. Using this metric, CSX used just over 65% of its core free cash flow on dividend payments in the first six months of this year.

    While Norfolk Southern used just under 65%, Union Pacific's free cash flow payout ratio came in below 54%. Between CSX retiring fewer shares and using more free cash flow on dividends, the company's investors are being shorted from both sides.

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36.56-0.07(-0.19%)Dec 24 1:03 PMEST

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