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Will CSX's Q2 Earnings Be Hurt by Weak Freight Volumes?

Maharathi Basu

CSX Corporation CSX is scheduled to report second-quarter 2019 results on Jul 16, after the market closes.

In the last reported quarter, the company’s earnings and revenues outshined the respective Zacks Consensus Estimate. Both the metrics also improved substantially on a year-over-year basis. Results were aided by low costs, merchandise volume growth and pricing gains.

Let’s examine the factors likely to influence CSX’s second-quarter 2019 results.

We expect sluggish freight shipments to hurt the company’s results in the to-be-reported quarter. In fact, according to the latest Cass Freight Shipments Index report, North American freight shipments declined for six successive months starting from Dec 2018.

Softness in volumes can be gauged from the fact that the Zacks Consensus Estimate for second-quarter 2019 overall volumes is lower than the figure reported by CSX a year ago. Weakness in key segments like intermodal, coal and automotive is expected to limit volume growth in the soon to-be-reported quarter. Evidently, intermodal volumes are expected to be roughly 10% lower on a year-over-year basis.

However, the company’s efforts to reduce costs in a bid to improve efficiencies are expected to drive the bottom line in the second quarter. The cost-cut plans should also lead to an improvement in operating ratio (operating expenses as a percentage of revenues).

CSX Corporation Price and EPS Surprise


CSX Corporation Price and EPS Surprise

CSX Corporation price-eps-surprise | CSX Corporation Quote


Earnings Whispers

Our proven model does not conclusively show that CSX is likely to beat estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. However, that is not the case here, as elaborated below.

Moreover, Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP.

Earnings ESP: CSX has an Earnings ESP of -0.27%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CSX carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP leaves surprise prediction inconclusive. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Alaska Air Group  ALK, Canadian Pacific Railway Ltd. CP and United Airlines Holdings UAL as these stocks too possess the right mix of elements to beat on earnings in the next releases.

Alaska Air Group has an Earnings ESP of +0.41% and a Zacks Rank of 3. The company will report second-quarter 2019 results on Jul 25.

Canadian Pacific is a Zacks #2 Ranked company and has an Earnings ESP of +0.42%. The company will release second-quarter 2019 results on Jul 16.

United Airlines has an Earnings ESP of +6.91% and a Zacks Rank #1. This company is scheduled to announce second-quarter 2019 numbers on Jul 16.

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