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Higher freight rates lift CSX third quarter profit

Key Points
  • CSX posted a slight increase in quarterly net profit on Tuesday.
  • The third-largest U.S. railroad operator's result was driven by increase rates it charges its customers to haul freight.
CSX freight lines run through center city Philadelphia
Paul Marotta | Getty Images

CSX, the third-largest U.S. railroad operator, reported a slight rise in quarterly net profit on par with analyst expectations on Tuesday, as coal and consumer goods shipments and higher freight rates lifted its revenue 1 percent.

The results sent CSX shares up 1 percent at $53.76 in morning trading, though analysts saw possible future headwinds as the railroad works to overcome service disruptions that have plagued its network since the summer.

Complaints of longer transit times, unreliable switching operations, inefficient car routings and poor communications mounted as new chief executive Hunter Harrison implemented a controversial overhaul to revamp the railroad's network.

CSX's service was also hit by derailments and by flooding, power outages and debris from Hurricane Irma, which slammed the U.S. Southeast last month.

"Considering the effects of both Hurricane Irma and CSX's well-publicized service disruptions, this is a solid report by CSX," said Edward Jones analyst Dan Sherman. "CSX continued to control costs, with labor cost falling 6 percent over the same period last year."

The Jacksonville, Florida-based company's freight volumes were up 1 percent in the quarter, driven by 5 percent gains in both coal and consumer goods shipments which offset declines in almost every other commodity the railroad hauls, such as vehicles and fertilizer.

Even so, the company warned of headwinds in several markets, citing declining auto production and short-haul domestic coal.

CSX's revenue grew 1 percent to $2.74 billion, from $2.71 billion, but was short of analyst expectations of $2.77 billion.

CSX reported an operating ratio - operating costs as a percentage of revenue - of 68.1 percent, down from 69 percent. A lower operating ratio shows improvement in profitability and is a key metric for Wall Street.

The company said it expects a full-year operating ratio around the high end of the mid-60s, and earnings per share profit growth of 20-25 percent, in line with guidance it gave analysts in September.

CSX posted third-quarter net income of $459 million, or 51 cents per share, up from $455 million, or 48 cents per share a year earlier.

CSX's Harrison, a 72-year-old railroading executive famous for turning around Canadian railroads, told analysts he may offer details for his succession plans at an investor conference at the end of the month, a major concern for shareholders.

"It's something that the board is very sensitive to," he told analysts on a conference call.