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CSX Expects Declining Coal Shipments to Weigh on Revenue

CSX Corp. warned that declining coal shipments will continue to weigh on its results into next year as more power plants convert to use natural gas, a trend that depressed the railroad’s second-quarter revenue.

CSX executives said coal volumes declined 11% in the three months ended June 30 and forecast a steeper 15% decline of domestic coal shipments in the third quarter that could be repeated in the fourth quarter. Revenue fell 5.6% to $3.1 billion in the period.

“There’s probably more downside to the coal volume next year than there’s upside,” CSX Chief Financial Officer Fredrik Eliasson said on a conference call.

Coal use has been on the decline as more utilities turn to cheap natural gas for power generation. In April, natural gas-fired electricity generation exceeded that from coal for the first time ever, according to the U.S. Energy Information Administration.

The shift has weighed heavily on the rail industry, which earns on average about 15% of total revenue from transporting coal, according to analysts. Taken with cutbacks to crude-oil production in the face of lower oil prices globally, analysts have questioned whether boom times for railroads might be over.

Mr. Eliasson warned that the current energy environment would make it hard for the company to achieve the high end of its 2015 profit forecast. The company left its full-year earnings outlook unchanged, targeting mid to high single-digit earnings-per-share growth, having lowered its forecast in April.

Cost-cutting helped fuel a 4.5% rise in profit to $553 million for the quarter. The company has furloughed about 600 employees so far this year and plans to reduce its total average head count by about 1% further in the third quarter.

Shares of the company rose 1.5% to $32.55 in midday trading Wednesday.

The railroad cited a positive outlook for its intermodal business, which moves containers and trailers and has been growing due to a truck driver shortage and highway congestion. That type of cargo should see a jump in the third quarter as retailers import products to stock up for the holiday season, Mr. Eliasson said.

In addition, CSX executives forecast strong demand for lumber for rising housing construction and higher volumes of automotive shipments in the third quarter amid increases in North American light-vehicle production.

source: http://www.wsj.com