(Reuters circulated the following story by Nick Carey on October 15.)
DETROIT — A slowing U.S. economy could push more customers to opt for the low-cost option of shipping their goods by train, the top executive of No. 3 U.S. railroad CSX Corp (CSX.N: Quote, Profile, Research, Stock Buzz) said on Wednesday.
“If the economy does get a little tougher, then more people will turn to the railroads as a cheaper alternative,” Chief Executive Michael Ward told Reuters in a telephone interview. “I think we’re also going to see more trucking companies partner up with the railroads, with us providing the long-haul service and them taking goods the last few miles to customers.”
He added that the U.S. housing and automotive sectors should “continue to be challenged throughout 2009,” but that CSX’s business should continue to perform strongly regardless.
“While I wouldn’t say that we’re recession proof, we are somewhat recession resistant,” Ward said. “More than 50 percent of the goods we haul are daily essentials.”
“People are still going to need to eat, they’re going to need to heat their homes and have someone haul the trash away. That’s where we come in,” he added.
CSX’s CEO said the railroad was well into the process of re-pricing its contracts for 2009 and was confident it could raise freight rates at a similar pace to the 6 percent to 7 percent annual average increases of the past few years.
“Broadly speaking, we can expect to see the same price increases as we’ve seen in previous years,” Ward said.
Ward said so far CSX has not seen the credit crunch impact its customers’ ability to ship and pay for goods, but added that the railroad was “monitoring the situation daily.”
CSX’s CEO spoke to Reuters the day after the Jacksonville, Florida-based company reported a higher third-quarter profit as strong pricing offset a 2 percent decline in freight volumes.
The company also said its full-year 2008 earnings per share would come in at the low end of its previously stated range of $3.65 to $3.75, due to the weakening of the U.S. economy.
The major U.S. railroads have all posted strong profits in recent quarters despite faltering retail and auto sales and the worst housing crisis since the Great Depression, thanks to solid pricing.
“Rail shares have been battered in the last month on concerns over the economy and longer-term pricing power,” Deutsche Bank analyst Marcelo Choi wrote in a note for clients. “While there could be some risk to 2009 EPS, CSX and other (major U.S. railroads) have proven in the past that they can get strong pricing despite softer volumes.
“If this scenario continues to play out, we think shares are attractively priced,” he added.
In a note for clients, Merrill Lynch analyst Ken Hoexter raised full-year 2008 earnings-per-share estimates for CSX to $3.63 from $3.60, “slightly below the company’s EPS target range as we remain cautious on the economy.”
In New York Stock Exchange trading, CSX shares were down $4.66, or nearly 10 percent, at $43.48.