(The following story by Ruthie Ackerman appeared at Forbes.com on September 11.)
NEW YORK — Weak economy or not, rail demand is chugging along in the United States, to the benefit of CSX. The railroad raised its 2008 profit outlook on Thursday, citing strong demand for coal and other commodity shipments, and it is poised to gain as energy prices retreat from recent record levels.
On Thursday CSX boosted its 2008 earnings forecast to $3.65 to $3.75 per share, up from its previous outlook of $3.40 to $3.60. Analysts were forecasting $3.57.
CSX investors were pleased, sending shares soaring 9.9%, or $5.43, to $60.28 in afternoon trading.
The company said it is increasing its 2008 capital spending to approximately $1.8 billion and expects free cash flow before dividends of approximately $1.0 billion this year. The company said the estimates include investment in new rail cars in order to capture demand for domestic and export coal shipments, as well as increased costs associated with the recent storms.
Shipments from the U.S. Appalachian coal region to Atlantic and Gulf coast ports account for 29.0% of the company’s revenue.
The company said it expects the strong momentum to continue beyond 2008. CSX has benefited from strong shipments of metals, fertilizers, ethanol and coal for exports, and has been raising prices.
Meanwhile, weakening fuel prices may boost third-quarter results as earlier fuel surcharges remain in effect.
On Tuesday, similarly, FedEx raised its fiscal-first-quarter guidance on moderating crude prices.
Chief Financial Officer Oscar Munoz of CSX told the Dahlman Rose Transportation Conference on Thursday there’s opportunity for the company to continue raising prices.
Other railroad companies got a boost on Thursday from CSX’s strength. Norfolk Southern shares shot up 4.5%, or $2.93, to $68.40 in afternoon trading, while Union Pacific jumped 5.4%, or $3.98, to $77.79. Burlington Northern Santa Fe rose 3.4%, or $3.35, to $102.75.
CSX is engaged in an ongoing proxy battle with activist hedge fund The Children’s Investment Fund.
(Reuters contributed to this article.)