(The following appeared at CNN.com on April 16.)
JACKSONVILLE, Fla. — Railroad operator CSX Corp. (CSX) proved it is as good as its word Tuesday, chugging past first-quarter views despite a challenging environment.
The nation’s No. 3 railroad earned 80 cents a share excluding items, up 60% from a year earlier and 6 cents above estimates. Revenue gained 12% to $2.7 billion, also above views. CSX also reaffirmed its full-year guidance, saying it’s targeting the upper end.
Officials have scheduled a Wednesday conference call.
CSX recently signaled it would top first-quarter views, leading some analysts to raise estimates.
CSX shares rose 1% to 57.77 ahead of results, then climbed 2% in after-hours trading. Shares are up 31% so far this year, hitting a record high of 58.91 on April 3.
Other rail stocks went along for the ride Tuesday, with Kansas City Southern (KSU), Burlington Northern Sante Fe (BNI) and Norfolk Southern (NSC) all higher. But shares fell at Union Pacific (UNP), the No. 1 U.S. railroad.
Watchers say favorable pricing and operational efficiencies have helped CSX grow the bottom line.
“These guys have the ability to drive out costs, which in turn gives them the ability to drive earnings in any kind of market environment. They’re also a leader in pricing,” said Anthony Hatch, an independent railroad analyst for ABH Consulting in New York.
CSX has topped earnings views four quarters in a row, with double-digit growth in all but one quarter dating back at least three-and-a-half years.
“We see better-than-anticipated cost efficiency and pricing as the main drivers of the higher operational targets,” Citigroup analyst John Kartsonas wrote in a recent note.
Those factors also should be evident as other rail stocks report first-quarter earnings over the next couple of weeks. Among U.S. rails, growth estimates range from 62% at Kansas City Southern to 8% at Norfolk Southern.
Further north, Canadian National Railway (CNI) and Canadian Pacific Railway (CP), should grow profit 15% and 9%, respectively.
JPMorgan analyst Thom Wadewitz earlier this week cut his Q1 profit estimates for both Canadian firms, citing severe winter weather and escalating cost pressures.
Citigroup’s Kartsonas noted that much of the sector’s bottom-line growth comes despite sluggishness in imports and volumes.
“Strong pricing, productivity improvements and share buybacks continue to provide the great majority of the EPS improvement in a sector where the core business of transporting goods continues to contract,” Kartsonas wrote.
He and other analysts project lower Q1 volumes for most of the big railroads, even as they grab market share from truckers.
Volume is getting hit on a number of fronts: the weak economy, the housing crisis, slumping auto sales, and a drop in imports due to slower U.S. consumer spending and unfavorable exchange rates for foreign shippers.
Yet rail stocks have done remarkably well this year, defying the weak economy and broader markets. The 11 stocks in IBD’s railroad group set a record on April 7. It’s up 26% since Jan. 17.
Part of the run-up is due to higher fuel surcharges. Strength in high-margin end markets also helps.
“A big chunk of business is acyclical — coal and grain, which are increasingly profitable for railroads,” Hatch said. “In addition there’s been a miniboom in export grain, which is low in total volume but high in margin.”