(Bloomberg News circulated the following story by Angela Greiling Keane on September 11.)
NEW YORK — CSX Corp., the third-largest U.S. railroad, raised its 2008 earnings forecast on a “positive outlook” for the industry, sending the shares up by the most in eight years in New York trading.
The projection of $3.65 to $3.75 a share compares with a previous forecast for profit in the “upper end” of $3.40 to $3.60, the Jacksonville, Florida-based company said in a statement today. Analysts had expected $3.58, the average of 16 estimates compiled by Bloomberg.
CSX, which has been targeted by activist shareholders calling for better returns for investors, has been raising rates to counter record high diesel-fuel prices and U.S. economic weakness. The carrier has also benefited from revenue gains on coal and agricultural shipments.
“The story’s not over” on CSX’s ability to raise prices, said Tony Hatch, an independent rail analyst based in New York.
CSX rose $5.85, or 11 percent, to $60.70 at 4:04 p.m. in New York Stock Exchange composite trading, the biggest percentage gain since June 2000.
Railroads including Union Pacific Corp., Norfolk Southern Corp. and Burlington Northern Santa Fe Corp. also gained.
Capital spending at CSX for the year will increase to $1.75 billion, up from the previous forecast of $1.6 billion, CSX spokesman Garrick Francis said.
New Rail Cars
The investment outlook takes into account spending on new rail cars for domestic and export coal shipments, as well as costs incurred in recent storms. Those included “substantial” damage to tracks in Louisiana following Hurricane Gustav that the company reported last week.
CSX will spend $70 million for coal cars this year and $60 million next year to replace older cars with bigger and lighter equipment, Munoz said.
“The long-term aspect of this industry is terrific,” Chief Financial Officer Oscar Munoz said today at a Dahlman Rose & Co. transportation conference in New York. “The industry continues to grow, continues to expand.”
Still, a slowing economy may limit the potential for price increases, said Art Hatfield, an analyst at Morgan Keegan Inc.
“If we do not see volumes improve in 2009 — and that will be incumbent on the economy improving — their ability to price their product may slow a little bit in the latter part of the year,” he said today in an interview on Bloomberg Television.
That would mean a lot of analysts would have to trim estimates, said Hatfield, based in Memphis, Tennessee. He rates CSX shares “market perform.”
Proxy Battle
The railroad has been in a proxy battle with shareholders TCI Fund Management LLP and 3G Capital Partners Ltd., which have pushed CSX to change its board, boost rates and take on more debt to finance stock buybacks.
“While it was distracting and painful and expensive and corrosive in some areas, the business continued through that,” Munoz said of the fight.
The final results of its June 25 director vote show four nominees backed by TCI won seats on the 12-member board, CSX said last month. The outcome on two of the four seats is still subject to a federal court appeal, the railroad said.
“We hope that they have good ideas,” Munoz said, referring to the two new directors who have been seated. “Things are going well, and so where we can fine-tune, where good ideas can come, that’s they way we’re approaching this. They say that they don’t have an agenda, and we’re going to believe that.”