(The following story by Timothy J. Gibbons appeared on The Florida Times-Union website on April 19.)
JACKSONVILLE, Fla. — Shares in Jacksonville railroad company CSX Corp. shot up sharply Wednesday following the company’s quarterly earnings report, in which it indicated it felt its earning power would remain strong for the rest of the year.
In early trading, shares reached a record $46.23 before closing at $44.56, up $1.23, or 2.84 percent.
At the same time, the company got a skosh of bad news, with federal regulators announcing they had found 79 track problems, including one serious violation, during a recent audit of CSX tracks in upstate New York.
Buyers may have been reacting in part to a note in the quarterly report CSX filed Tuesday that mentioned a British hedge fund had indicated it was buying more than half a billion dollars of the company stock.
The Children’s Investment Fund Management already holds a significant position in the company, CSX said, and the purchase alone would make TCI the seventh-largest CSX shareholder, according to Bloomberg.
The purchase is a sign of strength of railroads, said Michael Ward, chief executive officer of CSX. “It’s another sign of interest in our industry,” said Ward, particularly coming on the heels of investment superstar Warren Buffett announcing his investment in three North American railroads.
It also helped that the railroad company beat analysts’ revenue projections, although its 52 cents earnings per share, based on record revenues of $2.4 billion, were a penny lower than anticipated. Such revenue growth, Ward said, should continue through 2007 and 2008.
Although the company’s bottom line was affected by softness in the automotive and construction markets, it was able to make it up in chemicals and other products. “The industry is becoming less cyclical,” Ward said, saying earnings should be strong even without a rebound in the housing market, although growth in that sector would boost the company even higher.
Analysts did drop their projections for the year on Wednesday, with Merrill Lynch lowering expectations for 2007 and 2008 full-year earnings-per-share estimates to $2.55 and $3.05, while Bear Sterns lowered estimates for those years to $2.45 and $2.90.
“Pricing has remained firm which we believe is a strong positive for all the rails,” Bear Sterns analyst Edward Wolfe wrote, but the company is looking for the better margin provided by other railroad companies. Merrill Lynch analyst Ken Hoexter reiterated a buy rating for the railroad, saying “pricing strength, which has been the key to the rails’ ongoing renaissance, appears more robust than expected.”
On a separate matter, the Federal Railroad Administration said it would continue to inspect CSX tracks – as well as other companies’ rail lines in New York – after announcing the discovery of the 79 defects. “CSX can’t talk its way into a safer railroad,” FRA Administrator Joe Boardman said in a statement. “This company has to be ready to take the steps needed to improve operations and better protect nearby communities.”