NEW YORK — A wire service reports that shares of railroad operators CSX Corp. (NYSE:CSX – News) and Canadian National Railway Co. fell Thursday after the two companies gave disappointing financial forecasts, blaming fewer shipments of commodities.
CSX said lower coal shipments due to weak demand from utilities would hurt third-quarter results. In Canadian National’s case, the firm expects full-year earnings growth to meet the low end of its prior 5% to 10% range, explaining that a severe drought in western Canada cut grain shipments.
Regarding CSX, Deutsche Bank Securities Inc. equity analyst John Barnes believes that the lower coal shipments were driven primarily by weather, not a broader economic trend.
Therefore, “our investment thesis on the railroad industry, and CSX in particular, remains unchanged, as we believe these companies are beginning to see the early signs of an economic recovery,” he wrote Thursday, keeping his CSX rating at “strong buy.”
Investors, however, didn’t seem to agree, making railroad stocks among the leading losers in trading Thursday. And CSX, in fact, suffered the most, falling 16% to $29.01 in early-afternoon trading on the New York Stock Exchange.
Credit Suisse First Boston Corp. analyst Gary Yablon, for one, said, “We are extremely surprised by CSX’s earnings preannouncement.”
The seeming direness of the situation was only compounded by a number of stock ratings downgrades slapped on CSX and Canadian National shares.
Even Mr. Barnes, despite his cheerleading for the entire railroad industry, cut his rating on Canadian National to “market perform” from “buy,” saying the bleak outlook for Canadian grain production makes the stock fairly valued at its current price. The analyst also cut Kansas City Southern to “market perform” from “buy” because he believes the company is suffering through service disruptions due to a changeover to a new management control system.
In early-afternoon trading on the Big Board, shares of Canadian National fell 8% to $38.43, while shares of Kansas City Southern shed 5% to $13.93. In other railroad stocks, Norfolk Southern Corp. (NYSE:NSC – News) and Union Pacific Corp. (NYSE:UNP – News) fell 3% and 5%, respectively, on the NYSE.