CSX 4Q, full-year ’17 earnings reflect “impressive margins”

CSX on Jan. 16 announced fourth-quarter 2017 net earnings of $4.1 billion, or $4.62 per share, vs. $458 million, or $0.49 per share in the same period last year.

Fourth-quarter 2017 net earnings included a $3.6 billion net tax reform benefit resulting from the Tax Cuts and Jobs Act of 2017 and a $10 million net restructuring charge. Excluding these two items, fourth quarter 2017 adjusted net earnings were $573 million, or $0.64 per share.

Revenue for the fourth quarter decreased $174 million, or 6.0%, when compared to the previous year, primarily due to the $178 million impact of an extra fiscal week in 2016 that resulted from the company’s 52/53 fiscal reporting calendar in 2016.

Expenses for the fourth quarter were down $291 million, or 14%, when compared to the fourth quarter in the previous year, which included $116 million in additional costs related to the extra week in 2016. Operating income in the fourth quarter of 2017 was $1.12 billion.

CSX had full-year 2017 earnings per share of $5.99, operating income of $3.7 billion and an operating ratio of 67.9%. Adjusted for the impacts of the Tax Cuts and Jobs Act of 2017 and the company’s restructuring charge, adjusted earnings per share were $2.30, adjusted operating income was $3.9 billion and adjusted operating ratio was 66.3% for full-year 2017.

“CSX’s performance continued to strengthen in the fourth quarter, building upon the scheduled railroading model that was instituted by Hunter Harrison,” said James M. Foote, President and CEO. “I’m excited about the progress we are making and am confident we have the right team in place to achieve our goal of becoming the best railroad in North America. CSX’s team of dedicated railroaders remains focused on creating value for our customers and our shareholders through operational excellence and the continued execution of our new operating plan. We look forward to improving the quality of service for our customers and growing our business.”

“CSX achieved impressive margins and EPS,” noted Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “It continues to push forward towards precision railroading with conviction. We remain on the sidelines for now on valuation, light 1H18 revenue, and as we monitor the ongoing service recovery. Decreased pricing transparency may be a concern to investors who will have to wait until the March 1 analyst day for guidance and details on CSX’s multi-year strategy.

“If service continues to recover, pricing should begin to follow, but the full benefit may not materialize until late 2018 and into 2019. Volume growth, however, may not occur until 2H18 as freight lost to eastern rival Norfolk Southern appears to have been taken under 1 year contracts. We believe this will have a favorable impact on NS in 2018.

“We expect management to provide a multiyear strategy and long-term earnings commentary at its upcoming investor day on March 1. The focus will likely be on longer term OR targets and the traction the new management team is having in continuing the precision railroading plan.

“We are revising our 2018 EPS estimate to $3.05, from $2.60 as a lower effective tax rate more than offsets our reduced revenue outlook. Our new 2019 EPS estimate is $3.55, up from $2.85 prior. Our price target rises from $54 to $61 based on a 20x multiple of our 2018 EPS estimate.”