CSX Corp. (CSX) failed to deliver a second-quarter earnings report that met expectations and shareholders are feeling the pain on Wednesday.
Shares of the Jacksonville, Florida-based railroad company tumbled around 7% in pre-market hours, cutting sharply into what had been a year-to-date gain of 28%.
The generally reliable railroad operator said earnings for the second quarter came in at $1.08 per share, up 7% from the like period last year but three cents shy of the Street consensus forecast, while revenues totaled $3.08 billion, missing analysts' forecasts thanks in part to trade-related weakness in its intermodal business.
"Both global and U.S. economic conditions had been unusual this year, to say the least, and have impacted our volumes," CSX CEO Jim Foote told investors on a conference call late Tuesday. "You see it every week in our reported carloads. The present economic backdrop is one of the most puzzling I have experienced in my career."
The puzzling picture has led to Foote's very first miss on analyst EPS forecasts and the first for the company in five years.
$CSX tonight. It hasn't missed in 5 years. Impressive run. Shares near 5-year highs. Also impressive. It's a railroad, folks. $UNP $KSU pic.twitter.com/GEUMy6gXYq
— Tracey Ryniec (@TraceyRyniec) July 16, 2019
As for all of 2019, CSX said it now sees full-year revenues falling by 1% to 2%, versus its earlier forecasts of a similar growth rate, as freight volumes decline amid persistent political pressure.
"We are seeing a range of conflicting data points and economic indicators and regularly speak with customers who despite the recent downtime -- slowdown, remain cautiously optimistic about the second half," Foote said. "We feel it is most prudent to actively manage expenses today rather than take a wait-and-see approach."
The uncertain footing for the rail industry dragged down the shares of CSX peers Union Pacific (UNP) , Kansas City Southern (KSU) , Canadian Pacific Railway (CP) and Norfolk Southern (NSC) on Wednesday morning. Even the behemoth that is Berkshire Hathaway (BRK.A) (BRK.B) slipped slightly in early morning trading as its Burlington Northern Santa Fe railway could be impacted by the same problems affecting CSX.
Kansas City Southern is expected to report earnings on Friday.
Still, some analysts believe the long-term trend of railroads and their traditional reliability and the continued pursuit of precision railroading that has lowered operating ratios make CSX a safe stock to hold and might have created a buying opportunity for CSX itself and other rail stocks as CSX's results ripple through its peer group.
"We think investors will continue to view the rails as one of the few places within industrials with an idiosyncratic narrative that is independent of the macro," Credit Suisse analyst Alison Landry said. "We would agree, and as such, we're not yet willing to throw in the towel as it relates to our positive recommendation on CSX, or the sector as a whole."
While Landry cut her price target to $86 from $92 for CSX, she retained her "Outperform" rating on the stock for the long term. Her new price target would still represent an all-time high for the stock.
"CSX's now-lower cost structure and lower asset/resource intensity should provide a degree of relative protection," she said. "The bottom line, in our view, is that CSX has a management team that has the ability to navigate a slight downturn in the top line."
