CSX (CSX, Financial) released not-so-impressive results recently. The transportation company saw weakness in the business mainly due to an adversely cold weather. The decline in the demand of coal to generate electricity resulted in weak quarterly results as well. Many analysts were expecting CSX to post good results, but it failed as a result of natural disruptions. CSX has many strategies and prospects in the guidance. Let us take a look on its business prospects.
Earnings analysis
CSX entered fiscal 2014 with a soft start. The bad weather affected the company as a result CSX posted earning of $0.40 per share which is less than $0.45 per share of previous year. Though CSX saw a 2% increase in its revenue which was led by the improving demands for coal towards the end of the quarter. But CSX was taken aback by a 14% decline in the profit. The results were grave. In response to this and indications from the coal market to boom in the later half, CSX is well positioned for a comeback.
Outlook
CSX suffered due to a bad weather across the continent, which led it to see a decline in its profits. The operational efficiencies curbed demand for coal. Despite challenges, CSX’s workforce, working tirelessly, came out with a decent performance as its strength in the tough times. Due to a dedicated staff, CSX managed to clock 2% revenue growth.
The company is expecting the underlying economy to gain strength from which it is expecting gains in its intermodal and merchandise market, which will offset the losses incurred in the coal business. Moving forward, CSX is aiming at gradual recovery by focusing more on capitalizing the market opportunities which will force its intermodal and merchandise market to outperform in future.
Looking closely at coal market studies and estimates, it is expected that after the tough weather, the coal market will gradually gain momentum. With this estimate, the company remains confident in its ability to sustain double-digit earnings growth and margin expansion for its shareholders in 2015 and beyond.
In response to this, CSX’s board of directors has announced a 7% increase in quarterly dividend. This will certainly help CSX to attract many investors to the company. This will lead to the 11 increases over past eight years representing a 20% annual growth rate during that time resulting in the growth in the company’s earnings.
Moving on, CSX is strengthening its workforce as it is training new crew members to meet the rising demands. While in Chicago due to bad weather the transportation was heavily affected by snow fall and it disconnected the main path to Chicago delivery but as the summer approaches CSX is expecting the backlogs to lessen as the transportation facility to Chicago will resume. The company is waiting for adverse weather to pass on and with the growing coal market it has promising plans for delivery. Keeping every situation in mind CSX is sticking to a conservative profit forecast.
Conclusion
As of now, CSX looks reasonable, trading at 15.19x earnings. The company, on the other hand, is promising recovery of its operations in future. Also, with the growing coal market, CSX is seeing good opportunities to gain market share in the future. Also, CSX, at present, is offering a decent dividend of 2.10%. So, from an investment point of view, CSX looks like a profitable investment.
