Dow Theory claims that Railroad companies can serve as leading indicators of the economy and consequently the stock market. That is why the earnings release of CSX Corp (CSX), the third largest U.S. railroad company, has drawn a lot of attention on October 13, 2009
Lower Fuel Costs and Expenses Slowed Declines
CSX reported a 23% drop in earnings year over year. However, the after-market trading welcomed the stronger-than-expected quarterly profit and the statement of the CEO on "the worst of the recession is likely behind us"
The net income from continuing operations was $293 million, or 74 cents a share compared with $380 million, or 93 cents a share, a year earlier. Analysts had expected the company to report a profit of 71 cents a share, according to Thomson Reuters I/B/E/S. Revenue in the quarter fell 23 percent to $2.3billion, in line with analysts' expectations, while operating expenses fell by 24 percent, or $537 million, helped by dramatically lower fuel costs. The company said it spent on average about $1.88 a gallon on fuel in the quarter, down from $3.57 a gallon last year.
The largest decline in volume came in metals shipments, largely due to weak demand from the automotive and construction industries. But the decline in demand slowed during the quarter due to low inventories and "an improvement in automotive production" thanks to the "cash for clunkers" program, a part of the Obama administration's economic stimulus plan.
Many may find in the earnings release signs of economic recovery but some analysts were skeptical that factors such as "cash-for-clunker" and restocking inventory that contributed to the "better-than-expected" results would cease to be in effect in coming quarters.
I am also concerned with the rising trend of oil prices in the second half of 2009. We may have to wait for a few more releases of pro-cyclical companies to draw inferences on sustainability and strength of this recovery.
Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.
Disclosure: The blog author does not own CSX in her personal account as of October 13,2009