CSX sees further gains from economic recovery
KANSAS CITY (Reuters) - Railroad company CSX Corp (CSX.N) expects to build on its better-than-expected second-quarter profit with good gains in the current quarter, as the economic recovery gains momentum, company officials said on Tuesday.
"Each quarter we see a little more strength," said CSX Chairman Michael Ward. "As we look to the second half of the year, we think almost all our major markets are going to continue to see that gradual recovery. We expect to have a very good 2010."
Still, the shares of the Jacksonville, Florida-based company traded both ways on Tuesday. After initially rising on the earnings report, the shares dropped 3 percent to $50.80 and were off 48 cents at $51.98 in late afternoon trading.
Analysts noted that CSX officials said the second quarter results were likely a high point for the year as a reason for weakness in the shares.
CSX reported late on Monday that net income for the railroad, one of the largest in the United States, rose 36 percent in the second quarter, beating analysts' expectations.
Volume improved across the varied markets the company serves and revenue grew 22 percent to nearly $2.7 billion.
Company officials said they were seeing evidence the industrial economy was expanding as inventories remain low.
Strong growth is seen in the company's intermodal business, both internationally and domestically, and increased automotive production should spur higher shipping volumes related to that sector, Ward said. Automotive volume jumped 63 percent in the second quarter.
"That drives some related industries like metals and chemicals that go into the production of automotive," he said.
Company officials said CSX's coal business was on the rise, with coal revenue up 26 percent in the second quarter. Coal volume should continue to be helped by increased Asian export demand and higher industrial demand even as utility demand remains stagnant due to high stockpiles, the company said.
One notable negative continues to be the housing market.
But overall, CSX officials are so confident in what appears to be an improving economy that they plan to hire 500 to 1,000 workers in the next year.
"We will start doing some selective hiring in the second half," Ward said.
Dahlman Rose analyst Jason Seidl said the CSX results bode well for other U.S. railroads and for the economy overall.
"I hope CSX (results) put some confidence back in investors in terms of the railroads and their ability to grow," Seidl said.
CSX said net income for the second quarter was $414 million, or $1.07 per share, compared with $305 million, or 77 cents a share, in the same period last year.
Not counting discontinued operations, earnings rose 47 percent and earnings per share were up 51 percent from a year earlier.
Analysts on average were expecting 98 cents a share, according to Thomson Reuters I/B/E/S.
Revenue growth and continued operating leverage drove record operating income of $768 million and an operating ratio of 71.2 percent.
(Reporting by Carey Gillam; editing by John Wallace and Andre Grenon)
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