CSX (CSX +3%) is experiencing a positive uptick today, rebounding from 2024 lows. This follows a mild Q2 earnings beat and in-line revenue growth. Volumes increased by 2% year-over-year (yr/yr), slowing slightly from the 3% rise last quarter. Despite a sluggish intermodal industry and broader economic challenges, CSX's performance alleviated investor concerns.
- Total revenue remained flat yr/yr at $3.7 billion in Q2, slightly better than the 0.8% decline last quarter. The 2% volume increase was driven by a 5% rise in intermodal business, similar to Q1's 7% jump. This is notable given the lackluster performance from intermodal trucking companies like J.B. Hunt (JBHT, Financial) and Knight-Swift (KNX, Financial). However, intermodal volumes are still muted due to overall weakness in the trucking industry.
- Breaking down volumes by category:
- Merchandise volumes rose by 1% yr/yr, supported by new business wins and positive market trends in chemicals, forest products, and agriculture. CSX expects these trends to continue, with agricultural and food volumes accelerating over the next two quarters.
- Coal volumes declined by 3% yr/yr, worsening from last quarter. Export coal volumes were strong, but domestic coal was impacted by low natural gas prices and shifting demand. However, CSX is optimistic about coal's future, citing increased power consumption.
- Rail velocity improved yr/yr, reversing last quarter's slight drop. However, dwell time increased compared to the previous quarter. Management noted that efforts to reduce dwell time were not benefiting customers and were wasting engine resources. Therefore, CSX eliminated these handlings, even though it led to higher dwell time. The company is now exploring ways to reduce dwell time without compromising customer experience.
- Looking ahead, CSX expects total volumes to grow by a low to mid-single-digit percentage, supporting positive revenue growth in the year's second half. Management anticipates continued profitability by maintaining attractive pricing and benefiting from lower cost inflation.
CSX highlighted several improving dynamics in Q2, setting the stage for a brighter second half of the year. However, challenges remain. Intermodal volumes are still relatively subdued, and like its trucking counterparts, CSX is uncertain when conditions will improve. The company is confident that international intermodal volumes are stabilizing, while domestic volumes show potential for improvement. Despite the uncertainty, CSX is well-positioned to withstand a sluggish economy and capitalize on economic growth through enhanced network service levels, a precise railroad schedule, and ongoing efficiency improvements.
