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Will CSX Deliver a Beat Again in Q3 Earnings on Cost Cuts?


CSX Corporation CSX is slated to report third-quarter 2018 earnings on Oct 16, after the market closes.

Last reported quarter, the company delivered a positive earnings surprise of 17.4%, with better-than-expected earnings and revenues. Moreover, both the measures improved on a year-over-year basis. Results were driven by a 2% rise in volumes, higher fuel recoveries and strong core pricing gains across all major markets.

The company is likely to witness a similar fate in the third quarter as well. Notably, the Zacks Consensus Estimate for third-quarter earnings has moved 3.4% north over the past 60 days.

Why a Likely Positive Surprise?

Our proven model shows that CSX is likely to beat on earnings in the third quarter, courtesy of a perfect combination of the following two key ingredients:

Earnings ESP: CSX has an Earnings ESP of +1.65%, representing the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. While the Most Accurate Estimate stands at 92 cents per share, the Zacks Consensus Estimate is pegged lower at 91 cents. A positive Earnings ESP is indicative of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CSX carries a Zacks Rank #1 (Strong Buy), which increases the predictive power of ESP. Note that stocks with a favourable Zacks Rank #1, 2 (Buy) or 3 (Hold) have significantly higher chances of beating estimates.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

CSX Corporation Price and EPS Surprise

CSX Corporation Price and EPS Surprise | CSX Corporation Quote

Factors Likely at Play

Similar to the previous quarters CSX’s third-quarter results are likely to be driven by benefits from the Precision Scheduled Railroading model that is designed to improve operational efficiency by lowering costs and optimal asset utilization. Reduced costs are expected to improve operating ratio (operating expenses as a percentage of revenues), simultaneously boosting the bottom line.

Additionally, robust revenues from the coal, intermodal and merchandise segments are likely to boost top-line growth. The Zacks Consensus Estimate for third-quarter coal revenues stands at $560 million, higher than $514 million reported a year ago.

The consensus mark for intermodal revenues is pegged at $490 million. The tally compares favourably with $446 million in the prior-year quarter. The same for merchandise revenues stands at $1820 million, above $1688 million a year ago.

The amended tax law has been bolstering results since implementation last year and the third quarter is expected to be akin to it. The reduced effective tax rate arising from the slashed corporate tax rate is anticipated to boost the company’s bottom line in the to-be-reported quarter. Impressive volume growth is also expected to buoy results.

However, the company’s high-debt levels remain a cause for concern.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider Canadian Pacific Railway Limited CP, Alaska Air Group, Inc. ALK and C.H. Robinson Worldwide, Inc. CHRW as these stocks too possess the right combination of elements to come up with an earnings beat in their next releases.

Canadian Pacific has an Earnings ESP of +6.69% and a Zacks Rank #2. The company will report third-quarter earnings on Oct 18. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alaska Air Group has an Earnings ESP of +1.00% and a Zacks Rank #3. The company is scheduled to release third-quarter earnings numbers on Oct 25.

C.H. Robinson has an Earnings ESP of +0.10% and a Zacks Rank of 2. The company will announce third-quarter financial results on Oct 30.

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