CSX And CP Q3 Earnings: Here Are The Key Predictions

The Q3 earnings season is in the nascent stage with 32 S&P 500 participants having reported results so far. As is the norm, the early earnings reports included those of major banks like JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C) .

Again, this current week is going to an extremely busy one with 178 companies, including 53 S&P 500 participants, revealing their Q3 numbers.

In fact, the Transportation sector (one of the 16 Zacks sectors) has seen third-quarter reports from a handful of players. Evidently, airline behemoth Delta Air Lines’ (NYSE:DAL) earnings per share and revenues surpassed expectations, despite recent natural calamities. On the flip side, J.B. Hunt Transport Services’ (NASDAQ:JBHT) posted mixed results, wherein the company reported lower-than-expected earnings per share but better-than-expected revenues.

Though too early to reach a definite conclusion about the performance of this sector, it is widely expected that the recent natural calamities (Harvey, Irma, Maria and the earthquake in Mexico) will dent results of the sector participants in Q3. The latest Earnings Preview too predicts that this widely diversified sector will cut a sorry figure in the quarter under review, with its bottom line contracting 15.5% owing to high costs.

Markedly, one of the key components of the transportation sector are railroads. Though things are looking up for the same following improvement in the coal-related scenario and U.S. Presidential election last year, the natural disasters are likely to hurt earnings. These, in turn, have hurt operations at railroads by damaging important rail lines. Also, freight costs have skyrocketed following the natural disasters. With fuel costs on the rise, the bottom line of the same are likely to be hurt in Q3 due to the escalating costs induced by the hurricanes.

Given this gloomy backdrop, investors interested in the transportation space will keenly await earnings reports of key railroads companies like CSX Corporation (NASDAQ:CSX) and Canadian Pacific Railway Limited (NYSE:CP) on Oct 17.

According to our quantitative model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase its odds of an earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

CSX Corporation is not expected to report better-than-expected earnings per share in this quarter despite the improvement in coal revenues.

The bullish sentiment pertaining to the commodity is reflected by the fact that the Zacks Consensus Estimate for third-quarter coal revenues is $530 million, much higher than the $501 million expected in the second quarter of 2017. In fact, this Jacksonville, FL-based company’s intermodal segment is also expected to perform well in the third quarter of 2017. The Zacks Consensus Estimate for third-quarter intermodal revenues stands at $451 million, again higher than the $446 million expected in the second quarter of 2017.

Despite the bullish top-line scenario, the bottom line is expected to be hurt by increased costs induced by the hurricanes. Also, the recent service issues encountered by the company may hurt results.

In fact, our proven model too does not conclusively show that CSX is likely to beat earnings estimates in Q3, despite its Zacks Rank #3. This is because the company has an Earnings ESP of -0.88%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our model did not predict an earnings beat earlier too. When we issued its Q3 earnings preview article, the company had an earnings ESP of -1.33% and carried a Zacks Rank #3.

Meanwhile, improvement in the coal-related scenario is a positive for Canadian Pacific Railway as well. Freight revenues from the grain and potash units should also be impressive in Q3. However, high costs are likely to hurt the bottom line of the Calgary, Canada-based company. Consequently, our proven model too does not show that Canadian Pacific is likely to outperform with respect to the bottom line in Q3, despite its Zacks Rank #3. This is because the company has an Earnings ESP of - 0.66%. This is because the Zacks Consensus Estimate of $2.31 per share is currently pegged at 2 cents above the Most Accurate estimate.

In fact, our model did not predict an earnings beat earlier too. When we issued its Q3 earnings preview article, the company had an earnings ESP of –0.98% and carried a Zacks Rank #3.