Will Intermodal Segment Weakness Hurt CSX's Q3 Earnings?

CSX Corporation (NASDAQ:CSX) is slated to report third-quarter 2019 results on Oct 16, after the market closes.

The Zacks Consensus Estimate for third-quarter earnings has been revised downward 7.3% in the past 90 days. Given this backdrop, let’s delve into the factors that might have influenced the company’s performance in the quarter.

Persistent softness in freight volumes is likely to have hampered results in the third quarter as has been the case in the first two quarters of 2019.

Continuing from the last two quarters, CSX’s intermodal segment is expected to have performed disappointingly in the soon-to-be-reported quarter due to sluggish volumes. Additionally, weak domestic coal demand might get reflected in coal revenues in the quarter.

However, the company’s cost-reduction efforts are expected to have driven the bottom line. Moreover, with reduced costs and improved efficiency, its operating ratio (operating expenses as a percentage of revenues) might have improved in the third quarter. Lower the value of this key metric, the better.

Highlights of Q2 Earnings

Last reported quarter, the company witnessed a negative earnings surprise of 2.7%. Total revenues also missed the Zacks Consensus Estimate. Although earnings increased 6.9% year over year, revenues dipped 1.3%. Results were affected by a dismal performance of the intermodal segment.

Earnings Whispers

The proven Zacks model does not conclusively show that CSX is likely to beat estimates in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below.

Earnings ESP: CSX has an Earnings ESP of -0.27% as the Most Accurate Estimate is pegged at $1, lower than the Zacks Consensus Estimate of $1.01. 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 #3, which increases the predictive power of ESP. However, the company’s negative ESP in the combination, leaves surprise prediction inconclusive.

We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation sector can check out Expeditors International of Washington, Inc. (NASDAQ:EXPD) , Allegiant Travel Company (NASDAQ:ALGT) and Southwest Airlines Co. (NYSE:LUV) as these stocks possess the right mix of elements to beat on earnings in their next releases.

Expeditors has an Earnings ESP of +0.74% and a Zacks Rank of 3. The company will report third-quarter 2019 results on Nov 5.

Allegiant has an Earnings ESP of +6.14% and a Zacks Rank #2. The company will announce third-quarter earnings results on Oct 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

Southwest has an Earnings ESP of +0.31% and is Zacks #3 Ranked. This company will release third-quarter financial numbers on Oct 24.

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