Will CSX Earnings Motor Past Norfolk Southern and Union Pacific?

CSX will release its quarterly report on Tuesday, and investors have been pleased with the railroad's performance, sending the stock to new all-time highs recently. Yet in order to distinguish itself from regional rival Norfolk Southern , CSX earnings will need to produce stellar growth that stands out from the train-transport crowd.

CSX has faced particular challenges from the changes in the commodities industry in recent years. With its extensive network in the eastern half of the U.S., CSX has historically relied on domestic coal shipments for uses like electrical generation and steel production. Yet cheap natural-gas prices have led many of CSX's customers to cut their coal use dramatically, crushing the coal industry but also hurting shipping volumes both for CSX and Norfolk Southern. CSX has foreseen those issues and has taken steps to try to stem the tide away from rail transport by looking at other lucrative markets with higher shipping demand, but competitor Union Pacific has arguably been even more aggressive about using its geographical advantages to make the most of changing conditions. Let's take an early look at what's been happening with CSX over the past quarter and what we're likely to see in its report.

Stats on CSX

Source: Yahoo! Finance.

Will CSX earnings move ahead or fall behind?
Analysts have had mixed views on CSX earnings in recent months. They've boosted their full-year 2013 estimates by $0.02 per share, but they've made a corresponding $0.02 per share decrease to their 2014 projections. The stock, though, has kept climbing, with gains of almost 10% since early July.

Much of those gains came after the company's second-quarter earnings report. CSX saw gains of 4% in merchandise revenue, and intermodal transport growth helped offset what has lately been the inevitable drag from its coal business, which still makes up a quarter of its overall revenue. Income topped expectations as CSX improved its internal efficiency while getting some help from favorable pricing conditions.

CSX has worked hard to keep its shipping volumes up. A dual-line deal with Burlington Northern Santa Fe allows CSX to help move 300,000 barrels of oil daily through Albany, N.Y., for further distribution to refineries on the East Coast and in Canada. CSX has said that the trend toward rail transport of crude from hard-to-reach areas like the Bakken will likely grow. Union Pacific has already done an exceptionally good job of capitalizing on that growth, with rail-transported crude becoming increasingly important. But there are still opportunities for CSX to catch up with Union Pacific on the oil front.

In addition, CSX has made smart strategic moves to emphasize exports. The railroad bought the Eastern Associated Terminal in Tampa in August, adding 1 million tons of export capacity to help CSX customers get their products to global markets. With coal miners increasingly relying on exports to find markets for their production, CSX should see plenty of outbound traffic running along its rails.

Perhaps the biggest opportunity for CSX, though, could come when natural gas prices start to rise. Major energy users have converted to gas at a breakneck pace, and the resulting demand has already caused gas prices to rise substantially from their lows last year. If major utilities start wanting more coal, it will provide a substantial boost to CSX's Appalachia-centered rail-network volumes. The news would be even better for Norfolk Southern, which has seen declining revenue due largely to its similar exposure to coal for its overall revenue.

In the CSX earnings report, watch to see how well the railroad does at diversifying beyond coal to jump onto other opportunities. Although coal might eventually rebound, CSX will do best if it succeeds in finding other ways to boost profits as well.

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The article Will CSX Earnings Motor Past Norfolk Southern and Union Pacific? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of CSX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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