CSX Corp. warned that declining coal shipments will continue to
weigh on its results into next year as more power plants convert to
use natural gas, a trend that depressed the railroad's
second-quarter revenue.
CSX executives said coal volumes declined 11% in the three
months ended June 30 and forecast a steeper 15% decline of domestic
coal shipments in the third quarter that could be repeated in the
fourth quarter. Revenue fell 5.6% to $3.1 billion in the
period.
"There's probably more downside to the coal volume next year
than there's upside," CSX Chief Financial Officer Fredrik Eliasson
said on a conference call.
Coal use has been on the decline as more utilities turn to cheap
natural gas for power generation. In April, natural gas-fired
electricity generation exceeded that from coal for the first time
ever, according to the U.S. Energy Information Administration.
The shift has weighed heavily on the rail industry, which earns
on average about 15% of total revenue from transporting coal,
according to analysts. Taken with cutbacks to crude-oil production
in the face of lower oil prices globally, analysts have questioned
whether boom times for railroads might be over.
Mr. Eliasson warned that the current energy environment would
make it hard for the company to achieve the high end of its 2015
profit forecast. The company left its full-year earnings outlook
unchanged, targeting mid to high single-digit earnings-per-share
growth, having lowered its forecast in April.
Cost-cutting helped fuel a 4.5% rise in profit to $553 million
for the quarter. The company has furloughed about 600 employees so
far this year and plans to reduce its total average head count by
about 1% further in the third quarter.
Shares of the company rose 1.5% to $32.55 in midday trading
Wednesday.
The railroad cited a positive outlook for its intermodal
business, which moves containers and trailers and has been growing
due to a truck driver shortage and highway congestion. That type of
cargo should see a jump in the third quarter as retailers import
products to stock up for the holiday season, Mr. Eliasson said.
In addition, CSX executives forecast strong demand for lumber
for rising housing construction and higher volumes of automotive
shipments in the third quarter amid increases in North American
light-vehicle production.
Write to Laura Stevens at laura.stevens@wsj.com
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