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CSX Corporation (NASDAQ: CSX ) is one of the top 5 biggest North American Railroad companies and has been a backbone of the U.S. economy for the past 100 years. CSX and Norfolk Southern (NYSE: NSC ) basically operate as a duopoly in the East. This dominant market share and network effect provide a distinct competitive advantage , and CSX has been a very profitable and cash generative company for a long time. They reported a strong quarter with substantial increases in revenue, operating income, and EPS, and I expect that to be the case for the foreseeable future. Also, they just announced a dividend increase. I believe CSX is a great stock for the long-term investor because: CSX reported a strong quarterly report with 21% YoY increase in revenue, 12% YoY increase in operating income, and 27% YoY increase in EPS.
Their 2021 results reiterated the efficiency and environmental sustainability of the railroad, and their economic moat will be sustained into the future.
There are signs of easing supply chain disruption, and this will contribute positively to CSX’s growth and profitability in the future.
Top 5 Biggest North American Railroad Companies (Sounding Maps) Strong quarterly results yet again
Overall, CSX had a very strong 4Q 2021 . Revenue increased 21% YoY. Most segments (chemical, agriculture, mineral, coal, etc.) contributed to the revenue growth, except for the automotive due to the ongoing chip shortage issue. Operating income grew at 12% to $1.3 B for the quarter, and EPS grew at 27% to $0.42 per share. 4Q Result Highlights (CSX Investor Relations) Due to the ongoing labor shortage and inflation, the overall operating expense rose quite substantially from $1.6 B in 4Q 2020 to $2.0 B in 4Q 2021. However, CSX management did a great job at controlling costs where possible (e.g., maintaining strong hiring pipeline, targeted investments to drive fluidity, etc.) and passing the cost to the customers. The operating margin decreased (i.e., operating ratio increased by 310 basis point), but EPS grew significantly from $0.33/share in 4Q 2020 to $0.42/share in 4Q 2021. Change in Operating Expense (CSX Investor Relations) Reflecting this strong financial performance, CSX announced a dividend increase of 7.5%. This marks the 17th straight year of dividend growth and demonstrates the strong cash generative nature of their business. Also, they have been very shareholder-friendly. Other than 2020, they have invested at least $1 B per year on stock repurchases since 2016. They just repurchased $2.9 B worth of common stock in 2021. Looking at their trends in profitability and cash from operations, I expect the generous shareholder returns to continue. Economic moat, fuel efficiency, and sustainability
During 2021, CSX demonstrated that rail is the most fuel efficient form of land-based transportation and that CSX is committed to minimizing the carbon footprint. CSX was the most fuel-efficient Class 1 railroad in the U.S., and contributed to reducing carbon dioxide emissions by 11 million metric tons. This is equivalent to the electricity usage of 1.9 million homes for one year or 2.3 million passenger vehicles driven for one year.
Given the increasing interest in lessening the carbon footprint, I expect railroad companies in general and CSX specifically to maintain their edge over other transportation (e.g., trucking). Also, being the most fuel efficient amongst the railroad companies will give CSX some competitive edge and better market share. Therefore, I believe CSX will maintain their already strong economic moat going forward. Fuel Efficiency and Sustainability (CSX investor Relations) Easing supply chain disruption and growth potential
Supply chain disruption has been creating problems for everyone in almost every industry these past two years. Car manufacturers continue to have a hard time getting chips and parts to make new cars, and electronic device companies are having a hard time assembling their products. This shortage pushed up prices on various products and made inflation worse. It has been a pretty tough couple of years. Reflecting these difficulties in the supply chain, railroad volume has been struggling to gain momentum, even with the recovering economy.
The good news is that, as Covid-19 infection rates fall and travel restrictions ease, the experts are seeing improvements in the supply chain . During the last earnings call, CSX’s CEO mentioned that the expected easing of supply chain disruptions will put CSX in a great position for future growth. He also mentioned that the demand for their service is only increasing, which bodes well for their sustained growth trajectory. Global Railroad Market […]
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