Why CSX Could Remain Dominant in Freight Transport
Over the past 10 years, railroad operator CSX's (NASDAQ: CSX) total annualized returns have outperformed that of the S&P 500 (16.1% vs 9.8% per year). But railroad performance appears less certain in the future, amid worries about inflation and lower shipping volume as economic growth slows, and the threat that increasingly efficient freight trucking will grab business. Recent acquisitions hint at how CSX intends to drive growth in the face of these challenges.
So far, the railroads have appeared resilient against rising fuel costs and supply chain disruptions. Although shipping volume declined, CSX still managed to increase Q1 revenue by 21%, with pricing gains and fuel surcharges compensating for higher costs. Reflecting confidence in the future outlook, CSX increased headcount to prevent shipping disruptions caused by labor shortages. CSX also looks to expand its footprint in New England through the acquisition of regional rail line Pan Am Railways, which should close this June.
Notably, the income statement also included trucking revenue for the first time. Last summer, CSX acquired Quality Carriers, a leading truck company providing bulk liquid chemicals transportation. Trucking accounted for about 7% of total CSX's revenue, but also about 10% of its expenses. Overall, this hurt operating efficiency for the quarter, with CSX's operating ratio – where smaller is better – increasing from 60.9% to 62.4%. However, if the Quality Carriers trucking contributions were removed, the operating ratio would have declined to an impressive 59.9%. Trucking expenses, and operating ratio, should drop over time as CSX streamlines its process.
Source Fool.com
