Analyst Note| Matthew Young, CFA |
Eastern Class-I railroad CSX’s third-quarter revenue expanded a solid 24% year over year (it was up 33% last quarter) driven by strong yield improvement, modest carload growth, and the Quality Carriers tuck-in acquisition. Total carload volume was up only about 3% year over year, versus the 27% rise posted in the second quarter, which had an easy pandemic comparison. Most commodity groups grew as industrial sector demand remains positive, along with strong retail end market demand for intermodal, but auto carloads are still anemic due to the semiconductor shortage and domestic intermodal volume saw pressure from network congestion. Average revenue per carload rose 21% on contract rate gains and rising fuel surcharges. Core pricing continues to see tailwinds from limited capacity across most transportation modes, lifting railroads’ pricing power. Although supply chain and labor constraints are tempering carload gains, the firm has been able to add to its train and engine workforce (albeit slowly). Management thus reiterated its expectation for double-digit organic top line growth for 2021 (excluding Quality Carriers) given solid underlying freight demand and favorable pricing.