Railroad giant CSX reported better-than-expected first-quarter earnings Wednesday night, with Union Pacific topping revenue views early Thursday. CSX stock rose, while UNP stock edged lower Thursday.
CSX and Union Pacific — whose rail lines cover big parts of the eastern and western U.S., respectively — report amid concerns about a decline in freight demand, as consumers show signs of skittishness toward higher prices of big-ticket items. Analysts are also weighing the impact of China's lockdowns and labor tensions on the West Coast and elsewhere.
CSX, UNP, along with other rail and trucking stocks, sold off hard at the end of March and early April on freight demand concerns.
CSX Earnings
Estimates: Wall Street expects CSX earnings to show a 19% gain to 37 cents per share, with revenue rising 18% to $3.308 billion.
Results: CSX earnings per share climbed 26% to 39 cents. Revenue rose 21% to $3.14 billion. A 24% rise in unit revenue offset a 2% volume decline.
CSX stock rose 2.8% to 36.80 in Thursday's stock market trading, gapping up above its 50-day line but closing well off its intraday high of 38.17. Shares were in a flat base with a 38.73 buy point. But this flat base involves some wild weekly swings.
CSX stock has an 88 Composite Rating. Its EPS Rating is 91. IBD's Transportation-Rail group, which includes other railroad stocks, holds a No. 65 rank out of 197 groups tracked.
CSX runs a rail network that serves 23 states in the eastern U.S., as well as Washington, D.C. and Ontario and Quebec in Canada.
The Jacksonville, Fla.-based company ships a wide range of products — including food, chemicals, coal, fertilizer, automobiles and other equipment. Along with regular rail service, its intermodal service connects shorter-haul truck shipments to longer-haul rail lines.
However, BofA analysts, in a research note this month, said they expected CSX's coal carloads to fall during the quarter, following a fire at a mine in Illinois, a strike at a mine in Alabama, and an explosion at a coal transfer tower in Baltimore.
Union Pacific Earnings
Estimates: Wall Street expected Union Pacific earnings to climb 29% to $2.57 per share. Revenue was seen rising 14% to $5.701 billion.
Results: Union Pacific earnings rose 29% to $2.57 a share. Revenue climbed 17% to $5.86 billion.
Union Pacific stock fell 1.1% to 244.40 on Thursday. Shares are trading between their 50-day and 200-day lines. UNP stock boasts an 81 Composite Rating and an 86 EPS Rating.
Union Pacific's rail lines operate in 23 states as well, but in the western two-thirds of the nation. Among other things, it ships bulk grains and fertilizers, industrial chemicals and plastics, along with automobiles and products in intermodal containers, according to its most recent annual report.
Railroad stock analysts at RBC, in March, said that Union Pacific's carload numbers had outperformed its rivals so far this year. But they cast doubt on whether that trend would continue.
They said, "we see potential labor unrest at U.S. West Coast ports as likely leading to diversion both in the near term (ahead of a potential strike), and longer term as persistent labor risk prompts diversification away from West Coast U.S. ports — negatively impacting UNP."
The contract for union longshoremen at the ports of Los Angeles and Long Beach — the destination for a large chunk of the U.S.' Asian imports — and elsewhere along the West Coast expires at the beginning of July. Concerns have grown of further supply-chain bottlenecks and higher prices if negotiations with terminal operators sour.
Among other railroad stocks, Canadian Pacific dipped 0.9%. Norfolk Southern advanced 0.7%.
Elsewhere, trucking company J.B. Hunt edged down 0.7%. JBHT stock is trying to find its footing after better-than-expected first-quarter earnings late Monday. But shares of the trucking firm plunged in late March to early April on freight demand concerns.
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Gauging Demand For Freight, Railroad Stocks
Prices for transportation — and the goods that get shipped on railcars and trucks — rose over recent months as disruptions riddled the world's supply chains. Covid restrictions in Asia, an online shopping surge and port backups in the U.S., and Russia's invasion of Ukraine have all made acquiring everything from oil to wheat to electronics more difficult and more expensive.
But BofA analysts this month downgraded Union Pacific to neutral from buy, citing "deteriorating demand outlooks and rapidly falling freight rates."
"Freight market signals suggest demand is waning," BofA analysts said in a research note this month about the state of railroad stocks and other shipping stocks. "Spot pricing is down 27% over past month. Supply chain is loosening."
They said management from UPS and transportation logistics services provider XPO Logistics told them that the labor market "had loosened a bit."
Other conversations indicated waning shipping-container demand, amid China's coronavirus lockdowns, and port congestion that was "past peak." And they also noted that businesses shipping goods had more recently had an easier time finding available space on trucks.
