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Earnings Results: CSX rallies on earnings beat, while Union Pacific stock lags


Shares of rail operator CSX Corp. moved higher after hours on Thursday after the company reported third-quarter results that beat estimates, helped by higher prices and fuel surcharges.

whose rail network covers much of the nation’s territory east of the Mississippi River, reported net income of $1.11 billion, or 52 cents per share, compared to $968 million, or 43 cents per share, in the prior-year quarter.

Sales came in at $3.9 billion, compared to $3.29 billion a year ago, helped by higher fuel surcharges and pricing gains, company executives said. Volumes increased by 2%.

Analysts polled by FactSet expected CSX’s adjusted earnings to be 49 cents per share, on revenue of $3.739 billion.

CSX also said that third-quarter results included “additional labor and fringe expenses related to tentative union agreements, with $42 million specifically to adjust for wage, bonus and other benefit costs in prior periods.”

Shares rose 3.1% after hours on Thursday.

CSX reports as large rail operators try to lock down a deal with rail-worker unions to avert a strike, and as Wall Street frets over freight demand.

The unions are demanding safer working conditions, less grueling schedules and more generous sick time, after the industry for years tried to keep costs lean amid a decline in coal demand and greater competition in shipping. But a strike would mangle the supply chain and cause a further spike in prices for everything from cars to chemicals and gains. The rails and the unions reached a tentative deal last month. But some rank and file workers have since balked.

“There is clearly some more negotiating to do with the unions, given the quick rejection from BMWD and four other unions that are out for ratification votes, and do see a scenario, albeit unlikely, that there is a rail strike in November,” Cowen analyst Jason Seidl said in a note Thursday.

Along with falling freight demand and a possible recession, Wall Street has worried that higher wages and other concessions from new labor contracts would hurt profits. Some analysts late last month said rail stocks “aren’t yet priced for a freight recession.

Earlier in the day, rival Union Pacific Corp.
whose operations are focused on the Western two-thirds of the U.S., cut its outlook for carload growth and stock repurchases. The company’s third-quarter earnings and revenue beat expectations, helped by increased pricing and fuel surcharges, which the rail operators tack on to offset rising fuel prices.

“Service and the new labor agreement have impacted incremental margins (32% in 3Q), and could overhang results for another few quarters,” Citi analyst Christian Wetherbee said in a research note on Union Pacific’s earnings. “Overall, core results were likely softer than investors expected and elevated inflation could weigh on incrementals into 2023. Shares will likely be pressured by results and the guidance cut.”

CSX stock is down 28% year-to-date. The S&P 500

so far this year is down 23%.

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