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No light yet at end of coal market tunnel, warns CSX

LARGE coal rail shipper CSX has released deflated third-quarter numbers, including a fall in net earnings year-on-year, following a drop in coal shipments.

Donna Schmidt
No light yet at end of coal market tunnel, warns CSX

The company said this stemmed from production cuts and noted that the situation, particularly in central Appalachia, would not change anytime soon.

For the three months ending September 30, the company reported profit of $US455 million, down 2% on the $464 million recorded during the same 2011 period.

Revenue slipped 2% to $2.89 million, missing analysts’ projections of $2.94 million, while total volume was down about 1%.

Officials attributed the revenue decline to lower volume levels, a change in the mix of the company's business and lower fuel recovery.

“CSX continues to respond well to moderating economic conditions and challenges in our domestic coal business,” chairman, president and chief executive officer Michael Ward said.

“The company is driving strong safety, customer service and productivity results while building its capabilities for the long term.”

CSX hauled less domestic coal during the third quarter – its totals were down 29% – but export coal spiked 25% during the same timeframe. Overall, CSX hauled 36.3 million tons, down year-on-year 43.3Mt in 2011.

Additionally, one of its main markets, coal shipments to utilities, could start to flatten next year as generators started working through inventories, it warned.

“Utility coal volume will continue to be challenged by low gas prices and high utility stockpiles,” chief sales and marketing officer Clarence Goode told investors during the CXS conference call.

“Although we expect these headwinds to moderate somewhat through the balance of the year, they will continue well into 2013.”

The common elements of a mild winter in 2011 paired with low natural gas prices and changing environmental regulations set to cut coal from the equation have all had a ripple effect on coal shipments by rail.

“If we see gas prices pick up a little and we get either cold weather or a hot summer, that would be favorable toward our coal movements,” Ward said.

Looking ahead to the balance of the year, CSX was staying positive, projecting earnings growth and margin expansion whole-year for 2012. It has made good headway thus far; through the first nine months of 2012 it reported $1.41 billion in net income, up from $1.37 billion in 2011.

CSX operates over 21,000 miles of track in 23 eastern US states and two Canadian provinces.

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