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We arrive at EPS of $0.22 ex-items. That excludes BK-related items but includes an estimated $20M of contractual interest expense excluded from the P&L. PRASM growth of 9.1% y/y is solid, and though largely a function of easy y/y comparisons we don’t discount the progress that AMR is making with only modest changes to the network and no changes to restrictive scope clauses found in labor contracts (which ties AMR’s hands on flexibility). AMR’s EBITDAR margin increased by over 400bp y/y in 2Q12, which we believe will be the second best among the “big four” U.S. legacy airlines after, perhaps ironically, LCC (+550bp, by our estimate).
KSU reported adjusted EPS in line with our expectations and $0.01 above Cons., aided by a lower tax rate as EBIT missed our model by 3%. Given lower fuel surcharges, the weaker peso and weak coal vols, KSU now expects mid-single digit rev. growth this year vs. double-digits previously. We are lowering our C12 EPS modestly by 1% to $3.42 (vs. prior Cons. of $3.44) with reduced underlying EBIT expectations offset by a lower tax rate. While 6% EBIT growth in 2Q was disappointing, we believe KSU’s long-term growth story remains very attractive. Still, we remain on the sidelines given KSU’s big valuation premium to the large-cap rails.
Excluding a $0.01 tax benefit, CSX reported $0.01 above Cons. and $0.02 above our est. after the market. Despite a 14% decline in coal vols YTD, CSX’s EPS grew 14% y/y in 1H:12 as solid underlying pricing and productivity overcame weak vols (with some help from fuel and weather along the way). With the stock at 12x our modestly increased forward EPS estimates, and with stabilizing coal vols, we believe risk/reward for CSX is favorable.
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