Our WR Transport index increased 0.2% and outperformed the 1.2% decline in the S&P 500. There were 2 big stories in the group last week: the big sell-off in CSX (-10.5% last week) following its 2Q report and the big rally in our TL index which was up 7% last week. This week, we’ll discuss our biggest takeaways from rail reports so far, the TL rally, and preview a busy week of reports ahead. Open the full report for more thoughts on each company reporting this week…
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On Friday (7/19/19), KSU reported adjusted 2Q EPS of $1.64, above Cons. of $1.61 and our estimate of $1.63. Similar with most of the rails so far (ex. CSX), KSU beat our model primarily on better than expected yields. Along with the beat, KSU maintained its C19 revenue guidance despite weak volumes, slightly improved its long-term OR guidance, and lowered its long-term CapEx guidance. With the string of positive guidance updates, the stock rallied 5%.
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KSU reported adjusted 2Q EPS of $1.64 vs. Cons. of $1.61 and our estimate of $1.63. Revenue growth beat our model by 140bp, but margins missed us by 60bp, and overall EBIT was basically in line with our model. Adjusted EPS excludes a $0.36 restructuring charge related to PSR initiatives.
UNP reported adjusted 2Q EPS of $2.18 (ex. a $0.04 payroll tax refund) vs. Cons. of $2.14 and our estimate of $2.12. UNP cited a $0.07 drag from weather, and its tax rate was a $0.03 drag to our model, so the underlying quarter was even better. Revenue beat our model by 200bp on better yields, and margins beat by 70bp on lower headcount. Despite weak volumes, UNP reiterated its sub-61% OR guidance for the year. Following yesterday’s pullback, the stock has rallied 5% today (07/18/19).
UNP reported 2Q EPS of $2.22, above Cons. of $2.14 and our estimate of $2.12. The quarter included a $0.04 payroll tax refund, but UNP also noted a $0.07 drag from weather in the quarter.
Wolfe Research's Senior Transportation analyst, Scott Group, hosted a webcast to respond to questions about the CSX report and what it means for rails.
The big question following CSX’s 2Q miss is what this means for the other rails and NSC in particular? At first glance, it’s never a good thing when rails miss on yields and margins, so we’d expect the whole group to trade lower in sympathy with CSX’s miss. But we see some key differences between CSX’s report and what we expect from NSC, so we’d use potential weakness in NSC’s stock as a buying opportunity before its report next week.
CP reported 2Q EPS of C$4.30, well above Cons. of $4.17 and our estimate of $4.15. Revenue growth of 13% was 200bp better than we expected while CP’s OR improved 580bp y/y and was 30bp better than our model. CP also sounded very upbeat about 2H despite tougher comps and the stock rallied 4%.
After the close, CSX reported 2Q EPS of $1.08 vs. Cons. of $1.11 and our estimate of $1.13. CSX missed our revenue estimate by 220bp due to weaker yields and lower other revenue (accessorial) than we expected, while margins missed our model by 100bp despite higher than expected real estate gains. Given continued weak volumes, CSX now expects revenue to decline 1%-2% this year, below our prior +1.5% estimate, and this implies about a 5% revenue decline in 2H.
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