- CSX will report its Q2/2019 earnings next week.
- The company is in the midst of a severe shipments slow-down caused by lower economic growth.
- Analysts are adjusting their expectations, the stock is going sideways and the full-year outlook might be in trouble.
- Nonetheless, CSX remains a transportation powerhouse which means the next economic bottom should be bought.
I love writing bullish articles, especially when covering one of my favorite industries: railroad transportation. Unfortunately, this is not going to be one of those articles as the main goal of this article is to show you why the pressure on CSX Corp. (CSX) is rising tremendously. Next week, the company is reporting its Q2/2019 earnings which are expected to rise along with total sales. Unfortunately, domestic shipments have done a number on CSX shipments which could seriously damage second quarter results. I highly doubt the company's pricing and operating margins are able to provide investors with yet another earnings beat. The contrary could be true as far as I am concerned.
Source: CSX
What's Wrong?
On the 16th of July, CSX will release its second quarter earnings. CSX will be one of my must watch earnings as we are entering an earnings season that could confirm the ugly outlook given by economic indicators. This Florida based railroad operator has been a steady outperformer with regards to its stock price and earnings. Since the start of the most recent economic bottom (Q1/2016), CSX has only missed EPS expectations 2 times. Both times, earnings came in just $0.01 below expectations.
One of the reasons why second quarter earnings are going to be key is the fact that economic growth has really started to slow this year. Unfortunately, the slow-down accelerated in the second quarter.
The leading ISM manufacturing index declined to 51.7 in June. Although this is still indicating a slight economic expansion, it is getting dangerously close to the neutral 50.0 level. ISM new orders came in exactly at 50.0. That's why I called my most recent economic outlook article 'Economy - Contraction Is Close'.
Unfortunately, this is confirmed by regional shipments. This leading indicator has rebounded a bit in the first months of this year but has fallen significantly in June.
All things considered, the economy is getting weaker. At this point, I could end the article and just say that CSX should be avoided for the time being. However, that would be too easy and there is a lot more to it.
