Shares holders of CSX Corporation (CSX) have enjoyed a near 94% return over the past five years, vastly outperforming the S&P 500’s 51% return. The railroad has also been a solid dividend growth stock, increasing its dividend for more than a decade, including a high single-digit increase earlier in 2019.

I feel that investors looking to purchase shares of CSX Corporation are better off waiting for a better entry point.

Third Quarter Earnings - Record Operating Ratio, But Weak Revenue Growth

CSX reported third quarter earnings results on 10/16/2019.

Source: CSX Third Quarter Earnings Presentation, slide 5. 

Revenue declined 5% to $3 billion, missing consensus estimates by just $3.5 million. EPS grew 3% to $1.08 for the quarter, topping estimates by $0.06. Operating ratio improved 190 bps to a new company record of 56.8%.

Nearly every product category that CSX ships saw year-over-year declines.

Source: CSX Third Quarter Earnings Presentation, slide 6.

The largest declines were in the Intermodal and Coal categories. Intermodal volumes decreased 9% with revenues were lower by 11% as CSX saw lower demand in both domestic and international business. Coal experienced a 9% drop in volumes and a 12% decrease in revenues. Coal exports were down 18% year-over-year while domestic tonnage was down 3% due to competition from natural gas.

On the other hand, volumes for Agricultural and Food Products both improved 6% while revenue was higher by 9%. This product saw increased demand for ethanol, feed grain and ingredients. Minerals saw a 6% increase in both volumes and revenues due to demand for construction and paving projects.

Overall, 1% growth in merchandise revenue, which accounts for nearly two-thirds of total revenues, was offset by intermodal and coal.

While CSX was able to beat bottom-line estimates, this was mostly due to a lower share count. Average shares outstanding declined 7.3% from Q3 2018 to Q3 2019. Net earnings were actually lower by 4% from the previous year. Adjusting for the reduction in shares outstanding, EPS would have actually declined from the previous year.