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CSX predicts strong profit growth in 2014 and 2015 after coal demand stabilizes at lower level

CSX railroad officials expect strong profit growth in 2014 and 2015, once coal shipments stabilize at a lower level this year.

CSX chairman, president and CEO Michael Ward said Wednesday that the railroad has dealt with the current decline in coal shipments, driven by relatively low natural gas prices.

Company officials are telling investors to expect 10 to 15 percent earnings growth in 2014 and 2015, after flat results this year. Ward says economic growth will boost the railroad's profits, once coal stabilizes.

Ward and other CSX executives held a conference call with investors Wednesday — a day after reporting first-quarter profit of $459 million, or 45 cents per share. That beat Wall Street's expectations and topped last year's $449 million profit, or 43 cents per share.

"The underlying strength of our business continues, even with the transition that is taking place in the domestic coal market," Ward said.

CSX officials predict that domestic coal volumes will decline 5 to 10 percent this year because many utilities still have significant coal stockpiles to burn, but generally all the utilities CSX serves that can switch to natural gas have done so to take advantage of cheap natural gas.

So the railroad expects coal demand to stabilize in 2014, because utilities still need to burn some coal to meet electricity demand.

In the first quarter CSX coal revenue dropped 13 percent to $726 million.

At the same time revenue from intermodal, chemical, automotive, construction and agricultural shipments grew nearly 3 percent to top $2.1 billion.

CSX officials are optimistic the railroad will be able to increase the number of shipping containers and other merchandise it carries faster than the economy is growing.

S&P Capital IQ analyst Kevin Kirkeby said CSX appears to be an attractive buy because of the positive outlook and relatively low share price compared to historical averages.

CSX shares lost 77 cents, or 3.2 percent, to sell for $23.37 in afternoon trading Wednesday amid a broad market sell-off.

The number of carloads of chemicals, crops, lumber, coal, grain and containers of imported goods that railroads carry offers clues about the health of the broader economy.

Ward said he doesn't think there is anything on the horizon that could derail the slow economic growth happening now. He said there is still much pent-up demand for products and equipment because people and companies have been delaying purchases since the Great Recession.

But Ward said the economy would benefit if politicians could agree on a financial plan for the nation.

"One thing that would accelerate it is if Washington, D.C., could agree on fiscal policy," Ward said.

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

CSX is the first major freight railroad to release first-quarter earnings. Union Pacific Corp. will release its first-quarter results on Thursday, and Norfolk Southern Corp. will follow next Tuesday.

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Follow Josh Funk online at www.twitter.com/funkwrite

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Online:

CSX Corp.: www.csx.com

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