CSX: Full Steam Ahead

May.16.07 | About: CSX Corporation (CSX)

CSX Corporation (NASDAQ:CSX) provides rail, intermodal and rail-to-truck transload services that are among the nation's leading transportation companies, connecting more than 70 river, ocean and lake ports, as well as more than 200 short line railroads.

Its principal operating company, CSX Transportation Inc., operates the largest railroad in the eastern United States with a 37,170-mile rail network linking commercial markets in 23 states, the District of Columbia, and two Canadian provinces. Headquartered in Jacksonville, Florida, CSX is the gateway to the west for goods coming into eastern ports and the main hauler of products coming from the Midwest to be exported.

Earnings in 2006 grew 64% and CSX increased its dividend 50%. Management predicts record revenues cash flow and profits through 2010. The key drivers? Gas and ethanol. Diesel fuel price increases disproportionately affect trucking vs railroads. It has become increasingly cost ineffective to ship goods long distance by truck as prices have risen. This has pushed more users to go the the railroad who, due to this increased demand volume, have been able to add fuel surcharges to offset their increased fuel costs. In ethanol, CSX experienced 24% volume growth in 2006 shipping the corn based fuel. CSX is the main shipper of ethanol from the Midwest to the east coast. It passes through its Chicago hub and from there to points east. This market will only continue to grow as mandates and demand do. When Archer Daniel's (NYSE:ADM) reports "strong ethanol demand," this is good for CSX.

These factors lead to CSX producing cash from operations of $2.1 billion, $1 billion higher than 2005. To return this to shareholders, at the end of 2006 the board approved another $2 billion to be completed by then end of 2008. Today's announcement of another $1 billion means that a total of 15% of the company's outstanding shares will be off the market by the end of next year. This is a huge win for shareholders.

The rail business is booming and CSX is doing its best to reward its shareholders.

CSX 1-yr chart:

CSX