4Q 2009 Rail Earnings Reports

January 2010

CSX: (reported January 19, 2010)

Price: $50.51

Price direction after earnings report: DOWN significantly

· Reported earnings per share of $.77, but this included a one-time state tax benefit à actual continuing earnings per share were closer to $.73

· This was worse than consensus estimate for earnings of $.76 per share

· Revenues were down 13% over last year

o In the last quarter, revenues were down 23%, so this shows a consecutive improvement

· Volumes declined by 7% as drops in coal volume more than made up for increases in intermodal and automotive

· Operating expenses were down 12% in the quarter

· For the full year, CSX posted a record operating ratio of 74.7%

· “Same-store pricing” grew by 5.3%, which was a slower rate than in previous quarters

o Mostly because of the drop in coal volumes, which are higher-margin

o Pricing expectations for 2010 are still a solid 4-5%, which is higher than many analysts were predicting

· Management made some very negative comments about the legislation currently being put forth by the Senate, claiming it is highly unbalanced

o Analysts take these comments with a grain of salt given that negotiations are ongoing and so the rails have no incentive to say anything positive about the bill at this time

· Weak coal volumes could continue to be a trend and a drag on operating leverage for many of the rails until mid-2010 at least

o Management’s negative tone on coal volumes were a major reason behind the stock’s 6%+ drop on the news

· Analyst Opinion:

o Ed Wolfe of Wolfe Research: Rating is Peer Perform (hold) with price target in high-50’s

o Tom Wadewitz of JP Morgan: Rating is Overweight (buy) with price target $61

o Matthew Troy of Citigroup: Rating is Hold with target price $51

o Gary Chase of Barclays: Rating is Equal Weight (hold) with price target $52