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CSX Corp beats profit estimates after spurning Canadian Pacific talks

CSX Corp., the U.S. railroad said to rebuff merger talks last week with Canadian Pacific Railway Ltd., posted profit that beat analysts’ estimates as shipments of crude oil and grain led volumes higher among all sectors

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CSX Corp., the U.S. railroad said to rebuff merger talks last week with Canadian Pacific Railway Ltd., posted profit that beat analysts’ estimates as shipments of crude oil and grain led volumes higher among all sectors.

Third-quarter net income was US$509 million, or 51 cents a share, compared with US$455 million, or 45 cents, a year earlier, the Jacksonville, Florida-based carrier said in a statement yesterday. The average of 23 analysts’ estimates had predicted earnings of 48 cents a share. The shares rose in late trading.

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The biggest railroad in the eastern U.S., CSX rejected an offer by Canadian Pacific to combine into a transcontinental railroad, people familiar with the matter said. Calgary-based Canadian Pacific could make another attempt to woo CSX or seek a new target, said one of the people, who asked not to be identified because the talks are private.

A rebound in consumer demand coupled with a surge in transporting crude oil by rail is driving earnings for CSX, making it an attractive takeover target, said Gary Bradshaw, a fund manager with Hodges Capital Management Inc. in Dallas, which owns railroad shares including CSX, Union Pacific Corp. and Kansas City Southern.

“The rail business is going to continue to be good with the economy improving,” Bradshaw said. “We own them for the good fundamentals.”

The shares rose 2.9% to US$33.55 at 5:30 p.m. in New York yesterday after the close of regular trading and the earnings release. They rose 13% this year through the close, outpacing a 1.6% increase in the Standard & Poor’s 500 Index.

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Crude, Coal

CSX revenue rose 8% to US$3.2 billion. Analysts had predicted sales of US$3.15 billion. Chemicals, including crude oil and liquefied petroleum gas, led the increase in shipments and coal rose for a second straight quarter for the first time since the beginning of 2011.

CSX is reaping the benefits from increased demand for transportation of energy related materials, “not just moving crude-by-rail, but also in some of the other commodities” such as sand and liquefied petroleum gas, said Fredrik Eliasson, chief financial officer, in an interview on Bloomberg Radio. “That is the positive of the new energy environment we’re finding ourselves in.”

Eliasson said he feels “pretty bullish about where the economy is heading and also some sector trends that seem to be benefiting the railroad industry.”

He declined to comment about a potential merger between CSX and Canadian Pacific.

The company said it expects to post earnings growth of at least 10% next year, and reiterated a target of an operating ratio in the “mid-60s” in the longer term.
Bloomberg.com

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