CSX (CSX)

Freight rail services provider CSX (NASDAQ:CSX) met Wall Street’s revenue expectations in Q3 CY2025, but sales were flat year on year at $3.59 billion. Its non-GAAP profit of $0.44 per share was 3.8% above analysts’ consensus estimates.

Company Overview

Established as part of the Chessie System and Seaboard Coast Line Industries merger, CSX (NASDAQ:CSX) is a transportation company specializing in freight rail services.

The growth of e-commerce and global trade continues to drive demand for shipping services, presenting opportunities for rail transportation companies. While moving large volumes by rail can be highly cost-efficient for customers compared to air and ground transport, this mode of transportation results in slower delivery times, presenting a trade off. To improve transit times, the industry continues to invest in digitization to optimize fleets, loads, and even braking systems. However, rail transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Public competitors in the rail industry include Union Pacific (NYSE:UNP), Norfolk Southern (NYSE:NSC), and CPKC (NYSE:CP)

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, CSX’s sales grew at a tepid 5.8% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. CSX’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2% annually. CSX isn’t alone in its struggles as the Rail Transportation industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

We can dig further into the company’s revenue dynamics by analyzing its number of units sold, which reached 1.61 million in the latest quarter. Over the last two years, CSX’s units sold averaged 1.3% year-on-year growth. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, CSX’s $3.59 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.6% over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

CSX has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 49.6% gross margin over the last five years. That means CSX only paid its suppliers $50.43 for every $100 in revenue.

CSX’s gross profit margin came in at 46.7% this quarter, marking a 2.5 percentage point decrease from 49.2% in the same quarter last year. CSX’s full-year margin has also been trending down over the past 12 months, decreasing by 2.3 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

CSX has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 38.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, CSX’s operating margin decreased by 13.7 percentage points over the last five years. Many Rail Transportation companies also saw their margins fall (along with revenue, as mentioned above) because the cycle turned in the wrong direction. We hope CSX can emerge from this a stronger company, as the silver lining of a downturn is that market share can be won and efficiencies found.

This quarter, CSX generated an operating margin profit margin of 30.3%, down 7.1 percentage points year on year. Since CSX’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

CSX’s unimpressive 6.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

CSX’s two-year annual EPS declines of 6.5% were bad and lower than its two-year revenue losses.

We can take a deeper look into CSX’s earnings to better understand the drivers of its performance. CSX’s operating margin has declined over the last two years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, CSX reported adjusted EPS of $0.44, down from $0.46 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 3.8%. Over the next 12 months, Wall Street expects CSX’s full-year EPS of $1.64 to grow 12%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

CSX has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 22.1% over the last five years.

Taking a step back, we can see that CSX’s margin dropped by 19 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

CSX’s free cash flow clocked in at $607 million in Q3, equivalent to a 16.9% margin. The company’s cash profitability regressed as it was 12.6 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although CSX hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 15.3%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, CSX’s ROIC averaged 2.8 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

CSX reported $618 million of cash and $19.16 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $6.32 billion of EBITDA over the last 12 months, we view CSX’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $753 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

While revenue was in line, it was good to see CSX beat analysts’ EPS expectations this quarter. Overall, this was a decent quarter once we look through the non-cash goodwill impairment of $164 million that distorted GAAP results. The stock traded up 2.8% to $36.96 immediately following the results.

Updated: December 4, 2025 at 10:47 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in CSX.

CSX doesn’t pass our quality test. To begin with, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its admirable gross margins indicate the mission-critical nature of its offerings, the downside is its declining operating margin shows the business has become less efficient. On top of that, its cash profitability fell over the last five years.

CSX’s P/E ratio based on the next 12 months is 19.5x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $39.29 on the company (compared to the current share price of $36.15).