CSX (CSX)

Freight rail services provider CSX (NASDAQ:CSX) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 7% year on year to $3.42 billion. Its GAAP profit of $0.34 per share was 6.9% below 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)

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, CSX grew its sales at a sluggish 3.9% compounded annual growth rate. 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 2.9% 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 better understand the company’s revenue dynamics by analyzing its number of units sold, which reached 1.52 million in the latest quarter. Over the last two years, CSX’s units sold were flat. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, CSX missed Wall Street’s estimates and reported a rather uninspiring 7% year-on-year revenue decline, generating $3.42 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

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 50.2% gross margin over the last five years. That means CSX only paid its suppliers $49.84 for every $100 in revenue.

CSX’s gross profit margin came in at 42.8% this quarter, marking a 4.9 percentage point decrease from 47.7% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

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 39.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, CSX’s operating margin decreased by 6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, CSX generated an operating profit margin of 30.4%, down 5.9 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 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 9.1% were bad and lower than its two-year revenue performance.

In Q1, CSX reported EPS at $0.34, down from $0.45 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects CSX’s full-year EPS of $1.68 to grow 9.2%.

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 25.1% over the last five years.

Taking a step back, we can see that CSX’s margin dropped by 15.8 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 $536 million in Q1, equivalent to a 15.7% margin. This cash profitability was in line with the comparable period last year but below its five-year average. In a silo, this isn’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although CSX hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, 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. Uneventfully, CSX’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.

CSX reported $1.15 billion of cash and $19.13 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 $6.73 billion of EBITDA over the last 12 months, we view CSX’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $746 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.

We struggled to find many positives in these results. Its EPS missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $27.19 immediately following the results.

Updated: July 10, 2025 at 11:15 PM EDT

Before deciding whether to buy CSX or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

CSX doesn’t pass our quality test. To kick things off, 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 18.3x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $34.38 on the company (compared to the current share price of $33.30).