CSX on track for higher margins

As demand for coal, autos and lumber increases, this well-run rail company can add cars to each train without increasing labor or fuel costs.

By Jim Cramer Apr 8, 2011 8:06AM

the streetjim cramerThere's lots of dispute out there about whether margins have peaked. I know our own Doug Kass has argued mightily that the great margin expansion is over.

 

But then you talk to Michael Ward, the always-on CEO of the railroad company CSX (CSX), and you realize that the margins can still go higher and that it's even in the cards!

 

CSX is one of the best-run companies in America. The margins went from 25% to 29% last year. That's an incredible acceleration from previous years.

 

Yet there's Ward again talking about how margins have nowhere to go but up. He ticked off a bunch of factors: newer hubs that cure bottlenecks, including a brand-new operation in Northwest Ohio; more coal exports, which means many more train cars moving coal to the ports than the year before; and further efficiencies when it comes to intermodal traffic.

You could argue that it's all well and good but that the company was poorly run before so the margins have tons of room for expansion. But that's simply not the case. The company has been well-run for years. It's just that with the breakdown of the road infrastructure in the U.S., there's a huge migration from trucks to trains.

 

Plus, the more business, the more cars there are to pull -- at the same exact labor cost and fuel cost (remember, it has a fuel pass-through). So if you add 25 cars to a 150-car train, the margins just explode. And a locomotive can pull 200 cars, so as business comes back and the demand for coal keeps rising in China and India, you can only imagine how much the margins can go up.

The great thing about this whole margin expansion story? Lumber and autos had always been among the top businesses for this railroad. Autos are way down and coming back, and housing is nowhere. Can't wait to see how much margins go up when those two come roaring back.

 

At the time of publication, Cramer had no positions in stocks mentioned.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Follow Cramer's trades for his Charitable Trust.

 

Related Articles

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
279
279 rated 2
416
416 rated 3
647
647 rated 4
548
548 rated 5
513
513 rated 6
669
669 rated 7
516
516 rated 8
317
317 rated 9
113
113 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
UPLULTRA PETROLEUM Corp10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.