There’s Still No Growth at Railroader CSX—Unless Buffett Makes a Bid

A CSX mixed freight train stops while traveling through La Grange, Ky. (Luke Sharrett/Bloomberg)

The eastern freight railroad CSX reported another dispiriting quarter of falling revenue and profits. Volumes have been flat for two years.

But on the June quarter call, analysts were mostly interested in whether the company has heard from Warren Buffett about a buyout.

Last week, The Wall Street Journal reported that Union Pacific was holding talks with CSX’s eastern rival Norfolk Southern about merging to form a transcontinental railroad that would be the country’s largest freight network. That news set investors thinking about the logic of a countervailing deal between CSX and BNSF, the unit of Buffett’s Berkshire Hathaway that is the western rival of Union Pacific.

On the late Wednesday earnings call, the company was coy. “I am not going to comment on anything to do with a merger into a transcontinental railroad,” said CEO Joe Hinrichs. “But at CSX we are absolutely focused on delivering shareholder value and are absolutely open to anything that can help us achieve that objective.”

“We welcome all options that would allow us to deliver value to our shareholders.” Over half of CSX volume comes from another railroad, Hinrichs said.

Volumes were flat in the June quarter. Revenue fell 3% year over year to $3.57 billion. Still, that number was 4% higher sequentially from the challenging March quarter, when several stretches of track were closed. Operating measures like average train velocity and idle time all improved sequentially.

June quarter profit was $829 million, or 44 cents a share, down from the year-ago quarter’s $963 million, or 49 cents.

“We have to keep pushing, but this has been a great result,” said Hinrichs, on the call that followed Wednesday’s close of trading.

Investors seemed mildly impressed. CSX shares ticked up 2% after hours on Wednesday, to $35.70.

In a Wednesday morning note, UBS analyst Brian Meredith figured that a CSX buyout by Berkshire’s BNSF could add $3.8 billion, or 8%, to the $47 billion in pro forma profit that he projects for BNSF in 2026.

His calculation assumes BNSF would pay $44 a share for CSX, or about $82 billion—a 25% premium on the current stock price. A merger would add about 8% in revenue and save 2% in costs.

An $80 billion price for CSX would represent about 25 times CSX earnings. Meredith notes that Berkshire paid about 14-time earnings for BNSF in 2010. But the more recent 2021 deal by Canadian Pacific Railway for Kansas City Southern represented a multiple of 26 times Kansas City’s earnings.

Showing a map of the BNSF and CSX networks, the UBS analyst shows that a combination would cover the continental U.S. thoroughly.

Write to Bill Alpert at william.alpert@barrons.com