Even before Jacksonville-based CSX Corp. lowered its earnings expectations for this year, investors last week were already seeing warning signs that 2015 could be a tough year for the railroad industry.
After reporting first-quarter earnings per share growth of 13 percent, CSX on Wednesday said it would likely not achieve its goal of double-digit earnings growth for the full year, due in large part to reduced volume of coal shipments on the railroad.
That wasn’t really a surprise after the other major Eastern U.S. railroad, Norfolk Southern Corp., announced Monday that continued reduction in coal volumes and other factors are reducing its revenue. Norfolk Southern said it expects its first-quarter earnings to be 15 percent lower than last year.
Also on Monday, Cowen & Co. railroad analysts said its first-quarter survey of shippers produced a “mild negative” for the industry.
“Pricing, employment outlook, confidence, recent business trends, and shippers’ growth expectations all declined somewhat,” the Cowen analysts said.
“While we continue to remain positive on the rail industry over the longer term, 2015 could prove to be one of the more difficult years for rail stocks in quite some time,” they said.
After CSX gave its earnings forecast, Raymond James analyst Patrick Tyler Brown also expressed concern about coal, which is CSX’s biggest business segment.
“Further comments from utility shippers at Tuesday’s Rail Energy Transportation Advisory Committee meeting at the Surface Transportation Board only further emboldens our view of substantive pressure in coal this year,” Brown said in a research note.
“While CSX continues to do an admirable job attacking productivity, a lack of stabilization in coal, inflationary pressures, and continued network congestion all temper EPS growth (and add ‘risk’ to numbers) in the near term,” he said.
Brown said he is maintaining a “market perform” rating on CSX’s stock, but Credit Suisse analyst Allison Landry maintained her “outperform” rating.
“Although deteriorating coal fundamentals have once again thrown a wrench into CSX’s guidance (on top of a weakening shale backdrop), we continue to recommend the stock,” Landry said in her research note.
She cited pricing gains for CSX shipments as one reason, as well as expected service improvements.
“Resources are caught up from a crew standpoint, and now the company only awaits the arrival of locomotives in the second quarter,” she said. “Once power is attained, the restoration of service should begin.”
Robert W. Baird analyst Benjamin Hartford also maintained his “outperform” rating, but he did lower his price target for the stock from $38 to $37, with the stock trading near $32 last week.
“We remain mindful of lingering risk to CSX (and rails broadly) from soft industrial end-market demand, and therefore remain patient buyers, awaiting evidence of firming underlying volume trends and incremental service improvement,” Hartford said in his research note.
Despite the lower earnings outlook, CSX’s stock didn’t move much last week after the earnings report. That didn’t really matter to CEO Michael Ward, who told the Daily Record in an interview Wednesday that he doesn’t get caught up in watching the stock price.
“Short-term movements are enough to drive you insane,” he said.
Latitude 360 reports loss
Latitude 360 Inc. reported a net loss of $50.3 million for 2014, including a $23 million loss from operations, according to its annual report filed last week with the Securities and Exchange Commission.
Jacksonville-based Latitude 360, which operates restaurant and entertainment venues, became public last year by merging with a public company.
The company operates venues in Jacksonville, Pittsburgh and Indianapolis and has plans to open three more this year. It said in the annual report it will need additional financing, and its plans “include the procurement of additional funds through debt and equity instruments and the increase in operating cash flows from revenues generated as part of various new venues.”
Latitude 360’s revenue fell by 3.3 percent to $17.8 million in 2014. The company said revenue from amusement, entertainment and other sources rose 3.4 percent, but food and beverage revenue declined 6.9 percent last year.
NAC Global reports loss
Another new Jacksonville-based public company, NAC Global Technologies Inc., filed its annual report last week showing a net loss of $1.5 million and an operating loss of $907,926 for 2014. Revenue fell 5.7 percent to $651,641.
NAC makes harmonic gearing technology, which is used in the automation, robotics and defense industries.
The company said in its annual report that most of its activities take place in Port Jervis, N.Y., but it maintains its corporate headquarters office in Jacksonville.
NAC’s stock trades on the OTCBB market under the ticker symbol “NACG.”
Information Systems files annual report
A public company that is new to Jacksonville, Information Systems Associates Inc., filed its annual report last week, but it didn’t include financial data from its Jacksonville operations.
ISA is a technology company that just officially moved its headquarters to Jacksonville at the beginning of this month after acquiring a local company, Duos Technologies Inc.
Duos provides technology applications for the government, healthcare, transportation, utilities and commercial/industrial sectors, according to the annual report. It became the main business of ISA after the merger, so the headquarters moved to Jacksonville from Coral Springs.
The annual report said Duos employs about 30 people, but it gave no financial details for the business.
Before the merger, ISA reported revenue of $401,311 for 2014 and a net loss of $735,223.
ISA’s stock trades on the OTC market under the ticker “IOSA.”
Analyst downgrades Web.com
After a runup in the stock over the last two months, RBC Capital Markets analyst Rohit Kulkarni last week downgraded Jacksonville-based Web.com Group Inc. from “outperform” to “sector perform.”
“With Web.com shares up 30 percent since early February and approaching our $20 price target, we are downgrading Web.com to Sector Perform as we believe risk-reward is fairly balanced at these levels,” Kulkarni said in his research note.
Of course, the recent gains for Web.com, which provides website development services for businesses, followed a sharp fall in the stock last year.
“Since Web’s Analyst Day on Feb. 20, 2014, shares have declined 47 percent, as the company has reported a series of ‘miss & lower’ quarters, driven by a series of product/partner/sales execution issues coupled with plausible competitive headwinds,” Kulkarni said.
Kulkarni has an overall favorable opinion of the company.
“Web.com’s scale, profitability, and focus on more sticky full-service offerings remain key attractive elements versus DIY/start-up peers. However, ARPU (average revenue per user) and revenue growth will likely remain under pressure as the company digests a variety of one-off issues over the past 6-9 months,” he said.
When Web.com issued its yearend earnings report, CEO David Brown told analysts that he expects revenue to begin growing again in the second quarter this year. Last week, Brown told the Daily Record that forecast is still intact.
“We feel really good about this year,” he said.
J&J Vision Care sales drop sharply
Johnson & Johnson last week reported a sharp first-quarter sales drop for its Jacksonville-based contact lens subsidiary.
Johnson & Johnson Vision Care Inc.’s total sales fell 17.1 percent to $631 million in the quarter.
That was partly due to the strong U.S. dollar, which had a big impact on Johnson & Johnson’s overall worldwide sales. However, domestic sales in the Vision Care business dropped 11.5 percent in the first quarter.
In its quarterly news release, Johnson & Johnson said Vision Care sales “were negatively impacted by buying patterns and competitive pricing dynamics,” but it gave no further details.
The New Jersey-based medical products giant reported total global sales fell 4.1 percent in the first quarter to $17.4 billion, a decrease attributed entirely to the strong dollar. Excluding the impact of currency rates, which reduced the value of overseas sales, Johnson & Johnson said its total sales rose by 3.1 percent on an operational basis.
With the drop in sales, Johnson & Johnson’s adjusted earnings fell by 7 cents a share in the quarter to $1.56. The company also said it is decreasing its earnings forecast for the rest of the year because of the negative currency impact.
After previously forecasting earnings of $6.12 to $6.27 a share this year, the company is now projecting a range of $6.04 to $6.19.
Johnson & Johnson reported adjusted earnings of $5.97 a share in 2014.
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