Railroad operator CSX Corp. (NYSE:CSX) reported a 30% profit increase for its first quarter, as the economic recovery drove shipping volumes higher. The railroad increased traffic in nearly all categories, as strong industry trends continued.

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CSX Traffic Rises
While U.S. railroads moved 1.9% more traffic in the first quarter than last year's first quarter, CSX's traffic increased 7%. Shipments and revenue increased across all categories except agriculture. Volume for coal, which accounted for 31% of CSX's year-ago revenue, increased by 3%, but coal prices rose 19%. Shipping for autos and auto parts improved, as volumes increased 20% and revenue rose 29%. Intermodal shipments increased 11%, forest products by 10%. For the quarter, CSX totaled $2.81 billion in revenue, up from $2.49 billion in the year ago quarter.

Profits Roll
CSX earned $395 million or $1.06 per share in the quarter, up from $305 million or $0.78 in last year's quarter. The strong demand offset rising fuel prices. The positive overall trend for U.S. railroads continued during the quarter. Carload rail volume, excluding coal and grain, rose 7.9% in the United States, compared to 9.3% in the year ago quarter. As the rails ship raw materials and finished products for just about every industry, rail traffic is an eagerly-watched clue on the health of the larger economy. Rail traffic beyond the quarter looks strong, according to Association of American Railroads statistics.

Rail's Edge
CSX is only one of many of the major railroads enjoying the industry resurgence. CSX was the first major railroad to report, but all were expected to show impressive earnings based on reported rail usage. Union Pacific Corp. (NYSE:UNP), Norfolk Southern (NYSE:NSC), Kansas City Southern (NYSE:KSU) and Berkshire Hathaway's (NYSE: BRK.A) Burlington Northern are other class-one major railroads rolling without friction, in addition to CSX.

A relative advantage for the rails is that despite rising fuel costs, rails are still 5.5 times more efficient than trucking. Railroads use a lower grade of diesel fuel, so the shock of $100 plus barrel per oil fuel prices hasn't yet cut as deeply as it has in the trucking or airline industry. Even so, CSX's fuel costs rose 42% and contributed to the 10% increase in operating expenses.

More On CSX's Results
CSX's operating ratio, the important efficiency measure for railroads where lower is better, was 72.5% during the quarter, an improvement of 210 basis points. The company has a stated goal of achieving a 65% by 2015. Whether CSX is able to reach this ambitious target will have to do with more than just its own managing efficiency, however, as the macro-economy will still have to do its share. Beyond a point, fuel cost increases can blunt the rails, too.

CSX Stock
That said about possible derailment of future results, this quarter CSX has turned in another winner. The stock has most of the good news priced into it, so investors should wait on that. (For related reading about railroads, see A Primer On The Railroad Sector.)

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