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We’ve been expecting earnings like this for weeks.  The market is currently celebrating the CSX earnings in the after hours market, but these are not strong organic growth numbers.  Briefing.com reports:

CSX Corp beats by $0.10, misses on revs: Reports Q2 (Jun) earnings of $0.72 per share, excluding non-recurring items, $0.10 better than the First Call consensus of $0.62; revenues fell 25.0% year/year to $2.185 bln vs the $2.27 bln consensus. CSX said revenue fell primarily due to a 21% decline in volume and lower fuel surcharge recovery. Volumes continued to decline across the board, although the rate of decline in the coal market accelerated in the second quarter.

CSX was able to cut costs a full 2% which explains much of the EPS beat.  The 5% reduction in shares helps as well.  This was a huge part of the reason why I moved to neutral last week in our strategy outlook.  The likelihood of this sort of earnings action is very high.  The street might respond favorably at first, but as we get deeper into earnings season we are going to need to see some real top line strength.  Cost cutting is not a sustainable profit equation.

On the bright side, CSX CEO is reiterating what we’ve been hearing from many companies:  we are seeing some firming in markets, but not necessarily signs of an upturn:

“While the economy continues to significantly impact our business, there are some signs that we may be seeing the bottom in many markets,” said Michael Ward, president, chairman and CEO. “Even in this difficult business environment, we are still strengthening our operations, optimizing our resources and making the right investments to prepare our network for the future.”