Rail giant CSX hurt by lower shipping volume

Q:I own shares of CSX Corp. and wonder what I can expect next. -- P.L., via the Internet

Answer: While this giant railroad with 21,000 miles of track in 23 Eastern states has improved the efficiency of its operations in recent years, there's no escaping the bad economy.

The third-largest railroad by revenue expects that its current double-digit declines in shipping volume will continue for a while. Shipments such as autos, metals and forest products are down sharply.

Even after furloughing more than 2,400 employees over the past year and parking thousands of rail cars, it expects that more "rightsizing" may be necessary. Meanwhile, trucking companies have been cutting their rates to try to stay more competitive with rail, which is generally considered less expensive than trucks for long-distance hauls.

Shares of CSX (CSX) are up 2 percent this year after last year's 24 percent decline. The company's first-quarter profit fell 30 percent from a year earlier, but those results actually beat Wall Street expectations due to cheaper fuel and company cost reductions.

Historically, CSX has not been one of the more profitable of the large railroads, and its operating ratio still lags that of many competitors.

Yet it does have the advantage of serving the heavily populated Eastern U.S. Its diverse freight mix includes one of the largest proportions of coal freight, which tends to be less cyclical. All of the nation's railroads own assets that no other industry can hope to duplicate.

Consensus analyst recommendation on shares of CSX is between "buy" and "hold," according to Thomson Reuters. This consists of three "strong buys," six "buys," nine "holds" and one "underperform."

Despite declining volume, the largest railroads were able to increase their prices and enact fuel surcharges last year, which sparked an outcry from their customers.

As a result, reform legislation is pending in the Senate to overhaul the Surface Transportation Board that regulates rail transportation. Some legislators contend that rail pricing must be reined in and that the board is too friendly to the four companies that dominate rail shipping: CSX, Norfolk Southern Corp., Burlington Northern Santa Fe and Union Pacific.

CSX earnings are expected to decline 19 percent this year versus the 32 percent drop predicted for the railroad industry. Next year's projected 12 percent rise compares with a 23 percent gain forecast for the industry. The five-year annualized growth rate is expected to be 10 percent compared with 11 percent for its peers.

Q:I am not happy with my holdings in Vanguard U.S. Growth Fund. Please tell me if I have any cause for optimism. -- D.M., via the Internet

Answer: This hasn't been a shining light of the Vanguard Group.

How bad is it? Well, its 10-year annualized decline of 7 percent ranks near the bottom of all large growth funds at the 98th percentile. In 2000 it had more than $20 billion in assets, and today it is down to $3.37 billion.

Two teams currently serve as subadvisers of this 70-stock fund that owns a lot of technology giants and retailers.

The team from the William Blair firm, managed by John Jostrand since 2004, is more conservative and has a decent record of finding companies with sustainable growth and sensible valuations.

The AllianceBerstein team, run by Scott Wallace and James Reilly since last year, is somewhat more aggressive and trades more frequently, with a goal of beating Wall Street consensus forecasts. However, it offers less certainty because that team's past results in running AllianceBernstein Large Cap Growth Fund have been inconsistent.

Vanguard U.S. Growth Fund (VWUSX) is down 29 percent over the past 12 months to rank in the upper one-third of large growth funds. The three-year annualized decline of 7 percent places it at the midpoint.

"This is one of those funds that just hasn't gotten it together yet, so we'd suggest you look elsewhere for a large growth fund," said Katie Rushkewicz of Morningstar Inc. in Chicago. "It has done better this year, but it has a checkered past and we'd have to see more positives before recommending it."

The fund emphasizes established industry leaders with above-average growth prospects. While it tends to be somewhat volatile in price, it has below-average turnover.

"It has a long way to go to make up for its past," Rushkewicz said.

Technology hardware and health care each represent about one-fifth of the fund's holdings, with other concentrations in consumer services and industrial materials. Largest holdings include Google, Hewlett-Packard, Apple, Gilead Sciences, Qualcomm, Cisco Systems, Wal-Mart Stores, Schlumberger and Monsanto.

This "no-load" (no sales charge) fund requires a $3,000 minimum initial investment and has a low 0.43 percent annual expense ratio.

Q:Please help. What happens if you've put too much money in an individual retirement account by mistake? How do you correct that mistake, and are there tax consequences? -- C.R., via the Internet

Answer: No need to panic. It is not that big a mistake. It happens more often than you'd think, and you can correct the problem.

Just take that extra money out of your IRA before the due date of the tax return for that year. You can contact your IRA custodian company to handle this.

For example, if you put in too much money for 2008, as long as you pulled it out by April 15, 2009, you would have been OK. If there is any net income earned by that excess contribution, you need to take that out, too.

The situation is different if you miss that deadline.

"If you don't withdraw the money by the deadline, any contributions in excess of the allowable amount are subject to a 6 percent tax that you report on IRS Form 5329," said Molly Balunek, certified financial planner and vice president with Spero-Smith Investment Advisers in Cleveland. "That applies to both regular IRAs and Roth IRAs."

Send questions to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, AZ 85004-1248 or andrewinv@aol.com.