CSX Net Earnings Fell 14% in 3rd Quarter

CSX this week said that during the third quarter its net earnings declined 14 percent to $736 million, or 96 cents per share, compared with $856 million, or $1.08 per share, in the third quarter of 2019.

Revenue fell 11 percent to $2.65 billion. CSX officials said intermodal traffic growth was offset by declines in coal and merchandise volumes, as well as lower fuel surcharge revenue. Operating income fell 11 percent to $1.14 billion.

The operating ratio, which measures the percentage of revenue devoted to expenses, was 56.9 percent. A year ago the OR for the same quarter was 56.8 percent.

Expenses fell 11 percent to $1.51 billion, which CSX executives attributed to efficiency gains and volume-related reductions.

In a conference call with stock analysts, CSX CEO James Foote said that during the second quarter of this year the carrier experienced its largest and most rapid sequential volume declines in history.

But during the third quarter Foote said CSX was able to “efficiently absorb the record rebound in volumes, while maintaining high level of service,” particularly in intermodal markets.

“The last six months have truly been surreal,” he said. “Think about that: Volume declines and increases twice as steep as the largest swings we experienced in the Great Recession [of 2008] in the span of just a few months.”

Foote said fourth quarter traffic is up on a year-over-year basis. CSX still expects capital expenditures to be at the low end of a $1.6 billion to $1.7 billion range.

In tandem with announcing its quarterly earnings, CSX also announced that its board of directors had approved a new share repurchase program.

The company has been sitting on $2.9 billion in cash and the board authorized an additional $5 billion share buyback program, making the total share repurchase program worth $6 billion.

CSX executives acknowledged that on-time performance deteriorated in the third quarter when compared to the second quarter of this year and the third quarter of 2019.

But Foote said just a few years ago large volume swings would have gridlocked America’s railroads. 

“If you’d had this kind of traffic surge across the rail network in North America four or five years ago, we would be now talking about gridlock across all the major cities in the country. And we wouldn’t be doing anything,” Foote said.

“And now with the common mindset of how you run a railroad, we’re able to respond, we’re able to pivot, we’re nimble, we can add capacity, we can shrink capacity, we can right-size our business and we can do that much more effectively and much more logically and thoughtfully.” 

Overall, CSX traffic volume was down 3 percent for the quarter, with intermodal growth of 7 percent undercut by a 5 percent decline in merchandise traffic and a 27 percent drop in coal.

Volume has increased 3 percent when measured from March 1, before the onset of the pandemic, to the end of the third quarter.

CSX has longer and fewer trains, using 6 percent fewer crews and an active locomotive fleet that’s 8 percent smaller. Train starts have fallen by 11 percent.

During the third quarter, CSX set a record for the number of trains using distributed motive power, averaging 100 trains per day.

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