Posts Tagged ‘CSX financial matters’

CSX Reports Big Jump in 3rd Quarter Earnings

October 18, 2018

CSX reported this week that its third-quarter net earnings jumped 95 percent to $894 million, or $1.05 per share. The comparison is with the third quarter of 2017 when CSX earned $459 million, or 51 cents per share

In a news release, CSX said its per-share earnings beat analysts’ estimates for the quarter.
The railroad said its operating ratio of 58.7 percent set a company third-quarter record. A year ago, CSX posted a third-quarter operating ratio of 68.4 percent.

Revenue in the quarter rose 14 percent over the prior year to $3.13 billion, which CSX attributed to “volume growth, increases in fuel recovery, favorable mix, higher supplemental revenue and pricing gains.”

Expenses dropped 2 percent to $1.84 billion, as expenses associated with increased volume and higher fuel prices were offset by efficiency gains as CSX continues to implement its scheduled railroading business model, company officials said.

Third-quarter operating income rose 49 percent to $1.29 billion from $868 million a year ago.

During an earnings conference call CEO James Foote said company officials are “very excited about the railroad’s strong performance.”

For all of 2018, CSX said it expects to reach 6 percent to 8 percent revenue growth, which Foote said would exceed what management anticipated.

“Only 8 months since our investor conference and — by almost any measure — we are ahead of where I thought I we would be,” Foote said. “I am proud of what has been accomplished and I’m encouraged by all the opportunity in front of us.”

Foote said CSX almost has met its workforce reduction target of 2,000 positions for 2018 and will continue reducing its employee rolls in 2019. He attributed that to expected efficiency gains. CSX employs 22,562.

Chief Financial Officer Frank Lonegro said CSX needs fewer people as it moves more tonnage with a smaller locomotive fleet and fewer rail cars.

“Clearly we are doing very well,” said Mark Wallace, CSX’s executive vice president of sales and marketing. “And service is excellent, the pricing environment is very, very good, customers are moving more freight back to the railroad — and that is a trend that will continue.”

Merchandise traffic was up 5 percent for the quarter while coal traffic grew 7 percent due to a 22 percent rise in export coal shipments.

However, domestic utility coal traffic fell by 2 percent and fertilizer traffic was down due to a plant closure. Intermodal traffic was up 3 percent for the quarter.

CSX said rail cars are spending less time in yards and trains are moving faster as terminal dwell times has fallen by 26 percent and average train velocity is up 28 percent.

However, there was little improvement in on-time originations, which remained at 85 percent. On-time arrivals improved 3 points to 64 percent.

The carrier said it has created a new service metric known as trip plan compliance, which monitors how well freight cars and intermodal containers and trailers meet their schedules.

That compliance was up 26 percent versus the first quarter and 13 percent compared to the second quarter.

“While we have made good progress, there’s plenty of room to improve,” Foote said during the conference call, noting that trip-plan compliance was in the upper 70-percent range for the quarter.

The railroad wants to get it closer to 100 percent, Foote said.

CSX said its real estate sales have increased by $52 million higher over last year largely due to the sale of some lines to short-line railroads.

The railroad said it expects to soon sell another 1,000 miles of railroad and continues to review its 8,000-mile systems for further sale opportunities.

CSX Sets Operating Ratio Record in 2nd Quarter

July 19, 2018

CSX announced on Wednesday that during the second quarter of 2018 it set a record for its lowest quarterly operating ratio and said that along with gains in profits and revenues are evidence that its scheduled railroading operations model has begun to pay off.

Net earnings were $877 million, or $1.01 per share, compared with $510 million, or 55 cents per share for the second quarter of 2017.

The operating ratio fell to 58.6 percent, which was a drop of 4.9 points compared to the operating ratio of the same quarter of 2018.

In a news release, CSX said the operating ratio announced this week is adjusted for the impact of one-time restructuring costs.

In a statement, CSX CEO Jim Foote called the operating ratio “clearly the lowest ever for CSX and, I believe, the lowest ever by a U.S. railroad.”

Revenue increased 6 percent, to $3.1 billion for the quarter.

Earnings per share rose 84 percent, to $1.01, topping Wall Street estimates of 87 cents per share.

Analysts credited the improved showing to the effects of tax reform and share buybacks.

“Two words sum up everything: Great performance,” Foote said during an earnings call with investors and Wall Street analysts.

Freight traffic on CSX rose 2 percent for the quarter, led by a 7 percent rise in coal shipments. However, CSX said utility coal was down due to competition from natural gas.

CSX officials expect a strong export coal market to continue for metallurgical and thermal coal.

A boost in international intermodal traffic enabled CSX to post a 2 percent in total intermodal traffic which came despite losses in domestic intermodal volume.

CSX executives project that revenue will increase by mid single-digits compared with their previous forecast of being up slightly.

Foote said the change in outlook came because of expectations for continued strong export coal shipments, higher fuel prices, and a healthy U.S. economy.

Chief Financial Officer Frank Lonegro said that CSX handled more freight with 9 percent fewer crew starts and 13 percent fewer locomotives.

The smaller locomotive and car fleet size meant that the railroad was able to cut its shop craft workforce by 18 percent compared with a year ago.

Overall, CSX’s costs fell during the second quarter by 8 percent with labor expenses dropping by 10 percent.

The improved operating ratio was helped by service improvements that saw train velocity up 7 percent, dwell time down 11 percent and train length up 13 percent on a year over year basis.

By commodity, CSX logged year-over-year second-quarter revenue increases in chemicals (up 7 percent), automotive (7 percent), agriculture and food products (up 2 percent), minerals (up 7 percent), forest products (up 11 percent), and metals and equipment (up 11 percent).

Fertilizer revenue declined 5 percent on an 18 percent drop in volume compared with the same quarter in 2017.

Year over year, coal revenue and volume each rose 7 percent, while intermodal revenue rose 9 percent on a 2 percent increase in volume.

CSX Had Lowest 1st Quarter Operating Ratio

May 10, 2018

CSX has the lowest operating ratio among Class 1 railroads in the first quarter of 2018.

The operating ratio of 63.7 percent compared to 69.4 percent during the first quarter of 2017 and was 0.9 points ahead of second-place Union Pacific.

A year ago, CSX was second-to-last among railroad operating ratios.

Chief Financial Officer Frank Lonegro said earlier this year that CSX is seeking to hit a 60 percent operating ratio by 2020.

To be sure, there are underlying factors that enabled CSX to post the performance that it did.

Indeed, CSX’s operating-ratio ranking led by the pack due to a number of factors, including an accounting rules change that disproportionately affected longtime industry leaders Canadian National and Canadian Pacific.

Both Canadian carriers also had to contend with higher operating costs due to harsh winter weather and congestion.

Likewise, first quarter operating ratios tend to fluctuate due to the effect of winter weather.

CSX also benefited from a 96 percent increase in “other revenues,” which included such things as demurrage, a $30 million-increase in real estate sales, and a doubling of equity earnings of affiliates such as the Indiana Rail Road, Conrail, and TTX.

Even CSX CEO James M. Foote cautioned not to read too much into the first quarter operating ratio.

“The plan recently laid out at our investor conference is a three-year plan,” Foote said. “We’re only one quarter in, one out of 12, and we still have a lot of work to do to achieve our goals.

“As we demonstrated in the first quarter, we expect a solid step-down each year in the operating ratio. There remains significant work ahead in order to deliver on our 2020 target.”

Foote told investors earlier this year that the railroads is handling about the same amount of volume that it hauled a year ago with eight fewer hump yards, 1,000 fewer locomotives, 4,000 fewer employees and 20,000 fewer railcars.

Traffic Growth Not Propelling CSX

April 20, 2018

CSX this week posted some glittering first quarter financial numbers and service metrics, but were they based on fool’s gold?

An analysis by Railway Age noted that the record earnings and operating ratio was based almost entirely on cost-cutting measures, rate increases and stock buybacks rather than on traffic volume growth.

In short, CSX is trying to live up to the adage that less is more. In this case, that means operating fewer and longer trains with fewer employees.

In looking at CSX freight traffic numbers, the trade publication found that traffic volume was flat or declined in every category except export coal and international intermodal.

Railway Age quoted its Wall Street Contributing Editor Jason Seidl as saying that from a financial standpoint CSX exceeded expectations among financial analysts in terms of revenue and profits.

The managing director of financial firm Cowen and Company sees that as a positive.

“Early on in [CEO Jim Foote’s] tenure, the company is showing the ability to operate efficiently as a smaller railroad with fewer employees and assets.”

Seidl said investors are likely to have increased confidence in CSX’s goal of achieving a 60 percent operating ratio by 2020.

“We continue to expect that CSX will become a more nimble, dynamic railroad in the coming years, as many layers of management have been reduced,” he said. “The company has consolidated its structure into four operating regions from nine. The number of hump yards where railcars go to die has been cut by two-thirds to four, from 12. There could be more to go on that front. Decentralization of operational decision-making will likely prove to be a key component to customer service improvement and employee retention over time.”

CSX is expected to continue reducing its employment rolls, sell $300 million in real estate through 2020 and reduce the total mileage of track that it operates.

Seidl noted that in the first quarter of this year CSX reaped $32 million from real estate sales.

“We think CSX’s strategy could provide an opportunity for Genesee & Wyoming . . . to acquire complementary infrastructure,” Seidl said, adding that G&W is already a major interchange partner with CSX and has a history of looking for asset sales from Class 1 railroads.

Railroad economist Jim Blaze told Railway Age that most of the net earnings that CSX posted in the first quarter of $695 million was based buying back shares of its stock.

He attributed the 19.8 percent improvement in the operating ratio largely to cost cutting.

“Revenue was relatively flat, year over year. The biggest revenue growth appeared to be from price leveraging and fuel surcharge increases,” Blaze said.

“On the traffic side, my analysis is a bit more negative for those expecting a shift toward a larger rail vs. truck mode change. That’s not occurring for CSX.”

Blaze said CSX traffic unit growth has stalled despite traffic growth opportunities provided by truck driver shortages and electronic logging.

“Intermodal volume remained unchanged percentage-wise at just 1,000 intermodal units over the 90 days. That’s about 11 system-wide units per day as truckers struggle,” he said. “Who saw that competitive outcome? Domestic intermodal growth was negative. That outcome isn’t in any stated railroad plans, is it?”

Cost Cutting Boosts CSX in 1st Quarter

April 19, 2018

CSX credited cost cutting and its scheduled railroading operating model for enabling it to post higher first quarter quarterly earnings when compared to last year.

During the first quarter of this year CSX said its profit was nearly double that of the first quarter of 2017.

For the first quarter of 2018 CSX had net earnings of $695 million, or 78 cents per share, compared with $362 million, or 39 cents per share in the same quarter last year.

The net earnings per share beat estimates by some Wall Street analysts of 65 to 66 cents per share.

The operating ratio for the quarter was 63.7 percent compared to 73.2 percent a year ago.

In a statement, CSX CEO James M. Foote said the performance came despite some challenging weather conditions.

Reducing expenses played a key role in the company’s first quarter performance.

Although revenue was flat at $2.88 billion, expenses fell 13 percent on a year over year or 8 percent when excluding prior year restructuring charges to $1.8 billion. Operating income rose 36 percent to $1.04 billion from $769 million a year ago.

Overall, CSX traffic fell 4 percent during the quarter but the railroad said that was offset by a 4-percent increase in revenue per unit.

CSX merchandise traffic was down 8 percent and coal declined 2 percent.

By commodity group, CSX said that chemicals declined 2 percent due to reduced fly ash, plastics and energy-related shipments.

Automotive was affected by lower North American vehicle production and dropped 4 percent.

Agricultural and food products fell 8 percent with much of the loss in ethanol and export grain. Fertilizer declined by 10 percent as a result of the effects of weather and the closing of a customer’s facility.

Domestic coal traffic fell by 4 percent decline but was somewhat offset by a favorable export coal market environment.

Intermodal traffic rose by 3 percent, helped by strong international service growth.

In terms of service metrics, yard productivity was up 20 percent in the first quarter of this year compared to a year ago when measured by cars processed per hour.

Train lengths were up 5 percent and road train starts were down 8 percent, which CSX officials attributed to a 20 percent gain in locomotive productivity when measured by gross ton-miles per available horsepower.

CSX has placed more than 800 locomotives in storage, thus cutting its active locomotive fleet by 23 percent when compared to this time last year.

During the first quarter, CSX reported average train speed rose 22 percent compared to the first quarter of 2017. Terminal dwell, meanwhile, fell 10 percent.

On-time departures were steady at 81 percent, while on-time arrivals improved to 57 percent, up from 52 percent a year ago.

In looking ahead, CSX said it expects revenue to be up slightly, with positive momentum heading into the second quarter. The railroad also expects to continue trimming it operating ratio.

CSX said that its performance has been adversely affected by unfavorable performance metrics at other Class I railroads.

Foote said CSX would not change its outlook for flat traffic volume this year. “We’re not going to chase volume,” he said.

Rather he said CSX is focusing on ensuring adequate rates and methodical, rational growth.

It might be willing to cut freight rates for Southern utilities in an effort to keep them from converting coal-fired power plants to natural gas.

During the first quarter, CSX spent more than twice as much on share buybacks ($836 million, a 224 percent increase) as it did on capital expenses ($368 million, a 17 percent decrease).

The company has said it is seeking to buy back $5 billion of its stock during the next three years.

Reading Between the Lines of How CSX Management Projects Itself to the World

March 7, 2018

CSX executives revealed last week at long last their vision for their company. They were supposed to have done it last fall, but three top-ranking vice presidents left during a management shakeup. Then CEO E. Hunter Harrison died.

But things have now stabilized. CEO James M. Foote and his management team put forth the most optimistic and rosy scenarios that they dared to spin.

Hovering over those presentations in New York City, though was Harrison.

A year ago Harrison and the hedge fund Mantle Ridge were closing in on their takeover of CSX, a feat they pulled off with a relatively small amount of money and in a short amount of time.

Harrison had great plans for the hidebound CSX. He brought the precision scheduled railroading model that he had implemented on the Illinois Central and then at Canadian National and Canadian Pacific.

Foote and his team went to great lengths to show that Harrison’s vision is their vision, too. Harrison received the reverence normally reserved for a company founder or elder statesman of much longer tenure.

Harrison had a lot of work to do. Independent railroad industry analyst Tony Hatch and Trains magazine columnist Fred Frailey have described CSX as long hindered by adherence to the practices of its  predecessor railroads, meaning it was  averse to change and rather bureaucratic.

Frailey said ormer CEO John Snow as uninspiring and his successor, Michael Ward, sought to move CSX forward but was bewildered as to how to get it out of its rut.

No wonder the CSX board of directors gave Harrison a chance even if, to quote his successor Foote, Harrison engaged in “carpet bombing” the railroad with fast-paced changes that led to widespread service failures that drew the ire of shippers and the attention of the U.S. Surface Transportation Board.

But all of that is behind CSX now, or so management wanted those attending or watching the presentations in New York to believe.

Some have bought it. Writing in Progressive Railroading, Hatch quoted an  investor as saying this was the best CSX meeting he had seen in a decade of watching the railroad.

The current management team laid out  goal of a 60 percent operating ratio by 2020, described a new intermodal business strategy, and pointed to the huge buckets of money it will fill from sales of unneeded real estate and rail lines.

Having a plan and making it work are not always, though, the same thing. Truth is every railroad company talks about growing traffic and all of them are facing challenges finding it.

Hatch said that if CSX is to increase its carload and intermodal business it will have to provide consistent and improving service.

Frailey didn’t comment directly on the New York conference, instead referring readers to articles written by the magazine’s writer covering the story, Bill Stephens.

Those articles, Frailey correctly observed, did well in showing how CSX seeks to project itself to the world.

Yet Frailey said some industry observers with whom he regularly corresponds have been debating the endgame that CSX management is seeking and it isn’t necessarily to grow traffic and become North America’s best railroad.

Those observers think CSX plans to eventually liquidate the company.

Frailey said the case for liquidation goes as follows: “The railroad borrows money to buy back an astounding $5 billion of stock, making every dollar of profit worth more to shareholders who stick around because the same amount of earnings is spread among many fewer shares . . . Freight rates are being jacked up to cover fully allocated costs, a direction I’m told only Union Pacific has gone up to now—milk the cow until it collapses, the saying goes. Its carload business has been steadily eroding since the turn of the century.”

The veteran journalist who has written about railroads since the 1960s said  he understands that CSX has reduced its marketing staff to a hard core operation.

That hardly sounds like a railroad that will be able to aggressively go to find new business. Perhaps CSX expects that by offering a superior product that shippers will come to it begging to do business.

The word “liquidate” that some of Frailey’s contacts used to describe CSX’s endgame is unfortunate because it conjures up selling assets and going away.

Perhaps a better description might have been to break up the railroad much as Illinois Central Gulf slimmed down in the 1970s and 1980s until it emerged as largely a Chicago-New Orleans core with a few arteries connecting to it.

Yes, some rail lines were abandoned, but most wound up in the hands of short line and regional railroads.

It was that railroad on which Harrison first implemented his precision scheduled railroading model.

Frailey isn’t sure what to make of what CSX is doing, but doesn’t believe Foote isn’t prepared to do the job thrust upon him following Harrison’s death.

Foote was in the right place at the right time and for now CSX and its shareholders will let him sit at the throttle and take the EHH train a little further down the line. But it is Harrison’s train orders that Foote is following and not those Foote wrote himself.

Shareholders can be a fickle lot. Just this week Canadian National, a railroad described in most circles as highly successful, pushed out CEO Luc Jobin after the company hit a rough patch.

What I see happening at CSX is that management is trying to walk a fine line between pleasing investors and shippers and keeping at bay a few interested bystanders who have the ability to make life easy or miserable for a company.

Cost cutting and asset sales will only take a company so far in that endeavor. Of course growing traffic makes everyone happy, but is CSX prepared to spend the time and money needed to make that happen. It is so much easier to sell property and lightly used rail routes.

In theory, a company exists to serve its customers because without them you don’t have a company. But theory also says that a company exists to make money for its shareholders.

The two objectives are not necessarily in opposition. Arguably, you can’t make money for shareholders unless you provide a product or service that someone is willing to buy.

But you can’t improve your product or seek to sell more of it without spending money on that, too.

Management has always existed to reconcile those sometimes opposing forces.

The history of the railroad industry is filled with tales of financiers milking companies and leaving them behind. There is reason to believe that CSX is tilting toward enabling the financiers to make a financial killing before moving on to something else.

To quote a line from the John Mellencamp song Peaceful World, “These are just words and words are OK. It’s what you do and not what you say, if you’re not part of the future then get out of the way.”

We will know in time what the future of CSX is but take with some healthy skepticism how CSX projects that to the world.

CSX Aims for 60% Operating Ratio by 2020

March 2, 2018

CSX executives told an investor’s conference in New York City this week that the carrier will continue paring its locomotive and rail car fleets, and reducing its employment ranks as it works toward reaching an operating ratio of 60 percent by 2020.

Along the way the railroad expects revenue to grow at a compound annual rate of 4 percent.

The carrier also expects to trim capital expenses over the next three years.

If all goes to plan, the higher revenue, lower costs, and reduced capital expenses will allow CSX to generate $8.5 billion in free cash flow, a $5-billion increase over the previous three-year period, and that cash will be put into the pockets of stockholders through a $5 billion stock buyback program and higher dividends.

“Today marks the beginning of a new chapter for CSX, and we’re confident we have the right plan and the right team in place to achieve our goal of becoming the best railroad in North America,” said CEO James M. Foote. “The foundation of scheduled railroading has been set, and we expect to identify real growth opportunities that will benefit shareholders as our changes take hold.”

CSX said that by offering faster, more dependable service it expects to better compete with trucks, charge higher rates, and grow intermodal and merchandise traffic over the next three years.

Nonetheless, Foot acknowledged that he has had to apologize to shippers for service failures last year that occurred as CSX made rapid changes in its transition to the precision scheduled railroading operating model.

But Foote said the carrier has rebounded and that trains are moving 30 percent faster and freight cars are spending 22 percent less time in yards.

Capital spending will be trimmed to an average of $1.6 billion a year where it had been $2.5 billion three years ago.

“We are not reducing the emphasis on infrastructure and maintenance,” Chief Financial Officer Frank Lonegro said.

He said the railroad will install more miles of rail, replace more ties, and add more ballast this year than in 2017. Most of the decline in capital spending comes from withdrawing from buying locomotives and rolling stock and the completion of installation of positive train control.

Although CSX doesn’t expect this year to make such big changes as converting hump yards to flat switching facilities, the company did not rule out closing additional humps.

CSX expects that operating fewer and longer trains daily will enable it to do more with less.

At the start of 2017, CSX had 3,781 active locomotives. That fell to 3,000 by late last year and is slated to tumble another 20 percent to 2,400 units by 2020.

The railroad will cut its freight car fleet to between 104,000 and 109,000 cars. Officials say that speeding up the network and reducing car cycle times will enable this.

With fewer trains, fewer locomotives, fewer cars, fewer shops and fewer yards, CSX will also get along with fewer workers.

The payroll will be slashed to 21,000 employes by 2020, a 23 percent reduction from the 27,000 workers CSX had in late 2017. The latter number is also significantly less than what the railroad had at the start of the year.

Over the next three years, CSX expects to reap $300 million from selling surplus real estate and $500 million from the sale of rail lines.

CSX Vice President of Strategic Planning Amy Rice described the line sales as a by-product of broader network evaluation but did not provide any information as to how many miles it plans to sell.

She only would say that all lines under review will not necessarily be put up for sale.

CSX plans to add 600,000 units of lift capacity at six intermodal terminals during the next two years as it focuses on point-to-point service.

Lower-density intermodal traffic will be consigned to merchandise trains as CSX implements a balanced train plan with daily service.

CSX does not see a change in the long-term decline of coal traffic, but will work to move its coal traffic faster, more reliably, and more efficiently.

CSX Revenue Fell 6% in 4th Quarter of 2017

January 18, 2018

CSX said on Wednesday that during the fourth quarter of 2017 its revenue fell by 6 percent to $2.86 billion when compared with the same period of 2016.

However, quarterly net income soared 25 percent, largely due to cost-cutting measures that offset the revenue decline and slumping traffic volume

The carrier said it had net earnings of $4.1 billion, or $4.62 earnings per share, compared with $458 million, or 49 cents per share in 2016.

The 2017 earnings include a $3.6 billion net tax reform benefit under the recently passed Tax Cuts and Jobs Act of 2017, as well as a $10 million net restructuring charge.

In a news release, CSX said that excluding the tax reform benefit and restructuring charge, adjusted net earnings for the quarter were $573 million, or 64 cents per share.

Also affecting the fourth quarter revenue was an additional fiscal week in 2016 in the reporting calendar.

Expenses for the fourth quarter fell by 14 percent compared with the year-ago period. CSX posted fourth quarter 2017 operating income of $1.12 billion, a 12 percent increase over the fourth quarter of 2016.

The fourth quarter 2017 operation ratio was 64.8 percent compared with 67 percent a year ago.

For all of 2017, CSX reported earnings per share of $5.99, operating income of $3.7 billion and an operating ratio of 67.9 percent.

Adjusted for the effect of the new tax law and the company’s restructuring charge, adjusted earnings per share were $2.30, adjusted operating income was $3.9 billion and adjusted operating ratio was 66.3 percent for full-year 2017.

During the fourth quarter of 2017, traffic volume fell by 2 percent on a carload basis and by 10 percent when measured by revenue ton miles.

CSX said much of the lost traffic was related to service issues related to an accelerated implementation of the precision scheduled railroading operating model.

Merchandise traffic was down 5 percent; coal was flat; and intermodal volume was up 1 percent, due largely to international traffic growth. But domestic intermodal fell 7 percent as the railroad discontinued lower-volume intermodal service lanes.

Service metrics for the fourth quarter showed train velocity up 14 percent versus a year ago, while terminal dwell declined by 7 percent.