Posts Tagged ‘U.S. Class 1 Railroads’

Class 1 Employment Rose in February

March 23, 2017

Class 1 railroad employment ticked up 0.28 percent in mid-February, but was down 3.48 percent when compared with the February 2016.

The U.S. Surface Transportation  Board said the railroads employed 148,843 in the United States as of mid-February.

Of the six employment categories, three reflected increases compared with January’s employment report.

The number of train and engine employees rose 1.05 percent to 58,650 employees; executives, officials and staff assistants were up 0.24 percent to 9,098; and professional and administrative employees were up 0.08 percent to 13,200.

Categories reflecting decreases were maintenance of way and structures, down 0.31 percent to 34,067 employees; maintenance of equipment and stores, down 0.33 percent to 27,941; and transportation (other than train and engine), down 0.41 percent to 5,887.

Compared with mid-February 2016, all employment categories reflected decreases. The number of executives, officials and staff assistants was down 4.03 percent; professional and administrative, down 5.87 percent; maintenance of way and structures, down 4.91 percent; maintenance of equipment and stores, down 5.8 percent; transportation (other than train and engine), down 7.07 percent; and transportation (train and engine), down 0.41 percent.

Harrison’s Compensation at CSX Outlined

March 9, 2017

Hunter Harrison and CSX agreed to a base salary of $2.2 million, the railroad said this week in a regulatory filing.

The compensation package also includes an annual target bonus opportunity of up to $2.8 million, with that amount as a guaranteed bonus this year.

Harrison will receive options on 9 million shares of CSX stock, which is valued at $448 million at its current price of $49.79 per share.

Half of those options will hinge on his continued employment and the other half are tied to his meeting a series of performance targets.

The agreement to hire Harrison as its CEO also came with a number of changes in the CSX board of directors.

Clarence Gooden is no longer vice chairman and board member Timothy O’Toole has resigned immediately.

CSX’ has amended its corporate bylaws to separate the roles of CEO and chairman of the board as well as to change the mandatory retirement age of 75. Harrison is 72.

Although it remains to be seen how Harrison’s management philosophy will play out at CSX, analysts expect that he will further thin the number of managers and employees at the company, close yards and shops, and sell off some rail routes.

These measures will be aimed at improving operations, reducing expenses and boosting profitability.

Some have noted that CSX is far different than were Canadian National and Canadian Pacific when he took over as CEO at those railroads.

The Canadian roads were linear systems whereas CSX has a more complex route network.

That will challenge Harrison to impose his precision scheduled railroading philosophy, which he developed as CEO of the Illinois Central Railroad in the 1990s.

One decision Harrison will need to make will be whether to continue the CSX of Tomorrow strategy, which emphasized intermodal and merchandise traffic while focusing on its major routes operating in a triangle operating from Chicago to New Jersey to Florida and then back to Chicago.

CSX, Harrison Reach Agreement on CEO Post

March 6, 2017

CSX said Monday afternoon it has reached an agreement to hire E. Hunter Harrison as its CEO effective immediately.

Current CEO Michael Ward, who had announced on Feb. 21 that he would retire on May 31, will become a consultant to CSX.

The railroad also said it has reached a pact with hedge fund Mantle Ridge to reorganize the CSX board of directors.

In a news release, CSX said it would appoint five new directors agreed upon by Mantle Ridge and current CSX management.

They are Paul Hilal, who founded Mantle Ridge, Harrison, Dennis Reilley, Linda Riefler and John Zillmer.

Three incumbent directors will complete their terms at or before the conclusion of the CSX 2017 annual meeting. The CSX board will then have 13 members.

Edward J. Kelly, III, the current presiding director, will become chairman of the board and Hilal will become vice chairman.

Harrison will receive an award of incentive options to purchase nine million shares of CSX stock at its current trading price, eight million of which will be granted as an inducement award under the Nasdaq listing rules, CSX said in its news release.

The options will vest over four years with half of the options vesting based on service and half vesting based on the achievement of designated performance goals over the four-year period.

However, the CSX board will still seek shareholder direction with regard to an $84 million payment to cover compensation and benefits that Harrison forfeited by retiring early from Canadian Pacific.

CSX said that Harrison, 72, has said that his acceptance of the CEO position is subject to CSX ultimately providing this replacement protection initially offered by Mantle Ridge upon his departure from CP.

If he does not receive the reimbursement and tax indemnity that he is seeking, Harrison will resign after the 2017 CSX annual meeting.

CSX said it will ask CSX shareholders to conduct an advisory vote during the annual meeting.

A previously announced special stockholders meeting will not be conducted.

The news that CSX, Harrison and Mantle Ridge has reached an agreement was reported in various news outlets, including the Wall Street Journal, before it was formally announced by CSX.

CSX Layoffs Affect 20% of Employees

March 1, 2017

The plans by CSX to lop off up to 1,000 management employees is expected to affect more than 20 percent of its workforce and save at least $175 million annually.

CSX logo 1In a regulatory filing this week, the railroad said it will take a pre-tax charge of at least $160 million related to employee termination benefits, including severance, pension, and stock compensation costs.

Those losing their jobs are expected to receive severance pay equal to two times their base salary.

They also will receive a target bonus and a prorated bonus payment and be credited with three additional years of age and two additional years of service under the company pension plan.

The layoffs are expected to be completed by the middle of this month.

CSX CEO Michael Ward, who will be retiring at the end of May, has described the layoffs as “essential to CSX’s ability to remain competitive in a challenging and changing market.”

The management restructuring is part of an on-going cost cutting campaign over the past year that has seen CSX reduce expenses by $430 million. The railroad also has said that it expects to reap another $150 million this year through efficiency and productivity gains.

Much of the cost cutting has been triggered by the loss of coal revenue, which has been $2 billion over the past five years and $470 million last year alone.

At the same time that it is cutting its management ranks, CSX is implementing a program of long-term incentives for managers who remain that is tied to performance units, restricted stock units, and stock options that will account for 50 percent, 25 percent, and 25 percent of the payouts, respectively.

New CSX President Fredrik Eliasson will see his base salary increase to $700,000. His short-term incentive opportunity has increased to 100 percent of annual base salary and the value of his target long-term equity incentive award rose to $2.5 million.

Class 1 Employment Fell 1.19% in January

February 26, 2017

Class 1 Railroad employment fell 1.19 percent in January to 148,427 workers when compared with December 2016 employment, the U.S. Surface Transportation Board reported.

STBThe STB said the January figures are down 5.22 percent from a two years ago benchmark.

All but two employment categories reflected workforce decreases in employment. The two categories posting increases were executives, officials and staff assistants, up 1 percent to 9,076 workers; and professional and administrative, up 0.5 percent to 13,189 workers.

Compared with December 2016, the number of maintenance of way and structures employees fell 0.67 percent to 34,174; maintenance of equipment and stores employees declined 0.93 percent to 28,034; transportation (other than train and engine) slipped 0.19 percent to 5,911; and transportation (train and engine) dropped 2.42 percent to 58,043.

On a year over year basis, all reported categories reflected decreases. Executives, officials and staff assistants were down 4.93 percent; professional and administrative, down 6.27 percent; maintenance of way and structures, down 4.65 percent; maintenance of equipment and stores, down 6.4 percent; transportation (other than T&E), down 9.2 percent; and transportation (T&E), down 4.35 percent.

Mantle Ridge Disputes CSX News Release

February 18, 2017

Hedge fund Mantle Ridge took issue with some facts contained in a CSX news release issued earlier this week on the subject of E. Hunter Harrison becoming the railroad’s CEO.

CSX logo 3Mantle Ridge head Paul Hilal said he wrote to the CSX Board of Directors to take issue with the news release, in particular the size of the compensation package for Harrison and Hilal’s demands for governance changes for the CSX board.

“We owe it to the shareholders to get a deal done promptly. Let’s do it,” Hilal wrote. “If you are willing, we are glad to meet in person and hammer this out this weekend, hopefully delivering good news to the shareholders early next week.”

In the meantime, Harrison told the Wall Street Journal that he was frustrated with what he described as “chest pounding” between his investment partner and CSX, which has resulted in a stalemate in the negotiations for him take over as CSX as its CEO.

The newspaper reported that CSX had offered the CEO post to Harrison, but that Hilal, a principle at Mantle Ridge, has refused to give in on compensation and governance demands. Hilal, who is representing Harrison, has conducted most of the discussions with CSX.

Mantle Ridge holds less than 5 percent of CSX stock but wants to name six directors to the railroad’s board of directors and reduce the number of directors to 12,

In the news release, CSX said it is reluctant to allow a shareholder with such a small share of its stock to dictate the composition of its board. CSX also has described the demands to give Harrison a $300 million compensation package as “extraordinary in scope.”

The Journal said that during a recent meeting with Mantle Ridge, some CSX shareholders objected to the number of seats on the board that Mantle Ridge wants.

Hilal reportedly said during the meeting he needs to control six seats so that Harrison “has control and can execute his plan.”

CSX reportedly is objecting to paying Harrison the $89 million he gave up by leaving early as Canadian Pacific’s CEO in return for receiving a limited waiver of a non-complete clause.

Hilal contends that the compensation deal that Mantle Ridge is seeking from CSX is $200 million and includes $120 million of stock options, about half of which are tied to “very real” performance measures.

Another sticking point is the 72-year-old Harrison’s refusal to agree to have a physical exam by an independent physician.

Harrison told the Journal he was willing to negotiate his pay with the CSX board,

In his letter, Hilal contended that Harrison wants $32 million per year over four years – or $128 million – of which $20 million per year is performance-based.

“His package is worth very little unless he performs spectacularly,” Hilal wrote. As for the changes on the CSX board, Hilal said he is only seeking a seat for himself.

Harrison would occupy another seat along with four other independent directors who would be agreed upon by CSX and Mantle Ridge

“Why are we asking that new directors be added? As we’ve discussed, precision scheduled railroading requires dramatic operational and cultural change,” Hilal wrote. “Change like that starts at the top, with significant new blood on the board not wed to the old ways or legacy decisions and with no ties to any previous strategy or anyone.”

CSX Said to be Talking With Harrison

January 31, 2017

The Wall Street Journal reported on Monday that CSX and E. Hunter Harrison are in negotiations about the railroad’s CEO position.

CSX logo 3Harrison has presented to CSX management his plans to revamp CSX. The former CEO of Canadian Pacific, Canadian National and Illinois Central, is teaming up with Paul Hilal of the Mantle Ridge hedge fund to seek a management shakeup at CSX.

Mantle Ridge was reported to be seeking three seats on the 12-seat CSX board of directors, a demand that may be a source of conflict the Journal reported.

News reports indicate that Harrison met with CSX officials last Friday in Atlanta.

If CSX, Harrison and Mantle Ridge are unable to reach an agreement, then the hedge fund has until Feb. 10 to nominate candidates to the CSX board. CSX usually holds its annual meeting in May.

It is not clear what plans that Harrison and Mantle Ridge have for revamping operations at
CSX.

In the past year, CSX management under current CEO Michael Ward has retooled rail operations. Among other steps, CSX has emphasized longer trains and focusing capital expenditures on core routes.

In 2015, Ward said he planned to remain the CSX CEO for three more years after Oscar Munoz, who was expected to replace Ward, left to head United Airlines.

While at CP last year, Harrison unsuccessfully sought a merger with Norfolk Southern.

Some analysts on Wall Street believe CSX will be receptive to having Harrison as CEO because of his experience in leading other class 1 railroads.

5 Class 1 RRs to Cut 2017 Capital Spending

January 28, 2017

Five of North America’s seven Class 1 railroads plan to spend less in 2017 on capital spending than they did last year.

train image2Norfolk Southern’s capital budget will remain static at $1.9 billion while at CSX capital spending will fall from $2.7 billion to $2.2 billion.

The NS budget includes $930 million for track maintenance, $290 million for locomotives, $240 million for positive train control, $170 million for facilities and terminals, $110 million for technology and similar initiatives, $80 million for infrastructure, and $50 million for freight cars.

The CSX budget figures include $307 million in payments for locomotives that were purchased under seller financing and delivered in 2015.

In 2017 equipment investments are significantly less due to the completion of locomotive purchases.

Canadian Pacific plans to spend C$1.25, an increase of 6 percent from the 2016 budget with around 70 percent of that earmarked for basic replacement and maintenance of way work

Union Pacific has cut its capital budget by 11 percent compared with 2016. The western freight hauler plans to spend $3.1 billion, compared with $3.5 billion last year.

BNSF is cutting capital spending by 13 percent from $3.9 billion to $3.4 billion, saying it has invested a lot of capital in network improvements and growth during the past several years.

At Canadian National, capital spending for 2017 has been set at C$2.9 billion of which C$1.6 billion is for for basic track infrastructure work.

Kansas City Southern has slashed capital spending by about $30 million and expects to spend between $550 million to $560 million in 2017.

Class 1 RR Employment Fell 0.84% in December

January 24, 2017

The U.S. Surface Transportation Board said that employment at Class 1 railroads fell 0.84 percent in mid December 2016 when compared with mid November.

STBThe STB said the railroads employed 150,215 workers last month. The December 2016 figure was a drop of 6.58 percent from December 2015.

Decreases occurred in most reported employment categories between November and December with the exception of a 0.34 percent increase in maintenance of ways and stores, which had 28,298 workers.

The number of executives, officials and staff assistants fell 1.73 percent to 8,986 employees; professional and administrative, down 0.68 percent to 13,124; maintenance of way and structures, down 2.2 percent to 34,404; transportation (other than train and engine), down 0.22 percent to 5,922; and transportation (train and engine), down 0.57 percent to 59,481.

When comparing December 2015 with December 2016, all categories saw declines in employment.

Executives, officials and staff assistants declined 6.2 percent; professional and administrative, down 7.54 percent; maintenance of way and structures, down 4.22 percent; maintenance of equipment and stores, down 6.92 percent; transportation (other than train and engine), down 10.97 percent; and transportation (train and engine), down 7.13 percent.

Harrison Eyes Taking Over CSX as CEO

January 19, 2017

E. Hunter Harrison is back in the takeover game and setting his sights on wresting away control of CSX from current CEO Michael Ward.

E. Hunter Harrison

E. Hunter Harrison

The Wall Street Journal reported this week that Harrison, who fought an unsuccessful bid in early 2016 to acquire Norfolk Southern, has teamed up with Paul Hilal, a principal at hedge fund Mantle Ridge, to prod CSX to make a management change.

Hilal was formerly with Pershing Square Capital. The latter is run by William Ackman, who played a key role in getting Harrison named CEO at Canadian Pacific in 2012 after winning a proxy fight.

Harrison, 72, this week said he is severing his ties with CP before his official retirement from the company.

He will be succeeded at CP by Keith Creel, effective Jan. 31. In the interim, Harrison is reported to be on vacation and Creel will assume Harrison’s duties.

Harrison has agreed to sell all of his shares of CP stock by May 31 and the CP board of directors agreed to provide him with a limited waiver of a non-compete clause to which he would otherwise be subjected.

In return for waiving the non-compete clause, Harrison will forgo all roles he had with CP and give up substantially all benefits and perquisites to which he was entitled. The total value of those forfeited benefits is $89 million.

The CSX takeover attempt would be Harrison’s second. CSX rejected his overtures in 2014.

The WSJ reported that CP will not participate in any effort that Harrison makes to gain control of CSX.

Hilal left Pershing Square last year to start his own activist fund, which has raised more than $1 billion for a single investment, according to the WSJ. Those investors reportedly have committed to keeping money in the fund for five years.

Harrison became the CEO of CP after Ackman led a proxy fight that resulted in the ouster of CP CEO Fred Green.

If Harrison and Hilal follow that same script at CSX, they will seek to oust Ward, who has indicated he plans to retire in 2019.

Hilal was with Pershing Square at the time of the CP takeover and recruited Harrison, who had been CEO of Canadian National.

Railway Age magazine quoted Cowen and Company Managing Director Jason Seidl as observing, “Hunter left C$118 million in equity awards on the table, which indicates to us he still has a burning desire to run a railroad. His reputation of being the most sought after manager in the North American railroad industry could make it very difficult for CSX to refute Harrison’s desire to run its franchise.”

Seidl told Railway Age that a CSX takeover would differ from what Harrison attempted at NS because the latter involved a merger whereas the CSX gambit would be just a management switch.

Railway Age quoted an unnamed railroad industry analyst as predicting that if Harrison is able to become head of CSX a merger with CP will not likely be one of his first priorities.

The analyst said that Harrison could be expected to change the CSX engineering, train operations and capital investments plans that Ward’s management team has been implementing over the past year.

Given Harrison’s track record, the analyst expects that he would impose at CSX a more aggressive capital expenditure downsizing and reduce its labor force.

Harrison would not be likely to institute more aggressive marketing and selling promotions, but would oversee creating more discipline in CSX train operations.