CSX profit sinks in fourth quarter and 2016, but outlook brightens

Coal is nearly competitive with natural gas, again, execs say
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JACKSONVILLE, Fla. — CSX Corp.’s fourth-quarter profit slumped 2 percent despite a 5-percent uptick in traffic, the railroad reported on Tuesday afternoon. But, CSX executives say the free-fall in coal traffic is over.

“There’s no doubt that the coal business is in a much different place as we enter 2017 than it has been in the previous couple of years,” Fredrik J. Eliasson, chief sales and marketing officer, said on the railroad’s Wednesday morning earnings call.

With natural gas prices inching up, utility coal is getting closer to becoming competitive, executives say. Meanwhile, utilities have drawn down exceptionally high stockpiles to levels that, while still high, are much closer to normal. And export coal — a bright spot in late 2016 — is expected to remain strong in the first half of the year.

Looking ahead, CSX executives expect favorable conditions for about a third of the railroad’s traffic volume in the first quarter, including agriculture, automotive, export coal, and metals and equipment. The railroad has a neutral outlook for intermodal and forest products, which are just under half of all traffic volume, and an unfavorable outlook for chemicals and domestic coal which together are a little less than a quarter of CSX’s volume.

For the full year, CSX executives expect merchandise and intermodal traffic to grow along with the economy. Domestic coal should decline, primarily due to a competitive loss of short-haul traffic to another railroad. CSX execs say earnings per share are likely to grow during the year.

CSX’s capital budget for 2017 comes in at $2.2 billion, down from $2.7 billion last year. But the railroad is more than doubling spending on CSX of Tomorrow projects that aim to improve service, make operations more efficient, and support long-term growth in merchandise and intermodal traffic. CSX’s strategic capital spending jumps to 28 percent of the budget, up from just 13 percent in 2016.

The CSX of Tomorrow projects include adding and lengthening sidings on the Chicago-Jacksonville, Fla., corridor, which will allow the railroad to run longer trains, says Cindy Sanborn, chief operating officer. Train length is currently limited to 6,500 feet on what CSX calls its Southeastern Corridor.

CSX workers will also expand existing intermodal terminals and add new terminals in Rocky Mount, N.C., and Pittsburgh. Technology investments will include predictive analytics for repairs and automated inspections.

CSX officials said their company’s operating performance remained stable in the fourth quarter. On-time originations were 83 percent, a 5-percent improvement year-over-year, and on-time arrivals were 63 percent, a 3-percent increase. Average train velocity and terminal dwell both slipped slightly.

The railroad reported net earnings of $458 million for the quarter, or 49 cents per share, versus $466 million, or 48 cents per share, a year ago. The quarter included an extra accounting week, which boosted earnings per share by 3 cents. Including the extra week, fourth-quarter traffic was up 5 percent, revenue climbed 9 percent, and expenses increased 2 percent. Excluding the extra week, traffic was down 1 percent and revenue was up 3 percent. CSX’s operating ratio improved to 67 percent, down from 71.6 a year ago.

“In an environment where the company lost almost $470 million of coal revenue and experienced weakness across most of its markets, CSX delivered nearly $430 million of productivity savings in 2016, while improving customer service,” Michael J. Ward, chairman and chief executive officer, said in a statement.

For the full year, CSX generated $11 billion of revenue, down 6 percent from 2015 as traffic volume declined 5 percent overall — a figure that includes the 21-percent drop in coal traffic. The railroad turned a profit of $1.7 billion, a 13 percent decline compared to 2015. The operating ratio declined slightly, to 69.4 percent from 69.7 percent in 2015.

NEWSWIRETrains News Wire

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