CSX reports record earnings thanks to cost-cutting, efficiency gains

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CSX CEO James Foote
CSX Corp.
JACKSONVILLE, Fla. — CSX Transportation reported record first-quarter earnings on Tuesday as a combination of cost-cutting and rate increases more than offset flat revenue and lower traffic volume.

Net income nearly doubled, to $695 million, on revenue of $2.8 billion. Earnings per share was 78 cents, double the 39 cents from a year ago. The results easily topped the estimates of Wall Street analysts surveyed by I/B/E/S, who expected 66 cents per share.

The railroad’s operating ratio plunged to 63.7 percent from 73.2 percent a year ago, which CEO James Foote said was a meaningful step toward reaching CSX’s goal of 60 percent by 2020.

“CSX employees did a great job of running the railroad and executing the scheduled railroading model during challenging weather conditions,” Foote said.

The financial results got a strong boost from the cost-cutting and efficiency gains set in motion by late CEO E. Hunter Harrison, who arrived at CSX in March 2017 and died in December.

Overall costs were down 13 percent, or 8 percent when adjusting for a restructuring charge a year ago. Labor costs declined 12 percent as employee headcount fell 3,000, or 11 percent, from a year ago. Nearly 1,000 of those positions were management jobs cut by former CEO Michael Ward.

Other costs declined thanks to efficiency gains from moving tonnage on fewer, longer trains and the idling of the humps at eight of CSX’s dozen classification yards, Chief Financial Officer Frank Lonegro says.

Yard productivity was up 20 percent compared to a year ago when measured by cars processed per hour, he says.

Train lengths were up 5 percent and road train starts were down 8 percent, which boosted locomotive productivity by 20 percent when measured by gross ton-miles per available horsepower. CSX’s active locomotive fleet was down by 23 percent compared to a year ago as engines were stored, sold, or scrapped. More than 800 units are in storage.

CSX’s key operating metrics improved during the quarter. The railroad reported that average train speed was up 22 percent compared to the first quarter of 2017. Terminal dwell, meanwhile, declined 10 percent.

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

“We have improved our service and I expect that to continue,” Foote says.

Foote said CSX has been affected by the decline in performance metrics at other Class I railroads but declined to say when he thought the other railroads might return to normal service levels.

“We would like to have a more fluid network,” Foote says. “It’s better for us.”

The impact of a 4-percent decline in traffic volume for the quarter was erased by a 4-percent increase in revenue per unit.

CSX’s merchandise traffic was down 8 percent and coal declined 2 percent. Intermodal was flat.

Intermodal suffers from a comparison with last year, when CSX had a hub-and-spoke strategy of serving low-volume origins and destinations. Seven percent of intermodal volume left the railroad last fall when CSX scrapped the hub-and-spoke system.

Despite a tightening truck market and strong freight demand, Foote said CSX would not change its outlook for flat traffic volume this year.

“Just because there might be a lot of intermodal and truck business that's available in the marketplace right now, I'm not going out and just chasing it to put volume on the railroad,” Foote says.

The focus is on ensuring adequate rates and methodical, rational growth, he says. But CSX is reducing rates for some Southern utilities if it will prevent them from converting coal-fired power plants to natural gas. As natural gas prices remain low, CSX is doing what it can to keep coal flowing, Foote says. BNSF Railway has successfully used the same strategy for Powder River Basin coal it hauls to power plants in Texas.

CSX’s safety figures continued to deteriorate in the quarter, continuing a trend that has concerned the Federal Railroad Administration. CSX’s FRA personal injury frequency index rose 14 percent, while the train accident rate increased 19 percent. While the number of accidents and injuries held steady, the rates rose because CSX employs fewer people and is running fewer trains.

"On my watch, safety will always come first,” Foote says. "We have some work to do to improve, and the team is committed to do so. To be the best run railroad, you have to be the safest.”

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) during the quarter as it made progress on its goal to buy back $5 billion-worth of its stock during the next three years.

CORRECTION: Mr. Foote was misquoted in an earlier version of this report regarding traffic volume. His actual statement has been included. Trains regrets the error. April 19, 2018, 3:08 p.m. Central time.

NEWSWIRETrains News Wire

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