CSX Transportation reduces full-year revenue outlook as volume declines

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James Foote, CSX Corp. CEO
CSX Corp.
JACKSONVILLE, Fla. — CSX Transportation reduced its full-year revenue outlook on Tuesday after revenue and traffic volumes came in lower than expected for the second quarter.

The railroad, which had been projecting low single-digit revenue growth, now expects revenue to decline by 1% to 2% this year. CSX did not change its target for a sub-60% operating ratio or capital spending of between $1.6 billion and $1.7 billion.

“Both global and U.S. economic conditions had been unusual this year, to say the least, and have impacted our volumes. You see it every week in our reported carloads. The present economic backdrop is one of the most puzzling I have experienced in my career,” CEO Jim Foote says.

The railroad’s new outlook reflects slowing merchandise volume levels, which include a crude-by-rail headwind due to last month’s fire-related closure of the Philadelphia Energy Solutions refinery, the largest on the East Coast

Domestic and export thermal coal remain under pressure as utilities rely on cheap natural gas, Foote says, and intermodal is not showing the typical seasonal recovery.

“This is not doom and gloom, this is not end-of-days kind of thing,” Foote says. “This has been a very slow drift from the beginning of the year.”

Analysts expect the other U.S. Class I railroads to lower their outlooks, as well, amid a slowing economy, trade tensions, and excess truck capacity that all have contributed to lower rail traffic volumes this year.

For the second quarter, CSX’s operating income rose 2%, to $1.3 billion, as revenue declined 1%, to $3 billion. Earnings per share increased 7% to $1.08, which was 3 cents below analyst estimates.

CSX’s operating ratio was a record 57.4%, a 1.2-point improvement over the second quarter a year ago, as the railroad reduced expenses 3%. The operating ratio was a quarterly record for a U.S. Class I railroad, Foote says.

“I am extremely proud of our dedicated CSX employees for once again achieving new record levels of efficiency this quarter, while also driving a significant improvement in safety,” Foote says.

CSX’s service metrics showed significant improvement, with intermodal trip-plan compliance rising to 89.8%, up from 62% a year ago. Merchandise trip-plan compliance was 73.3%, up from 58.3% a year ago.

Merchandise traffic volume grew 1% in the quarter, which Foote attributed to service improvements.

“We are delivering better service to our customers, which is reflected in our merchandise volume as our improved reliability is leading to customers trusting us with more of their freight,” he told investors and analysts on the railroad’s earnings call. “This led to broad-based growth across the merchandise segment as customers are recognizing the value of our best-in-class service offering.”

Although CSX’s broad-based merchandise growth led the industry, industrial volume began to decelerate as the quarter rolled on. And the Philadelphia refinery closure represents a 1% hit to CSX’s overall freight volumes.

Intermodal traffic was down 10%, due to lane rationalizations that affected 15% of the CSX intermodal network over the past year.

Coal volumes were up 2% for the quarter. Domestic coal tonnage increased 8% due to growth in coke and iron ore shipments, while export volume sank 7% due to lower thermal coal shipments.

CSX’s key operating metrics improved for the quarter. Train velocity increased 14% compared to last year’s second quarter, while terminal dwell improved 6%. Recrews were down 77%, interim Chief Financial Officer Kevin Boone says, while the active locomotive fleet declined by more than 300 units, an 11% decline.

CSX also reported improved safety figures, with the personal injury rate falling 21% and the train accident rate reduced by 54%, with improved track inspections driving an 85% year-to-date reduction in mainline derailments.

NEWSWIRETrains News Wire

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