Wednesday, September 06, 2017

CSX’s “very good progress”: Hunter Harrison

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CSX Presidemt and CEO E. Hunter Harrison CSX Presidemt and CEO E. Hunter Harrison

Is CSX emerging from what many observers, including customers, say is an operational and service meltdown created by a “too much, too soon” rush to implement Precision Scheduled Railroading on an arguably complex network? CSX President and CEO E. Hunter Harrison says “yes.”

“CSX has made very good progress in the past 60 days in transitioning its operating model to Precision Scheduled Railroading, and I’m confident that many of the challenges we and our customers have recently faced are behind us,” Harrison said in a Sept. 6 statement. “The CSX team of dedicated railroaders has worked tirelessly over the past few months to implement our new operating model and moved as quickly as possible to address customer issues when they arose.”

“The railroad is now returning to a normal operating rhythm, and our performance metrics are improving,” Harrison added. “Fluidity in our terminals largely has been restored and we are appropriately resourced to continue making progress. Car dwell has improved from week to week for the past five weeks, and system-wide velocity is increasing. I am confident that as CSX continues to implement the Precision Scheduled Railroading model, it will provide profound and lasting benefits to customers, employees and shareholders.”

Harrison’s pronouncements were timed to coincide with a presentation made by CSX CFO Frank Lonegro at Cowen and Company’s 10th Annual Global Transportation conference in Boston. Lonegro said CSX “continues to expect free cash flow before dividends, excluding restructuring charges, of around $1.5 billion and record efficiency gains for 2017; that in light of various operating challenges in July and August 2017, the company is [lowering] its 2017 full-year guidance from an operating ratio in the mid-60s to an operating ratio around the high end of the mid-60s and earnings per share growth from around 25% to a range of 20-25%, in each case after excluding restructuring charges; and that the company has completed approximately $1.3 billion of its $1.5 billion authorized share repurchase program.”

CSX’s recent problems “are temporal challenges, they are transitional challenges,” Lonegro said. “You can see we’re coming back and we’re coming back pretty strong. If Hunter were here, he’d say something like, ‘We’re back. Watch out. Here we come.’”

“If there was a primary takeaway from management’s presentation at the conference, it was ‘we're back,’” noted Cowen and Compant Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “Although it is also clear they aren’t out of the woods yet. That’s what Frank Lonegro, CFO, thinks CEO Hunter Harrison would have said if he presented to the group. Sentiment clearly changed after that presentation, given the stock’s reaction. The guidance reduction (implying 66-67% OR and 20-25% EPS growth for 2017, down from ~65% OR and ~25% EPS growth for 2017) was less than some expected, given the operational challenges the company has had in recent months. Service issues, according to management’s newly revised metrics, are turning a corner.”

A PDF of Lonegro’s presentation slides can be downloaded from the link below.

In related news, the Surface Transportation Board announced late Sept. 6 that due to the National Hurricane Center’s latest projected track of Hurricane Irma, which shows the hurricane making landfall in south Florida in the early morning of Monday, Sept. 11, the agency will postpone the “public listening session” concerning CSX’s rail service issues that was scheduled for Tuesday, Sept. 12.

“The Board understands that CSX and many rail shippers are currently focused on hurricane preparedness efforts in areas that could be affected by the storm,” STB said. “The Board does not want to divert attention or resources from those necessary activities, nor does the Board believe that it would be appropriate to require CSX’s senior management team to be in Washington, D.C., and away from its Jacksonville headquarters should a potentially catastrophic hurricane make landfall early next week. Accordingly, the Board will postpone the listening session, but intends to reschedule it as soon as practicable.”

Editor’s Note: According to the Railroad Performance Measures website, where since 1999 North American Class I freight railroads have voluntarily reported three weekly performance measures—Cars On Line, Train Speed, and Terminal Dwell—effective Aug. 23, 2017, CSX is no longer reporting its metrics to the Association of American Railroads. Going forward, CSX will report performance metrics on its website using its own methodology. Canadian Pacific also does not provide data to the RPM website, leaving Norfolk Southern, Union Pacific, Kansas City Southern, BNSF and CN—five of the “Big Seven.” Doesn’t consistent methodology make peer reporting a more-meaningful tool? Click HERE to see what CSX is reporting to the Surface Transportation Board.

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