CSX weathers tough first quarter

Impacted by lower volume, CSX posted first-quarter 2016 net earnings of $356 million, or $0.37 per share, down from $442 million, or $0.45 per share, in the same period of last year. “Service improvements, significant efficiency and resource alignment savings combined to help offset the impact of lower volume,” the company said.

Revenue for the quarter declined 14%, reflecting lower fuel recovery, a 5% volume decline and a $95 million year-over-year decline in other revenue “related to payments received in 2015 from customers that did not meet their minimum volume commitments,” CSX said. “These impacts more than offset pricing gains across nearly all markets from an improving service product and volume growth in automotive, intermodal, minerals and waste and equipment.

Expenses decreased 12%, driven by “efficiency gains” of $133 million and lower volume-related costs of $64 million as CSX “reduced its cost structure in the face of the challenging market environment.” In addition, the reduction in the price of fuel decreased fuel expense by $78 million for the quarter. Including the impact of these cost savings and the decline in other revenue, operating income decreased $139 million to $704 million. At the same time, the operating ratio increased 90 basis points year-over-year to 73.1%.

“As we managed through the impact of the continued coal decline and other market forces during the first quarter, CSX took aggressive actions to improve efficiency, reduce costs and streamline resources across the network to further reshape the company,” said Chairman and CEO Michael J. Ward. “While CSX delivered strong efficiency gains in the first quarter, we continue to expect full-year earnings per share to decline in 2016 as a result of ongoing coal headwinds combined with other market fundamentals. At the same time, CSX remains focused on meeting and exceeding customer expectations while driving further efficiency savings to maximize shareholder value and achieve a mid-60s operating ratio longer term.”

“CSX maintained its 2016 guidance, which is not inconsistent with our and Street expectations,” noted Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “All-in pricing came in at a solid 3.1% in the quarter, but represented a 100 basis points (bps) moderation from 4.1% in 4Q15. Merchandise and intermodal pricing was 4.0%, 50 bps worse than the 4.5% recorded in 4Q15. This is directionally consistent with our 1Q16 Rail Shipper Survey—which does not include many coal shippers—in which respondents expected a 30 bps deterioration in pricing over the next 6-12 months. (The survey can be downloaded from the link below). While CSX’s overall pricing result is still fairly solid, we are somewhat concerned that it appears to have been driven in good part by intermodal, an area likely to continue to face stiff competition from the deteriorating truck pricing environment.”