CSX “achieving record levels of efficiency”

Written by Andrew Corselli, Managing Editor
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CSX Corp. (CSX) today announced a 2Q19 earnings per share increase of 7% on net earnings of $870 million, or $1.08 per share, versus $877 million, or $1.01 per share, in the same period last year. In addition, CSX’s operating ratio set a company second-quarter record of 57.4%, improved from 58.6% the prior year.

However, revenue for the second quarter declined by 1% year-over-year to $3.06 billion, as merchandise growth was offset by intermodal weakness, CSX noted. Expenses decreased 3% year-over-year to $1.76 billion, driven by continued efficiency gains and volume-related savings, CSX said. This combination yielded operating income growth of 2% for the quarter to $1.31 billion, compared to $1.28 billion in the same period last year.

For the six months ended June 30, CSX’s operating revenues were $6.07 billion, a 2% rise from 2018. Net operating income grew 2%, from $1.2 billion in first-half 2018 to $1.3 billion in first-half 2019. Operating income was $2.5 billion—an 8% increase from the same period in 2018.

“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,” said James M. Foote, CSX President and CEO. “These results reflect the strength of our operating model, and combined with continued improvements in our best-in-class customer service, represent significant progress toward our goal of being the best-run railroad in North America.”

Wall Street is not quite as optimistic. Commented Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl:

“CSX missed Street estimates and lowered full-year revenue outlook, though operating ratio guidance was maintained. The Class I’s business in the quarter was negatively impacted by intermodal lane rationalizations, macro concerns, a customer factory explosion and flooding. We lower our estimates and price target, and maintain our Market Perform rating. Management lowered their full-year revenue growth outlook from low single-digit growth to a decline of 1-2%, though OR outlook of sub-60% and a capital expenditure guide of $1.6 billion to $1.7 billion were maintained. It didn’t take management multiple quarters to pull levers to cut costs—they were able to significantly cut costs in the same quarter that their business slowed, and even beat last year’s already impressive OR of 58.6%. Management attributed the slowdown in business in the quarter and reduced full-year outlook to a number of factors. One factor was the intermodal lane rationalizations that CSX implemented in October and January, which together eliminated roughly 15% of the company’s intermodal network. This combined with the tariff pull-forward in 1H19 and broader macro concerns to cause intermodal volumes for 2Q19 to decline 10.5% y/y. Second, a recent explosion in a refinery in Philadelphia is a negative for CBR volumes. Third, fertilizer volumes were hurt by wet weather conditions that delayed fertilizer applications. Other negative volume factors in the quarter, albeit ones that were likely less impactful overall, were lower metals and equipment volumes and lower export shipments of thermal coal.”

CSX’s entire 2Q2019 earnings presentation can be found here.

For a perspective on the current concentration on operating ratio, see:

Beware the operating ratio trap

Categories: Class I, Freight, Intermodal, News Tags: ,