For CSX, a solid second quarter

CSX said its second-quarter 2017 earnings results are based upon “improved asset utilization, cost control and fuel optimization. These operational improvements, coupled with the benefits from the management restructuring that was completed early in the second quarter, drove $90 million in efficiency gains. These gains more than offset the cost of inflation in the quarter.”

Second-quarter 2017 net earnings were $510 million, or $0.55 per share, up from $445 million, or $0.47 per share, in the same period last year. Excluding a $122 million restructuring charge adjusted EPS was $0.64. Second-quarter revenue of $2.93 billion increased 8% compared to the previous year, with growth “across nearly all markets … primarily driven by coal-related gains, strength in core pricing and volume across the other markets, and increased fuel recovery,” CSX said.

CSX’s second-quarter operating ratio of 67.4% was a 150 basis-point improvement over 2016’s 68.9%. Excluding the restructuring charge, the OR was 63.2%. Adjusted operating income was $1.08 billion ($958 million without the restructuring charge).

CSX said it is “intensely focused on implementing Precision Scheduled Railroading throughout the system. The company is on track to achieve record efficiency gains and a step-function improvement in its key financial measures for the year, given continued economic growth and stable coal markets. Adjusting for restructuring charges, CSX continues to expect to drive a full-year operating ratio in the mid-60s, EPS growth of around 25% off the 2016 reported base of $1.81, and free cash flow before dividends of around $1.5 billion.”

“We are implementing Precision Scheduled Railroading on an expedited timetable, converting switching operations, balancing the network, streamlining resources and getting more out of our assets,” said President and CEO E. Hunter Harrison. “Although there still remains a lot to be done, we are confident that these initiatives will drive improved customer service, greater resource efficiency and superior shareholder value.”

The CSX Board authorized an additional $500 million for the current share repurchase program, which now totals $1.5 billion. As part of this program, nearly $500 million of company shares were repurchased in the second quarter. The company added its is “currently evaluating its cash deployment strategy with respect to capital structure and shareholder distributions, and is committed to an investment grade rating.”

CSX’s second-quarter EBIT (earnings before interest and taxes) and EPS beat analyst estimates, despite lower rate increases. Cowen and Co. Managing Director and Railway Age Wall Street Contributing Editor Jason attributes this to “aggressive cost cutting, liquidated damages, and a favorable judgment While the focus on costs is encouraging, we are somewhat concerned about the potential near-term effects on service to customers. Guidance was maintained, putting 2017 EPS roughly 2% below our and consensus estimates.”

Overall pricing “remained fairly solid but continued to show sequential moderation,” Seidl noted. “We are a bit surprised by the continued moderation at a time when overall rail industry pricing seems to be stabilizing and even showing some positive signs. Additionally, North American Class I traffic has been in growth mode for the past three quarters.. CSX has somewhat underperformed industry volume increases but its pricing has also moderated in the past 4 consecutive quarters.”

CSX’s full second-quarter 2017 earnings report can be downloaded from the link below.