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Rail News: CSX Transportation

'Operating leverage' pulls CSX through 2009's financial quagmire


CSX Corp. closed out 2009 with fourth-quarter financial results that “demonstrate our operating ability in the worst economic period of our time,” said Chairman, President and Chief Executive Officer Michael Ward during a Webcast and teleconference held this morning.

The first Class I to announce 4Q results, CSX reported earnings per share (EPS) from continuing operations of 77 cents, down 16 percent, and revenue of $2.3 billion, down 13 percent compared with fourth-quarter 2008 figures. Analysts had expected earnings of 76 cents and revenue of $2.4 billion, according to Thomson Reuters. Revenue was impacted by a $182 million drag from lower fuel surcharges and $175 million drag from traffic volumes, which fell 7 percent to 1.5 million units, said Executive Vice President of Sales and Marketing Clarence Gooden.

Coal — a highly profitable traffic segment — was the largest headwind, and likely will remain weak through 2010, he said. Revenue plummeted 24 percent to $641 million and volume tumbled 23 percent to 365,000 units as domestic shipments slipped because of weak demand and high coal stockpiles, and export volumes declined because of lower global demand, said Gooden. Merchandise revenue fell 10 percent to $1.1 billion, automotive revenue dropped 3 percent to $176 million and intermodal revenue decreased 2 percent to $340 million. However, intermodal and automotive traffic increased 5 percent and 3 percent, respetively, in the quarter.

CSX also reported quarterly operating income of $583 million, down 16 percent, and operating expenses of $1.7 billion, down 12 percent year over year. Fuel costs dropped 24 percent to $250 million primarily because gallons per thousand gross ton miles fell 6 percent and the average price per gallon dropped 9 percent, said EVP and Chief Financial Officer Oscar Munoz. Labor and fringe expenses decreased 9 percent to $660 million as headcount declined 12 percent to 29,417.

Cost control, productivity, safety improvements and service reliability helped CSX maintain its operating ratio at 74.9 compared with 74.1 in fourth-quarter 2008, said Ward.

“The big story is our operating leverage,” he said.

For the full year, CSX set an operating ratio record at 74.7 vs. 75.4 in 2008, 77.5 in 2007 and 79.3 in 2006. The Class I also reported 2009 revenue of $9 billion, down 20 percent, EPS from continuing operations of $2.87, down 22 percent, operating income of $2.3 billion, down 17 percent, and operating expenses of $6.8 billion, down 20 percent year over year.

Looking ahead, CSX envisions 2010 as the “year of opportunity,” said Ward. The macro-economic environment continues to recover and core pricing is projected to be above inflation in the long term. In addition, line-haul revenue is expected to grow in the first quarter because conditions in nine of 10 markets are favorable, with coal the sole headwind.

CSX also is budgeting a robust $1.7 billion for capital spending in 2010, said Munoz. About 70 percent of the budget will target infrastructure maintenance, with the remainder focused on the National Gateway intermodal corridor and equipment. In addition, the railroad expects to spend $200 million on regulatory requirements, including $170 million on positive train control (PTC).

However, CSX could have diverted that $200 million to other worthy capital improvements, said Ward, citing the effects of “unfunded” federal mandates such as PTC.

Jeff Stagl

Contact Progressive Railroading editorial staff.

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