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Rail News: CSX Transportation

CSX: Record income, high-60s operating ratio add up to 'excellent quarter'


In the second quarter, CSX Corp. logged more financial records and registered more top-line growth primarily because earnings climbed amid a “solid economic backdrop,” pricing remained above rail inflation levels and volume rose at rates exceeding the general economy, senior executives said this morning during an earnings teleconference and webcast.

Revenue rose 13 percent to $3 billion, operating income jumped 21 percent to a record $926 million, net earnings soared 22 percent to $506 million, earnings per share ballooned 28 percent to 46 cents and volume increased 3 percent to 1.65 million units compared with second-quarter 2010 figures. Analysts polled by FactSet Research had expected earnings of 44 cents per share and revenue of $2.98 billion.

“From a financial perspective, it was an excellent quarter,” said CSX Chairman, President and Chief Executive Officer Michael Ward. “As our markets continue to expand, CSX is delivering outstanding results for shareholders.”

Revenue per unit climbed 10 percent to $1,834 and same-store sales pricing increased 7.2 percent year over year, besting rail inflation, which is projected by IHS Global Insight to reach 4.6 percent by year end, said Executive Vice President of Sales and Marketing Clarence Gooden.

Coal revenue rose 15 percent to $958 million even though volume declined 3 percent to 388,000 units. Domestic utility demand is soft — low natural gas prices are impacting volume — but export demand remains strong, said Gooden. In the intermodal sector, CSX’s fastest-growing market, revenue jumped 24 percent to $376 million and volume rose 8 percent to 581,000 units primarily because of solid international traffic growth and domestic volume that continues to grow in a tightening truck market, he said.

Meanwhile, merchandise revenue climbed 11 percent to $1.6 billion and volume rose 3 percent to 677,000 units, driven by strong demand in the forest products, emerging markets and metals sectors. Agricultural products revenue rose 9 percent and volume inched up 2 percent; industrial products revenue increased 11 percent and volume ratcheted up 2 percent; and housing/construction products revenue climbed 11 percent and volume rose 5 percent.

Another positive development in the second quarter: CSX continued to make “real progress” with lowering its operating ratio, said Ward. The 2Q ratio of 69.3 decreased 1.9 points on a year-over-year basis. The company remains on target to achieve its goals of a high-60s ratio in 2011 and a 65 ratio by no later than 2015 as part of the “Grow to 65” initiative, senior execs said. (For more information on the initiative, follow this link to read the “CSX ≤ 65” cover story in Progressive Railroading’s July issue.)

However, operating expenses rose 10 percent to $2.1 billion compared with second-quarter 2010 primarily because of higher labor/fringe and fuel costs. Labor/fringe expenses rose 6 percent to $721 million due to inflation, volume and train and engine service (T&E) worker hiring/training factors, and overall headcount, which increased 3 percent to 30,980, said EVP and Chief Financial Officer Oscar Munoz. Fuel costs shot up 42 percent to $304 million as the average price per gallon soared 39 percent to $3.21.

For the remainder of 2011, CSX expects to spend more dollars because the Class I recently increased its capital spending budget from $2 billion to $2.2 billion. A majority of the additional capital will be used to acquire 3,800 freight cars — mostly for coal business and some for agricultural products traffic — via purchases and leases, said EVP and Chief Operating Officer David Brown. The railroad also plans to acquire up to 250 locomotives in the second half via purchases, leases and rebuilds, and accelerate hiring by bringing on more T&E workers at a rate of 30 to 40 per week, he said.

“We are taking a number of actions to position the operations for greater customer demand, now and over the long term,” said Ward.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 7/20/2011