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Rail News: CSX Transportation

CSX: Productivity, intermodal gains help offset utility coal losses in 2Q


A 37 percent drop in utility coal volume was a major headwind for CSX Corp. in the second quarter, and the Class I made a few financial strides despite that gale-force resistance. Earnings per share climbed 7 percent to 49 cents, operating income rose 6 percent to $943 million, net income increased 7 percent to $512 million and CSX’s operating ratio improved 0.6 points to 68.7 compared with second-quarter 2011.

The Class I delivered its 10th straight quarter of year-over-year earnings growth and performed well “even in tough conditions,” said Chairman, President and Chief Executive Officer Michael Ward during CSX’s 2Q earnings webcast and teleconference held this morning.

But low utility coal demand was the primary reason quarterly coal revenue and volume remained flat at $3 billion and 1.6 million units, respectively. Overall, coal revenue fell 14 percent to $820 million and volume declined 14 percent to 331,000 units as high stockpiles and low natural gas prices impacted utility coal business, said Executive Vice President of Sales and Marketing Clarence Gooden. On the plus side, export coal volume soared 41 percent as CSX delivered a record 14.7 million tons in the second quarter.

Merchandise and intermodal business also were pluses in 2Q. Merchandise revenue rose 6 percent to $1.7 billion and volume inched up 1 percent to 680,000 units primarily because automotive business climbed 27 percent, said Gooden. Intermodal revenue jumped 10 percent to $408 million and volume rose 8 percent to 629,000 units as domestic traffic increased 7 percent to a new record.

Meanwhile, quarterly operating expenses totaled $2.07 billion, down 1 percent compared with second-quarter 2011. Labor and fringe benefit costs dropped 3 percent to $744 million even though total headcount increased to 32,422 versus 31,130 in the year-ago period. Material and supplies expenses dipped 1 percent to $557 million and fuel costs decreased 5 percent to $431 million. The average price of locomotive fuel fell from $3.21 per gallon in second-quarter 2011 to $3.14 per gallon in 2Q 2012.

Perhaps the biggest reason CSX mostly overcame the utility coal headwind is increased productivity. In 2Q, the Class I registered labor efficiencies across all operating departments and all service metrics were at or near record levels, said EVP and Chief Operating Officer Oscar Munoz. At the beginning of the year, CSX set a goal of $130 million in productivity savings for 2012, but savings are on track to exceed $180 million by year’s end, he said.

“We have a relentless focus on the things we control the most,” said Ward.

For the year’s first half, CSX reported the following results: revenue, up 3 percent to nearly $6 billion; earnings per share, up 14 percent to 92 cents; operating income, up 6 percent to $1.8 billion; net income, up 7 percent to $961 million; operating expenses, down 1 percent to $4.2 billion; and operating ratio, down 1 point to 69.9.

For the remainder of the year, the utility coal headwind is expected to moderate, but still pose a challenge, said Gooden. Nonetheless, the economic backdrop remains mostly favorable and the railroad’s volume prospects are projected to be stable or favorable across 80 percent of CSX’s book of business, he said.

Overall, the Class I remains on target to invest $2.25 billion on capital expenditures in 2012 and reach an operating ratio goal of 65 by 2015, said EVP and Chief Financial Officer Fredrik Eliasson.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 7/18/2012