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Rail News: CSX Transportation

CSX boosts earnings, increases revenue and reduces operating ratio


CSX Corp. yesterday drew criticism from major shareholder Children's Investment Fund Management L.L.P. (TCI) and the United Transportation Union (UTU). But a day later, the Class I addressed those critics while it extolled strong third-quarter financial performance.

During an earnings conference held this morning, CSX’s top executives reported the company posted net earnings of $407 million, or 91 cents per share (including 24 cents per share from discontinued operations), compared with net earnings of $328 million or 71 cents per share (including 17 cents per share from insurance gains and tax-related resolutions) in third-quarter 2006. Excluding special items, earnings per share from continuing operations rose 24 percent year over year.

Third-quarter revenue totaled a record $2.5 billion, a 3 percent increase compared with third-quarter 2006 revenue. An 8 percent gain in revenue per unit helped offset a 4 percent traffic volume decline to 1.8 million units. CSX now has registered five years of uninterrupted top-line growth, said Executive Vice President and Chief Financial Office Oscar Munoz during the conference.

In addition, third-quarter surface transportation operating income (excluding insurance recoveries) rose 16 percent to $552 million, the surface transportation operating ratio improved 1.9 points to 77.9 and total surface transportation operating expenses rose only slightly from $1.93 billion to $1.95 billion compared with third-quarter 2006.

If CSX continues to control costs and increase income, the company will reduce its operating ratio to the low- to mid-70s by 2010, said Chairman, President and Chief Executive Officer Michael Ward.

"We've come a long way both as a company and an industry, transitioning from a cyclical company to one that can go through periods of softness and still deliver for shareholders," said Ward. "We know we're creating value, long and lasting value. With our financial results improving on a sustained basis, we are targeting nearly $5 billion of investment in our transportation network over the next three years to position us to meet the pressing transportation needs of our nation."

During the conference, Ward also addressed a letter sent to CSX by TCI and statements made yesterday by UTU officials that strongly criticize the senior management team. TCI, which owns 4.1 percent of CSX stock, called on the company’s board to implement certain measures — including separation of the chairman and CEO roles — to “improve corporate governance and business performance.”

"I can assure you that we value the opinions of our shareholders and are reviewing the letter," said Ward.

The UTU statements, which support TCI's letter, were worded much more strongly. UTU International President Paul Thompson said, "The hired hands who manage CSX should be given their walking papers."

While not directly addressing the UTU's call for a management change, Ward said the union has waged a campaign against the entire industry for the past year. The Class Is and UTU have been engaged in contentious negotiations while trying to hammer out a new national agreement.

"They've had harsh rhetoric around the entire issue," said Ward.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 10/17/2007