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Since late last year, CSX Corp. has taken shots from the investment community — namely, The Children's Investment Fund Management L.L.P, or TCI — for not greatly improving its financial performance vs. other Class Is. That criticism isn't valid after CSX's near-stellar execution in the first quarter. The Class I set first-quarter revenue, income and operating ratio records in the face of stiff economic headwinds.

Revenue totaling $2.7 billion increased 12 percent year over year despite softness in the housing and automotive sectors. CSX posted growth in six of 10 markets. Coal revenue jumped 20 percent (although tonnage only inched up 1 percent), merchandise revenue rose 11 percent and intermodal revenue increased 9 percent while automotive revenue remained flat compared with first-quarter 2007 totals. Intermodal profit jumped 25 percent and the sector's operating ratio improved 2.1 points to 82.5.

Agricultural products revenue reached an all-time high, ethanol volume posted a double-digit increase, and feed ingredients and exports registered growth, helping to drive up merchandise revenue, said CSX Executive Vice President of Sales and Marketing Clarence Gooden during the Class I's earnings conference this morning.

Meanwhile, operating income rose 29 percent to a record $626 million, net income increased 46 percent to $351 million, earnings per share jumped 63 percent to 85 cents and CSX's operating ratio improved 3.7 points to a record 77 compared with first-quarter 2007 totals. The company drove down the operating ratio as a result of yield management, productivity, safety improvements and a diverse business portfolio, said EVP and Chief Financial Officer Oscar Munoz.

Productivity improved because of numerous operational efficiencies during the quarter, said EVP and Chief Operating Officer Tony Ingram. On-time originations reached 79 percent — the best in CSX's history — vs. first-quarter 2007's 76 percent and velocity rose from 19.9 mph a year ago to 20.8 mph, with a 12-month rolling average of 20.9 mph, he said.

"Velocity and stable velocity is what we want, and we got both," said Ingram.

On the cost side of the business, first-quarter operating expenses totaled $2.1 billion, up 7 percent vs. first-quarter 2007. But fuel costs shot up 55 percent to $441 million primarily because of a 63 percent jump in the per-gallon price of diesel, said Munoz. Excluding fuel costs, expenses would have risen only 1 percent, he said.

The quarterly results show CSX is achieving top-tier performance and providing superior value to its customers and investors, said Chairman, President and Chief Executive Officer Michael Ward.

"From a shareholder perspective, this is the best test: 'Is it working?' By every key measure, the answer is, 'Yes,'" he said.

CSX is upbeat not only about its near-term prospects, but its long-term outlook, as well. The Class I recently raised its 2008-2010 projections. Current targets show operating income will grow between 13 percent and 15 percent (vs. a previous 10 percent to 12 percent projection); earnings per share will increase between 18 percent and 21 percent (vs. 15 percent to 17 percent); free cash flow will exceed $1 billion (vs. $800 million to $1 billion); and the operating ratio will reach the low 70s (vs. the mid- to low 70s).

"Our guidance and actions to enhance shareholder value are indicative of our momentum and confidence in the future of the company," said Ward.

— Jeff Stagl