CSX reports lower earnings but says improved service will lead to growth

JACKSONVILLE, Fla. — CSX Transportation earnings declined alongside a third-quarter volume slump, the railroad said today, but executives are confident that improved service will lead to long-term growth.

“We have seen great progress with our ‘One CSX’ initiatives, which are helping to build a focused, collaborative culture that enables all of our employees to feel engaged, energized, and focused on working better together,” CEO Joe Hinrichs told investors and analysts on the railroad’s earnings call this afternoon. “At the same time, our service levels continue to lead the industry. These successes go hand in hand, and as our customers see that CSX is truly dedicated to providing consistent, reliable service over the long term they are responding positively.”

Quarterly operating income declined 18%, to $1.3 billion, as revenue fell 8%, to $3.6 billion. Earnings per share declined 19%, to 42 cents. CSX’s operating ratio was 63.8%, up from 59.5% a year ago.

“None of us here are satisfied with these results. We’re not sitting back and simply waiting for markets to turn,” Hinrichs says. “We are looking throughout the entire network to see where we can operate more efficiently. We continue to closely work with customers to build our business pipeline and drive more volume onto the railroad. And we are emphasizing the importance of cost discipline to every team in every one of our locations.”

Overall volume declined 2% for the quarter. Merchandise traffic was flat, coal increased 9% thanks to strong export business, and intermodal declined 7% due to soft international traffic. Domestic intermodal grew, however, which CSX attributed to improved service.

“Our railroad is running well. Our merchandise business remains steady, and our coal shipments were very strong. Our domestic intermodal volumes are growing well compared to last year, while our international intermodal business, though down year over year, has stabilized,” Hinrichs says.

Key operational metrics all improved: Average train speed was up 11% compared to a year ago, terminal dwell was down 19%, and on-time train originations surged to 74%, a 28% increase. On-time arrivals were 67% for the quarter, up 44% from a year ago.

Intermodal trip plan compliance rose to 94%, up from 90% a year ago, while carload trip plan compliance hit 82%, up from just 57% a year ago.

CSX’s personal injury rate and train accident rate both deteriorated during the quarter.

“These aren’t acceptable outcomes for us,” says new Chief Operating Officer Mike Cory, a former Canadian National executive who joined CSX last month.

Human factor incidents, especially involving new employees, are a major driver of the increase in the personal injury rate. CSX has increased training for new hires and also has trained unionized mentors to guide new railroaders all across the system.

“We’re not taking our focus off life changing events. We’ve partnered with DEKRA, a specialty risk management group, to roll out training to help employees self identify risk in an ever changing environment,” Cory says. “Traditionally, railroads trained on operating rules. But we can’t write a rule for everything – or test our way to a positive safety culture. Both identification of risk and eliminating risk when possible is one of our major goals.”