“What an incredible year,” CEO Jim Foote said on the railroad’s earnings call on Wednesday.
CSX’s operating ratio was 60.3 percent for the year, a 7.1-point improvement over 2017. For the fourth quarter, the operating ratio was 60.3 percent, as well, down slightly from 60.7 percent in the fourth quarter a year ago.
Although CSX is still in the early innings of its shift to Precision Scheduled Railroading that began in 2017 under the late CEO E. Hunter Harrison, Foote said further progress on whittling down the operating ratio will be more gradual.
CSX reported that its fourth-quarter operating income increased 11 percent, to $1.2 billion, on revenue of 3.1 billion, a 10-percent increase. Quarterly earnings per share was $1.01, up 58 percent from 64 cents a year ago when adjusted for the impact of restructuring costs and tax reform. The results topped Wall Street analyst estimates of 99 cents per share, according to I/B/E/S.
For the year, CSX reported that its operating income rose 31 percent, to $4.9 billion, as revenue surged 7 percent, to $12.2 billion.
“You really have to love being in the rail industry right now,” Foote says.
For the quarter, volume and revenue was up in all three CSX business segments.
Merchandise carloads rose 4 percent, coal shipments were up 3 percent thanks to exports, and intermodal gained 2 percent. Within the merchandise segment, all categories were up except for fertilizers, which were affected by a plant closure in Florida and lower exports.
CSX’s key operating metrics improved year-over-year, with fourth-quarter train velocity rising 17 percent, terminal dwell improving 13 percent, and the number of cars online dropping 10 percent even as traffic volume increased.
Foote touted these improvements while noting that the railroad still has a long way to go regarding the most important metric: On-time performance.
For the quarter, on-time originations rose a point to 78 percent, while on-time arrivals rose 2 points to 58 percent. The on-time arrival figure improved to 60 percent for the year, up from 56 percent in 2017 and 55 percent in 2016, the last full year before the railroad adopted Precision Scheduled Railroading.
Foote said CSX showed dramatic improvement in on-time performance in the first two weeks of January, but did not elaborate.
Mark Wallace, executive vice president of sales and marketing, said the railroad has an “intense focus” on raising its car trip-plan compliance figures.
Wall Street analysts did not ask CSX executives to comment on criticism of Precision Scheduled Railroading from BNSF Railway’s outgoing executive chairman, Matt Rose. Rose contends that the operating model does not improve service and poses a regulatory risk for the industry.
Foote says CSX’s improved service will enable the railroad to regain market share lost to trucks over the years.
CSX expects volume and revenue growth in merchandise, coal, and intermodal segments this year. Overall, the railroad expects low single-digit revenue growth in 2019.
The railroad, which completed a $5-billion share buyback program last year, will begin another $5 billion share buyback effort this year.
CSX also will continue to scale back its capital budget. CSX spent 14-percent less on capital expenses in 2018 and expects to spend between $1.6 billion and $1.7 billion this year, down slightly from last year.
Not included in the capital budget: $91 million the railroad has pledged to invest in the Howard Street Tunnel clearance project in Baltimore. CSX pulled out of the project in 2017, citing its costs. The railroad once again wants to partner with state and federal officials on the project, but has scaled back its contribution by about $50 million.
Maryland officials aim to secure additional funding to enable double-stack intermodal moves through the tunnel.
Sad that Hunter isn’t around to tell everyone “I told you so”.
CSX is flying high, according to their own reports, but asking the state of Maryland to kick in more for the Howard street clearance project?
Curt Warfel: Add to your point here, while it might be a great time to be in the railroad industry, as an investor, it probably isn’t a great time to be a railroad employee in the railroad industry.
It’s such a shame that the railroad still has to run trains. Maybe in a few years CSX can discontinue its last few remaining freights, liquidate and sell itself off to short lines …. Oh, they’ve already done that.
I believe CSX also said they plan to eliminate another 5,000 or so jobs this year. I’m sure that will just do loads to improve service.
I will agree with Jim on one point; it probably is a great time to be in the railroad industry. I would not characterize it as a great time to be a rail customer, however.
The key takeaway isn’t the operating ratio; it is the on-time performance. 60% for the year (and less than that for the quarter) should be totally unacceptable.
Buy low, sell high. Investors got in when CSX was low. Now the investors wait and see when to sell, and hopefully time it just right befote the crash. When CSX customers start bailing, the crash will be near.