The railroad, which had been projecting low single-digit revenue growth, now expects revenue to decline by 1% to 2% this year. CSX did not change its target for a sub-60% operating ratio or capital spending of between $1.6 billion and $1.7 billion.
“Both global and U.S. economic conditions had been unusual this year, to say the least, and have impacted our volumes. You see it every week in our reported carloads. The present economic backdrop is one of the most puzzling I have experienced in my career,” CEO Jim Foote says.
The railroad’s new outlook reflects slowing merchandise volume levels, which include a crude-by-rail headwind due to last month’s fire-related closure of the Philadelphia Energy Solutions refinery, the largest on the East Coast.
Domestic and export thermal coal remain under pressure as utilities rely on cheap natural gas, Foote says, and intermodal is not showing the typical seasonal recovery.
“This is not doom and gloom, this is not end-of-days kind of thing,” Foote says. “This has been a very slow drift from the beginning of the year.”
Analysts expect the other U.S. Class I railroads to lower their outlooks, as well, amid a slowing economy, trade tensions, and excess truck capacity that all have contributed to lower rail traffic volumes this year.
For the second quarter, CSX’s operating income rose 2%, to $1.3 billion, as revenue declined 1%, to $3 billion. Earnings per share increased 7% to $1.08, which was 3 cents below analyst estimates.
CSX’s operating ratio was a record 57.4%, a 1.2-point improvement over the second quarter a year ago, as the railroad reduced expenses 3%. The operating ratio was a quarterly record for a U.S. Class I railroad, Foote says.
“I am extremely proud of our dedicated CSX employees for once again achieving new record levels of efficiency this quarter, while also driving a significant improvement in safety,” Foote says.
CSX’s service metrics showed significant improvement, with intermodal trip-plan compliance rising to 89.8%, up from 62% a year ago. Merchandise trip-plan compliance was 73.3%, up from 58.3% a year ago.
Merchandise traffic volume grew 1% in the quarter, which Foote attributed to service improvements.
“We are delivering better service to our customers, which is reflected in our merchandise volume as our improved reliability is leading to customers trusting us with more of their freight,” he told investors and analysts on the railroad’s earnings call. “This led to broad-based growth across the merchandise segment as customers are recognizing the value of our best-in-class service offering.”
Although CSX’s broad-based merchandise growth led the industry, industrial volume began to decelerate as the quarter rolled on. And the Philadelphia refinery closure represents a 1% hit to CSX’s overall freight volumes.
Intermodal traffic was down 10%, due to lane rationalizations that affected 15% of the CSX intermodal network over the past year.
Coal volumes were up 2% for the quarter. Domestic coal tonnage increased 8% due to growth in coke and iron ore shipments, while export volume sank 7% due to lower thermal coal shipments.
CSX’s key operating metrics improved for the quarter. Train velocity increased 14% compared to last year’s second quarter, while terminal dwell improved 6%. Recrews were down 77%, interim Chief Financial Officer Kevin Boone says, while the active locomotive fleet declined by more than 300 units, an 11% decline.
CSX also reported improved safety figures, with the personal injury rate falling 21% and the train accident rate reduced by 54%, with improved track inspections driving an 85% year-to-date reduction in mainline derailments.
As some have said, maybe it’s just an economic slow down. Not everything has to be some evil plan.
he says customers are getting better service, I would love to meet that customer. service only gets worse under PSR and more customers will continue to move to trucks.
My take on it is they came to the realization they have to better serve customers to late to stop the effects of the economic downturn affecting everyone.
When drop how many Intermodal Lanes/O & D Pairs like NS, CSX, and UP have done!?!? Are we to think that will NOT impact Intermodal Revenue adversely!?!?
Gee, i guess when you stop serving customers, business declines.
PS Didn’t CP report record profits yesterday?
Mr Foote did an analyst call this morning.
Mr Foote’s comments amongst other things, he is puzzled why his business is down.
http://nbr.com/2019/07/17/ceo-of-railroad-giant-csx-says-the-economy-is-the-most-puzzling-hes-seen-as-stock-plummets/
Parts of the call can also be heard on APM’s Marketplace for those who listen to NPR.
The operating ratio is impressive, for sure, but what really stands out to me is 89.8% trip plan compliance (73% for merchandise traffic). Since the long-running industry norm is around 60% overall and 50% merch compliance with their trip plans – if they even existed at all – it is a huge step in reliability for customers. For years the complaint has been that the railroad would deliver but you’d never know when. The likes of UPS and FedEx both maintain on-time deliveries around and north of 95%, for comparison.
Aside from that, there’s a debate as to how much increased volumes are/would be necessary long-term for the railroads, or if the existing traffic mix is a long-term winner, since more traffic can choke terminals and melt down a railroad – see UP/SP in their 1996 merger. Right now, the trend seems to be extracting as much revenue from the least amount of traffic possible. Which works, but it could become ingrained too deeply and lead to future struggles to get new business if the existing sectors shift and/or weaken.
Destroying customer service thru slash and burn economics is stupid. Time for CSX to change their culture and fix their problems.
I’m sure that’s true, but they aren’t the ones turning away profitable business in exchange a more favorable OR.
CSX is a business run by very dedicated employees who do their best to provide customers with a rail network that is second to none in the United States.