CSX Corp. surprised everyone Wednesday by reporting slightly higher third-quarter earnings, despite lower revenue, as it continued to cut expenses and increase efficiency.
The Jacksonville-based railroad has reduced expenses with job cuts over the past three years. CSX’s headcount in its operations throughout the Eastern U.S. dropped by almost 400 in the third quarter to 21,158, and has dropped by about 5,000 since the beginning of 2017.
However, during CSX’s conference call with analysts late Wednesday, CEO Jim Foote outlined other initiatives that are making the railroad run more efficiently.
The company has increased fuel efficiency by operating trains with distributed power, Foote said.
“This technology, which CSX had historically not deployed, allows us to disperse locomotives throughout the train which improves fuel efficiency and enhances safety and reliability by reducing train separations,” he said.
Foote said the company is implementing other safety initiatives.
“Technologies such as the increased use of automated track inspection cars and drones are helping to identify small problems before they become big issues and are also helping our day-to-day execution across the network,” he said.
CSX’s rate of 1.59 reportable train accidents per million train miles in the third quarter was half of what it was in the third quarter of 2018 and set a record for the company, Foote said.
The company also is implementing programs to improve customer satisfaction, he said.
“We’re now providing individualized real-time trip plan tracking to our intermodal customers and will be rolling that information out to merchandise customers in the fourth quarter,” he said.
CSX reported third-quarter earnings of $1.08 a share in the third quarter, up from $1.05 in last year’s third quarter. It also beat analysts’ consensus forecast of $1.01, according to Zacks Investment Research.
Revenue fell 5% in the quarter to $2.98 billion, as declines in coal and intermodal freight volumes offset an increase in shipments of merchandise.
However, earnings rose because expenses fell by 8% in the quarter.
CSX’s operating ratio (operating expenses divided by revenue) fell from 58.7% in last year’s third quarter to 56.8% this year, a record low.
The operating ratio is a key metric targeted by CSX management and Foote said he expects it to remain below 60% in the fourth quarter despite forecasts of a decline in revenue.
“Freight demand is generally in line with the expectations set out at the end of last quarter when we adjusted our forecast to reflect what we felt was a realistic view of softer underlying economic activity,” he said. “Nothing in the industrial economy has really changed since then.”
However, Foote expects to continue to improve efficiency.
“Despite the significant progress made to date, there are still meaningful opportunities to operate more efficiently and reliably as we move towards our goal of being the best run railroad in North America,” he said.