CSX Corp. boosts earnings while revenues decline
CSX Corp. increased its earnings in the second quarter but revenue declined slightly, indicating that some sectors of the U.S. economy may be slowing.
The Jacksonville-based railroad company reported net income of $512 million, or 49 cents a share, up slightly from second-quarter 2011 earnings of $506 million, or 46 cents. Revenue declined by 7 percent to $3.012 billion.
The earnings were better than the average forecast of 47 cents from analysts surveyed by Thomson Financial, but revenue was below the average forecast of $3.047 billion.
CSX’s results have been affected by lower coal shipments in recent months, but that has been offset by increases in shipments of other types of freight.
However, in the second quarter, just about every freight category was flat or had volume declines except automobile shipments, which jumped by 27 percent.
CSX delivers goods throughout the entire eastern half of the country, so a slowdown in freight shipments could indicate a slowing overall economy.
“Our view is that the economy is still going to keep growing, but it may be a little more moderate in the third and fourth quarters,” CSX Chairman and Chief Executive Michael Ward said in an interview Wednesday.
Coal shipments have been a drag on CSX’s earnings for several quarters, because of weak demand for coal by U.S. utilities. Coal has been CSX’s biggest business segment, accounting for nearly a third of its total revenue, but second-quarter coal revenue fell 14 percent to $820 million, or 27 percent of total revenue.
Analysts have said the domestic coal outlook may improve in the second half of this year, and Ward also is optimistic.
“We think that utility coal may have bottomed, which is good,” he said.
Despite lower revenue, CSX is increasing earnings, which demonstrates better productivity by the company. The company’s operating ratio, which is operating expenses divided by revenue, fell from 69.3 percent in the second quarter of 2011 to 68.7 percent this year.
Ward said the improved operating ratio shows that you don’t have to spend more money to improve service.
“High quality is less expensive,” he said.
By providing better service, the railroad saves money in several areas, such as using fewer cars and paying less overtime, Ward said.
CSX also has increased efficiency with a new furlough retention program, he said. Instead of laying off workers entirely when business slows, the furloughed workers are guaranteed two days of work a week while keeping their benefits. That helps CSX by reducing training costs when more workers are needed to handle an increase in business, Ward said.
About 300 workers are currently in the furlough retention program, he said. CSX’s average total employment in the second quarter, including those workers, was 32,422, up 1,292 from last year.
Ward also said he was pleased with CSX’s safety record in the quarter, as reportable injuries per 200,000 man-hours fell by 27 percent to 0.66.
“That’s an important thing to me as a CEO,” he said.