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Basch Report
Jax Daily Record Thursday, Dec. 6, 201805:10 AM EST

The Basch Report: CSX Corp. CEO wants more decisions made in field

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James Foote touts decentralized structure at investor conference.
by: Mark Basch Contributing Writer

CSX Corp.’s railroad covers most of the eastern U.S. and from its Jacksonville headquarters, you can pretty much watch everything that’s happening over its 21,000 miles of track.

But CEO James Foote doesn’t want to run the operation from a control room in Jacksonville.

During an investor conference last week hosted by Credit Suisse, Foote explained why CSX in August unveiled a new decentralized structure with more decisions made by managers in the field.

“We’re trying to take more and more bureaucracy and more and more of this ‘we run CSX from Jacksonville’ mentality out of the company and put it out into the field,” he said.

Foote wants a railroad where “the people in Waycross and Selkirk and Chicago and Nashville and Cincinnati and all these other places in between are the people that have the responsibility and the knowledge where they can make that decision on the spot, get the product moving, feel empowered to be able to do that and at the end of the day should say, ‘Wow, look what we did today,’ and feel really good about it.”

CSX has been cutting its workforce over the past two years throughout its system, including in Jacksonville, but the decentralization initiative is not affecting its head count, spokeswoman Laura Phelps said.

The company has 2,831 employees based in Jacksonville. 

Foote was named CEO nearly a year ago, after the death of predecessor Hunter Harrison. Much attention has been given to CSX’s efforts to improve operating efficiency under both Harrison and Foote. However, during last week’s conference, Foote said CSX should be viewed as “a service differentiation story.”

Credit Suisse analyst Allison Landry, who hosted the session with Foote, saw that statement as significant.

Foote had a sales and marketing background in the railroad industry, not an operational background, before Harrison brought him in to CSX as his eventual successor. Landry said in a research note his background could lead to stronger revenue growth for the company.

“There was a reason that Hunter chose Jim Foote (more than any superficial rationale might explain) — and perhaps that reason is starting to become apparent,” she said.

McKesson moving its HQ to Texas

Health care supply giant McKesson Corp. announced Friday it is moving its headquarters next year from San Francisco to Las Colinas, Texas, a Dallas suburb.

McKesson, the sixth largest U.S. company, went about the headquarters move relatively quietly but there were signs. It opened an office campus last year in Las Colinas that now employs about 1,600, according to The Dallas Morning News.

The company also last year completed a sale-leaseback deal for its headquarters building in San Francisco. McKesson did say it expects to continue employing about 1,400 in San Francisco in distribution and sales operations.

McKesson has been in Jacksonville since acquiring medical supply distributor PSS World Medical Inc. in 2013. The company in January announced plans to move 428 employees next year into a new building along Gate Parkway at southwest Interstate 295 and Butler Boulevard.

McKesson said it currently has about 600 employees in Jacksonville.

The announcement of the new headquarters came about a month after Chairman and CEO John Hammergren announced he will retire next year.

In a news release, Hammergren said the headquarters move “will improve efficiency, collaboration and cost-competitiveness, while providing an exceptional work environment for our employees.”

Patriot reports flat earnings

Patriot Transportation Holding Inc. reported basically flat earnings for the fourth quarter ended Sept. 30, as the Jacksonville-based trucking company continues to deal with the industrywide challenge of finding and retaining qualified drivers.

Patriot reported earnings of 19 cents a share, compared with 6 cents in the fourth quarter of fiscal 2017. However, this year’s earnings included 12 cents in tax benefits.

For all of fiscal 2018, Patriot earned $1.54 a share, including $1.04 in tax benefits, compared with 55 cents a share in fiscal 2017.

Revenue for the year rose slightly to $114.1 million but excluding fuel surcharges passed on to customers, transportation revenue fell 2.1 percent.

“The financial results of 2018 did not meet our expectations. Management continues to make the necessary adjustments to our plan to improve the bottom line results,” CEO Rob Sandlin said last week in Patriot’s quarterly conference call.

Sandlin said the driver shortage is a key issue, and the company is implementing policies including productivity-based driver pay and new training programs.

“Management spends a good deal of time dealing with these issues surrounding driver shortages,” he said.

“We are encouraged by the increased number of drivers hired and in training since these implementations and will continue to monitor our progress for any needed adjustments to our plan.”

Analyst likes Black Knight’s ‘moat’

Susquehanna Financial Group analyst Jack Micenko initiated coverage of Black Knight Inc. last week with a “positive” rating, saying he is impressed with the Jacksonville-based company’s “moat.”

The moat is Black Knight’s position as the dominant U.S. company providing processing services for mortgage lenders, a barrier that potential competitors have difficulty penetrating.

“Black Knight enjoys one of the most unique competitive positions we’ve seen in our approximately 20 years covering the mortgage and financials space,” Micenko said in his research report.

“Over 90 percent of the company’s revenue is recurring in nature due to the company’s plus-70 percent market share in its core business. Moreover, they enjoy contract terms with its customers that are 3-4 times longer in duration than is typical with other software companies,” he said.

Micenko set a $59 price target for Black Knight’s stock, which was trading at $44.94 at the time of his report last week.

Web.com acquires domain business

Web.com Group Inc. said Monday it acquired the remaining interest it did not already own in domain name platform company NameJet LLC.

NameJet helps businesses acquire domain names, including names that recently have expired. 

The company was formed in 2007 as a joint venture between eNom Inc. and Network Solutions LLC. 

Jacksonville-based Web.com, which provides website development and marketing services for businesses, acquired Network Solutions in 2011.

Web.com said it acquired the remaining interest in NameJet from eNom’s parent company, Tucows Inc. Terms of the deal were not announced.

“This move to complete ownership aligns with our goal of nurturing our core domain business, supporting and anticipating the diverse needs of our customers, and driving new opportunities for innovation and growth,” Web.com CEO David Browns said in a news release.

Deutsche Bank CEO again denies merger rumors

Deutsche Bank’s stock dropped to a record low last week as German officials investigated the bank’s possible involvement in money-laundering activities.

The low stock price again raised speculation about a merger for the bank, but Deutsche Bank CEO Christian Sewing dismissed those reports over the weekend.

“I don’t have any indication of that,” Sewing told German newspaper Bild am Sonntag, according to a report by CNBC.

“We are on track to make our first profit for three years. It is only a matter of time before this progress is reflected in the share price,” he said.

Deutsche Bank employs about 2,000 people in Jacksonville in its second-largest U.S. operations center, after New York.

Deutsche Bank last week confirmed that German government officials raided several of its offices as part of the so-called “Panama Papers” investigation of illegal international financial activities.

“As far as we are concerned, we have already provided the authorities with all the relevant information regarding Panama Papers,” Deutsche Bank said last week in a statement.

“Of course, we will cooperate closely with the public prosecutor’s office in Frankfurt, as it is in our interest as well to clarify the facts. In recent years, we have proven that we fully cooperate with the authorities — and we will continue to do so.”

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