Despite the expected reduction in its biggest business segment, coal, CSX Corp. reported record first-quarter earnings. That could be a good sign for the overall economy.
“I think it tells you that the economy is continuing to recover at a modest pace,” CSX Chairman and CEO Michael Ward said in an interview Wednesday.
“Ninety percent of our business is relatively flat or growing, with most of it in the growing category,” he said.
CSX late on Tuesday reported that first-quarter earnings rose 23 percent to 43 cents per share, despite a decrease in coal shipments, which typically account for nearly a third of the Jacksonville-based railroad company’s revenue.
Total revenue in the quarter rose 6 percent to $2.97 billion, with almost every business segment except coal producing higher revenue. The biggest increase was a 28 percent rise in revenue from automotive shipments.
Ward said the auto industry is being sparked by pent-up demand from car buyers.
CSX also reported a 12 percent rise in revenue from forest product shipments, but Ward said that shouldn’t be read as a sign of a rebound in the housing construction markets.
“You could, but I wouldn’t read very much into it,” he said.
Actually, the increase in forest products is coming mainly from demand for containerboard used for consumer products packaging, he said.
The increase in shipments of other products is offsetting the drop in demand for coal at U.S. power plants. Domestic utility coal shipments fell 28 percent in the first quarter.
“Our expectation is it will continue to be depressed throughout the year,” Ward said.
First-quarter coal demand was impacted by a mild winter in the Eastern U.S., but low natural gas prices will continue to reduce the need for coal through the year, he said.
CSX’s earnings were helped by productivity improvements in the quarter. The company’s operating ratio — operating expenses divided by revenue — fell from 72.5 percent in the first quarter of 2011 to 71.1 percent in the first quarter of 2012.
Average employment throughout CSX’s operations was 32,393 during the first quarter, nearly 2,000 higher than last year.
CSX expects to bring in about 3,000 new workers this year, but most of those people will replace employees who leave through attrition, Ward said.
Higher fuel prices are having some impact on CSX’s operating ratio, but the company is able to offset the increases with fuel surcharges.
Ward said a continued rise in fuel prices could have a benefit to the company because CSX’s intermodal operations are more fuel efficient than trucking companies.
Overall, CSX is expecting to achieve higher earnings through all of 2012 despite lower coal business.
“We expect another record year. We’re very confident that we are going to deliver for our shareholders,” Ward said.
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