While CSX Corp.'s earnings continue to be impacted by reduced coal shipments, the Jacksonville-based railroad company still managed to increase revenue and earnings in the second quarter this year.
CSX is making up for the lower coal volume by operating more efficiently and by increasing revenue from other business sectors.
"We're executing well around the things we can control the most," Executive Vice President and Chief Financial Officer Fredrik Eliasson said Wednesday in an interview.
CSX late Tuesday reported second-quarter earnings rose 4 percent to $535 million, or 52 cents a share, with revenue up 2 percent to $3.069 billion.
Revenue from coal shipments, CSX's biggest business, dropped 6 percent as a big decline in export coal offset a slight increase in shipments for domestic utilities.
Eliasson said the increase in domestic coal, compared with
the 2012 second quarter, was an aberration resulting from a particularly low volume of shipments last year. CSX is projecting domestic coal shipments for the full year to be down by 5 percent to 10 percent.
Before coal demand began dropping two years ago, coal shipments accounted for more than 30 percent of CSX's total revenue. That's now down to 25 percent, and the company is not expecting the trend to turn around.
"We do expect over time, coal will be a lower percentage of our overall business," Eliasson said.
However, CSX expects its other markets to continue to grow in the next few years.
"If we go through all of our markets except coal, we feel good about it," Eliasson said.
"You'll have, first of all, economic growth," he said.
CSX expects shipments of housing and construction materials to increase as the economy picks up.
"We think that's an opportunity," Eliasson said.
CSX also is taking advantage of opportunities to increase its intermodal business, as freight that was previously transported solely by trucks is now being moved by a combination of truck and rail.
Eliasson said that's part of a trucking industry trend to focus on shorter routes for its drivers.
"They're looking to the railroads to do the long hauls," he said.
The Volume of agricultural product shipments was down 10 percent in the second quarter, even higher than the 8 percent volume drop in coal. Eliasson said that was a temporary problem resulting from low crop sizes last fall. The company is expecting stronger harvests to increase agricultural shipments later this year.
CSX's earnings also are helped by operating efficiencies, which resulted in $19 million in labor-cost savings in the second quarter. The company's average employee count of 31,288 in the quarter was 1,134 lower than last year.
CSX's second-quarter earnings increase also benefited from real estate gains and a tax benefit. Without those gains in the second half of the year, the company is projecting full-year earnings to be flat, compared with 2012.
However, in the company's conference call Wednesday morning to discuss the earnings report, Chairman and CEO Michael Ward was optimistic about earnings growth moving forward.
"We like what we see: relentless, consistent performance and a promising future," Ward said.
"Your company's well-positioned to drive strong earnings growth and margin expansion long term as the economy continues its slow recovery and the energy environment evolves," he said.
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