For a long time, coal was king at CSX Corp., with coal shipments accounting for more than 30 percent of revenue for the Jacksonville-based railroad company.
However, after another sharp drop in coal shipments in the first quarter, CSX Chairman and CEO Michael Ward said those days are over.
“Coal is going to be a piece of our business. It’s uncertain how big it will be,” Ward said in an interview Wednesday after CSX reported a drop in first-quarter earnings, due in large part to the drop in coal.
CSX reported earnings of 37 cents a share in the quarter, 8 cents lower than the 2015 first quarter, with revenue falling 14 percent to $2.62 billion.
Revenue from coal shipments dropped 37 percent to $399 million and coal accounted for only 15 percent of total revenue in the quarter.
Despite the lower results, Ward was happy with the company’s performance.
“We did a good job on the things we control,” he said.
CSX is looking to make up for the decline in coal by increasing business in other segments, including its intermodal business, which increased volume by 4 percent in the first quarter.
Ward said the overall decline in revenue included a drop in fuel surcharges that are passed on to its customers. Revenue comparisons to last year were also impacted by payments received in 2015 from customers who did not meet minimum volume commitments.
Taking those items away, the volume of shipments by CSX declined only 5 percent.
“The relevant number is the volume,” Ward said.
CSX is generally one of the first major U.S. corporations to report earnings every quarter and its results can be a harbinger of overall economic activity.
Ward said the decline in volume, even excluding the special items, is not necessarily a negative indicator for the U.S. economy for the rest of the year.
Automobile shipments by CSX rose 12 percent in the quarter, a good indicator of consumer demand.
“The more consumer-oriented economy is solid,” Ward said.
Industrial demand is down but the decline in industrial production is slowing, “so maybe in the second half (of the year) we’ll see a little bit of help on the industrial side,” he said.
The sharp decline in coal did prompt job cuts in several coal regions serviced by CSX during the first quarter.
The company’s average headcount in the quarter was 27,911, down from 32,335 in the first quarter of 2015 and 29,761 in the fourth quarter.
Ward said he’s not anticipating any more major cuts in the second quarter.
“We think our headcount is going to be flat quarter over quarter,” he said.
CSX cut operating expenses by 12 percent in the quarter but its operating ratio — expenses divided by revenue — rose from 72.2 percent the previous year to 73.1 percent in the 2016 first quarter.
One of CSX’s major goals is to cut the operating ratio but Ward said he was not concerned about the first quarter rise, because it was mainly the result of the revenue decline from special items.
Besides the drop in freight volumes, which is impacting all transportation companies, the other big story of the first quarter was the continued efforts by Canadian Pacific Railway Ltd. to seek a merger with either CSX or the other major Eastern U.S. railroad company, Norfolk Southern Corp.
Both companies have rebuffed Canadian Pacific’s overtures.
With continued opposition from regulatory authorities to mergers involving the six major North American railroads, Canadian Pacific CEO Hunter Harrison this week said he is finally giving up on the idea.
Ward said Wednesday this should “definitely” be the end to merger talk and rumors involving the big railroads. He seems to be happy about that.
“There was one CEO who thought that made sense. There were five that did not,” he said.