CSX Corp. reported lower fourth-quarter earnings, as expected, and Chairman and CEO Michael Ward doesn’t expect the trend of reduced freight demand to change any time soon.
“All the railroads are showing reduced carloads,” Ward said in an interview Wednesday after the Jacksonville-based railroad company reported fourth-quarter earnings fell 5 percent to $466 million, or 48 cents a share.
“Quite frankly, we don’t see anything on the horizon to change that,” he said.
The volume of freight shipped by CSX fell by 6 percent in the fourth quarter and was widespread across most business segments, with the notable exception of automobile shipments, which rose 5 percent.
Ward expects automobiles to continue to be a growth market, and he also sees good demand for housing-related materials.
But, he said, “if we look at most of the other markets, they’re challenging.”
Coal shipments, traditionally CSX’s largest business segment, continue to fall, dropping 32 percent in the fourth quarter. Low energy prices and a strong U.S. dollar affecting export coal demand are impacting the market.
CSX’s earnings for all of 2015 rose by 8 cents a share to $2, but the company is projecting 2016 earnings per share to be lower than last year.
Total revenue fell 13 percent in the fourth quarter to $2.8 billion. For all of 2015, revenue fell 7 percent to $11.8 billion.
Ward said the volume trends got worse in every quarter last year.
However, while CSX’s results show a downturn in industrial demand, Ward doesn’t think the overall U.S. economy is headed into a recession.
“Consumer confidence seems to be hanging in there,” he said, although global concerns including terrorism could begin to hurt confidence.
“We could see it (the industrial slowdown) eventually cascade into the consumer market,” Ward said, but he’s not seeing that yet.
CSX did make progress on its goal to make its service more efficient.
Its operating ratio — operating expenses divided by revenue — fell from 71.5 percent in 2014 to 69.7 percent last year, the first time the ratio finished a year below 70 percent. CSX has a long-range target of lowering the operating ratio to the mid-60s.
CSX’s average employee count throughout its system, which covers most of the eastern U.S., fell by 2,360 from the previous year to 29,761 in the fourth quarter.
Ward said he expects the company’s employment to fall another 2 percent in the first quarter this year.
During the fourth quarter, talk of railroad mergers heated up again as Canadian Pacific Railway Ltd. pursued CSX rival Norfolk Southern Corp., the other major eastern U.S. railroad. In the fall of 2014, Canadian Pacific pursued CSX, but CSX officials weren’t interested.
Norfolk Southern also rejected Canadian Pacific’s overtures.
Ward said in 2014 that regulatory concerns would impede any merger involving major North American railroads and recent indications from the U.S. Surface Transportation Board indicate that’s still the case, he said.
“It would be a very difficult regulatory process,” he said Wednesday.
Ward also said a merger between Canadian Pacific and Norfolk Southern wouldn’t make economic sense because the two railroads have “limited synergies,” leaving few options for cost savings.
“The logic of the merger from a shareholder value perspective does not hold water,” he said.