CSX Corp. reported higher earnings for the second quarter as it continued to improve its operating efficiency.
However, revenue declined in the quarter and an uncertain economic outlook has the Jacksonville-based railroad company forecasting a continued drop for the rest of this year.
“Both global and U.S. economic conditions had been unusual this year to say the least and have impacted our volumes,” CEO James Foote said Tuesday in a conference call with analysts.
“The present economic backdrop is one of the most puzzling I have experienced in my career,” he said.
Foote said the company started 2019 expecting revenue to grow by 1% to 2% but now it is forecasting the opposite, a decline of 1% to 2%.
He said natural gas prices are “expected to continue to impact both domestic and export coal, intermodal is showing little seasonal recovery and many of our industrial customers’ volumes (are) continuing to show weakness with no concrete signs of these trends changing.”
CSX’s second quarter revenue fell by 1% to $3.06 billion.
Despite the revenue drop, earnings rose by 7 cents a share to $1.08 as its operating ratio (expenses divided by revenue) fell to 57.4%, from 59.5% in the first quarter.
However, earnings were 3 cents lower than the consensus forecast of analysts, according to Zacks Investment Research.
“We are not necessarily being pessimistic about the second half of the year but inasmuch we need to adjust guidance, we’re just setting out the obvious. This outlook is based on current business levels and there is upside to this forecast if conditions improve in the second half,” Foote said.
“We are seeing a range of conflicting data points and economic indicators and regularly speak with customers who, despite the recent slowdown, remain cautiously optimistic about the second half,” he said.
CSX is continuing to cut its employment level, but the company is attempting to do that through attrition rather than job eliminations.
Total employment at CSX, which operates throughout the Eastern U.S., was 21,541 at the end of the second quarter, down from 22,001 at the end of the first quarter.
CSX, which employed about 26,000 before a new management team started cutting jobs in 2017, has previously said it is targeting employment of 21,000 by the end of 2020.
“We feel it is most prudent to actively manage expenses to today’s volumes rather than take a wait-and-see approach,” Foote said.
“Our planned cost reduction initiatives will not impact safety or service and will ensure the business is positioned to handle any additional volumes when things pick up.”