CSX’s first-quarter profits fell as congestion hurt volumes and revenue while driving up the railroad’s expenses.
CSX (NASDAQ: CSX) has been struggling operationally this year after a string of harsh storms. Roundabout detours required by the rebuilding of the hurricane-damaged Blue Ridge Subdivision and the closure of the Howard Street Tunnel in Baltimore for a clearance project have reduced the railroad’s ability to bounce back from bad weather.
CEO Joe Hinrichs said that providing consistent, reliable service strengthens the railroad’s relationship with its customers and leads to volume growth.
“Unfortunately, our performance fell short of our expectations. As a result, we left good business on the table, reduced our revenues, and our inefficiencies meant we incurred more expense. We take full accountability for our performance this quarter and we are not standing still,” he told investors and analysts on the railroad’s Wednesday afternoon earnings call.
First-quarter operating income declined 22%, to $1.04 billion, as revenue decreased 7%, to $3.42 billion. Earnings per share declined 24%, to 34 cents.
The railroad’s operating ratio increased 5.9 points, to 69.6%, as expenses rose by 2% for the quarter. The congestion added $45 million in costs, while lower fuel surcharge revenue and slumping export coal prices contributed to the revenue decline.
Overall volume declined 1%. Merchandise traffic declined by 2%, as automotive traffic dropped due to reduced vehicle production. Intermodal volume increased by 2% thanks to increased port traffic, while domestic volume was flat. Coal slumped 9%, led by a 12% drop in export coal tonnage. Domestic coal, which primarily is thermal coal used for electricity generation, declined 4%.
Chief Commercial Officer Kevin Boone said freight demand remains strong despite the trade war that is creating economic uncertainty. “If markets hold, we see opportunities to capitalize on improved network performance,” Boone said.
CSX was unable to handle demand for grain and coal unit train service during the quarter.
The trade war and related uncertainty prompted CSX executives to reduce their outlook for the year. The railroad still expects to see full-year volume growth but withdrew prior guidance of low- to mid-single-digit growth.
Boone expressed optimism about continued growth in industrial development projects on the CSX network, which he said would benefit the railroad now as well as long term if tariff policy ultimately boosts U.S. manufacturing.
Two dozen customer facilities opened on CSX in the first quarter, including projects for Chick-fil-A, Hyundai, Nova Chem, aluminum producer Novelis and steelmaker Nucor. The facilities will add 28,000 annual carloads once production ramps up fully.
