Eastern Railroad Discussion > Winter hard on CSX's 1st. Quarter earnings.

Historically harsh winter put CSX's Q1 financial results in deep freeze

inShare. From Progressive Railroading magazine.







"One of the worst winters on record" hindered productivity and drove up operating costs, and as a result greatly impacted CSX Corp.'s financial performance in the first quarter, senior executives said this morning during the Class I's Q1 earnings conference.

Although revenue rose 2 percent to $3 billion and volume increased 3 percent to 1.6 million units, net earnings fell 14 percent to $398 million, earnings tumbled 11 percent to 40 cents per share, operating expenses climbed 9 percent to $2.3 billion and CSX's operating ratio ballooned 5.2 points to 75.5 compared with first-quarter 2013 results.

The severe winter weather — which impacted the railroad's operations as far south as Georgia — drove up operating expenses by an additional $90 million, or 6 cents per share, including $35 million for labor/fringe costs, $35 million for materials/supplies costs, $15 million for fuel costs, and $5 million for equipment and rent costs, senior execs said. In addition, the weather impacted revenue contribution by 2 cents to 3 cents per share.

Despite a quarter that was more challenging than most, "the dedicated men and women of CSX worked tirelessly to keep the network running as fluidly as possible," said Chairman, President and Chief Executive Officer Michael Ward.

"Thanks to the hard work of our employees, service levels are gradually recovering and we are capitalizing on an economy that continues to show positive momentum," he said, adding that domestic coal demand that had hit a low point in 2013 is projected to strengthen through 2014.

The harsh winter "masked the underlying strength of the economy," as CSX's merchandise revenue rose 4 percent to nearly $1.8 billion and volume ratcheted up 2 percent to 680,000 units, and intermodal revenue increased 4 percent to $421 million and volume climbed 5 percent to a new Q1 record 647,000 units, said Executive Vice President and Chief Sales and Marketing Officer Clarence Gooden. Coal revenue declined 9 percent to $662 million and volume dipped 1 percent to 293,000 units, primarily because of soft export coal demand.

The winter that reached near historic proportions in terms of duration, snow and ice, and produced 25 storms that hit back to back over several months, wreaked havoc with CSX's network performance in the quarter, said EVP and Chief Operating Officer Oscar Munoz. Comparing first-quarter 2013 data with first-quarter 2014 figures, on-time originations fell from 91 percent to 63 percent, on-time arrivals plunged from 85 percent to 51 percent, train velocity declined from 23.4 mph to 20.8 mph and terminal dwell time rose from 22.2 hours to 26.8 hours.

The encouraging news: Performance metrics are stabilizing and starting to improve, said Munoz. In addition, CSX no longer is reeling from the operating cost hikes associated with higher overtime pay, additional locomotives pulled from storage or leased, or other operational impacts associated with the severe winter. However, it's unlikely CSX will achieve a targeted $130 million in productivity gains in 2014, primarily because some weather cost impacts have lingered into the second quarter, said Munoz.

Looking ahead, CSX expects modest full-year earnings growth for 2014 on the strength of broad-based merchandise and intermodal gains, and an improving domestic coal environment, said Ward. The Class I still expects to sustain double-digit earnings growth in 2015 and beyond, and achieve a mid-60s operating ratio longer term.

CSX is still in deep doo-doo on the Garrett Sub and around the N. Baltimore facility. There are many dead trains parked between Chicago and Willard that require a lot of extra crews. I don't think they have recovered since the heavy snow hit the midwest and the weather has not been a factor for nearly a month. The RM dispatcher consistently relays to the crewmembers on sitting trains the single track limitations info over the scanner. As an example he told an eastbound leaving Garrett several days ago that they would be holding at St. Joe for a couple of westbounds and that he was single track from St. Joe to Deshler.

FDF

It should be very interesting to compare this to the NS when theirs is presented April 23.
I suspect similar results due to the harsh winter. If not, we know there are other reasons besides the weather.
RichS

The presentation materials for the earnings release pretty much tell the story.

train velocity was down, terminal dwell time was up, both by significant amounts. ethanol is paying a lot of bills on the railroad. overtime and dog catch are up, yet the railroad is said to be "adequately staffed". older power pulled out of storage, railroad pushing hard to get things done.

revenue was up a little bit, expenses were increased quite a bit


http://investors.csx.com/phoenix.zhtml?c=92932&p=quarterlyearnings


these are excellent graphics, and tell a very clear story. CSX people can overcome the challenges, but there's a lot to be done.

Not too hard on Michael Ward--I just got my stockholder proxy statement, and he got paid $12.4 million in salary and other compensation...

Bottom line is they still made 398 million....!!!! Do not care for Wall Street's GREED......

bluesboyst Wrote:
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> Bottom line is they still made 398 million....!!!!

So one man personally took home 3% of that amount?

I have no problem with people in such important positions making a lot of money - as they should - BUT, it certainly sounds excessive - and is this way at any public company. I don't understand how ONE man, or woman, should be paid such a tremendous amount of money.

I guess they get paid what the 'going rate' is, and certainly the compensation has to be voted on by others, but geez. My biggest issue is that you often see the CEO's pay increase irrespective of things like company performance, stock price and employee compensation. Frustrating, but not much to be done about it.

P Wrote:
-------------------------------------------------------
> bluesboyst Wrote:
> --------------------------------------------------
> -----
> > Bottom line is they still made 398
> million....!!!!
>
> So one man personally took home 3% of that amount?
>
>
> I have no problem with people in such important
> positions making a lot of money - as they should -
> BUT, it certainly sounds excessive - and is this
> way at any public company. I don't understand how
> ONE man, or woman, should be paid such a
> tremendous amount of money.
>
> I guess they get paid what the 'going rate' is,
> and certainly the compensation has to be voted on
> by others, but geez. My biggest issue is that
> you often see the CEO's pay increase irrespective
> of things like company performance, stock price
> and employee compensation. Frustrating, but
> not much to be done about it.

Lots of basketball players get paid very good money, and their teams don't even make the playoffs.

Every railroad seems to believe "their" CEO is better than the other guys, and should be paid more than the average. Which of course pushes up next year's average, etc.

Considering the weather, CSX earned well.