CSX (NASDAQ: CSX) reported stronger first-quarter earnings thanks to a combination of lower costs and higher volume and revenue.
“I’m pleased with the strong start to the year that our railroaders have delivered. We made great strides in safety and managed through weather challenges,” Chief Executive Steve Angel said on the railroad’s earnings call Wednesday. “And we advanced our efforts to improve efficiency and streamline our cost structure. The progress we’ve made can be seen clearly in our quarterly results.”
Quarterly operating income surged 20%, to $1.2 billion, as revenue increased 2%, to $3.48 billion. Expenses fell 6%, to $2.2 billion, due to a combination of efficiency savings and favorable comparisons to congestion-related costs a year ago. Earnings per share increased 26%, to 43 cents.
The railroad’s operating ratio was 64%, a 5.6-point improvement compared to a year ago.
CSX raised its revenue outlook for the year, to mid-single-digit growth, up from low single-digits. “The change to our top-line outlook is largely driven by higher-than-expected energy prices, particularly diesel, which will begin to lift fuel related revenue starting in the second quarter,” Angel said.
Overall economic conditions remain uncertain, however. “Conflict in the Middle East and rising energy prices are creating opportunities for some of our customers, but this has also added to broader concerns about inflationary pressure and potential effects on consumer sentiment,” Angel said.
The railroad’s volume was up 3% for the quarter, with intermodal up 6%, merchandise flat, and coal down 1%.
The intermodal gain was primarily due to domestic shipments and short-haul international intermodal moves to inland port terminals, Chief Commercial Officer Maryclare Kenney said.
“One emerging positive here is that shippers are looking more to rail conversion as they weigh the impacts of higher fuel and trucking costs,” said Kenney.
Also expected to give intermodal volume a boost: The planned completion of the Howard Street Tunnel clearance project, which will shave a day off east-west transit times between Chicago and Baltimore and open up new service between the Southeast and Northeast. The final bridge clearance project in Baltimore is expected to be finished next week.
New and expanded manufacturing facilities will continue to boost merchandise volume, Kenney said.
“Our pipeline of approximately 600 active projects remains strong. Twenty-one projects went into service over the first quarter alone, which should contribute an estimated 33,000 annual carloads at full ramp.”
By the end of the year the railroad expects 100 new or expanded customer facilities to be open.
“These 100 projects are expected to contribute roughly 50% more volume at full ramp than last year’s 85 projects combined,” Kenney said.
The railroad’s key operating metrics — train speed, terminal dwell, and the number of cars online — all improved during the quarter. The railroad was congested during last year’s first quarter due to the impact of winter storms and the Blue Ridge Subdivision and Howard Street Tunnel shutdowns, which required lengthy detours.
“Performance at our intermodal terminals has been very good even as we’ve absorbed substantial new volume,” Chief Operating Officer Mike Cory said. “For example, the team at Fairburn in Atlanta handled a 15% increase in intermodal lifts with our expanded domestic business in the Southeast while maintaining service our customers can count on.”
Cory said that scaling back operations at Barr Yard in Chicago enables the railroad to move interchange freight faster through the railroad capital. CSX last week began relying more heavily on the Belt Railway of Chicago and Indiana Harbor Belt to classify its Chicago traffic. It also began running road freights directly to Canadian National’s Kirk Yard in Gary, Ind., bypassing switching at Barr Yard.
“We’re just streamlining our service by really running direct from origin points on CSX to our connecting carriers and belt lines for processing to other carriers,” Cory said. “We’ve always used belt carriers to forward traffic, and now we’re combining all the traffic that comes from outside of Chicago to Chicago with a belt carrier. It just reduces the handling, reduces time on all the traffic.”
The railroad’s safety performance also improved during the quarter, with the personal injury rate down 13% and train accident rate declining by 31%.
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