(The following story by Timothy J. Gibbons appeared on the Florida Times-Union website on July 19.)
JACKSONVILLE, Fla. — CSX Corp.’s strong second-quarter earnings show that the company – in concert with the rest of the railroad industry – has undergone a sea change, industry watchers say, moving away from the cyclical nature that in the past had companies’ finances tanking whenever the economy softened.
The amount of freight carried by the Jacksonville-based railroad dropped for the second quarter in a row, according to the company’s financial filings, but the company’s revenues were up, beating expectations. That’s new for the industry, which usually saw its revenues take a beating when sectors like the automotive and construction industries ran into trouble.
“We’re in a freight recession,” said Jason Seidl, a transportation industry analyst with Credit Suisse, “but pricing power is as strong as it’s ever been.”
That enabled the company to post quarterly revenue of $2.5 billion and operating income of $603 million. That included a $30 million reduction in reserves for personal injury claims, but even putting that aside, earnings beat expectations.
“Normally in a cyclical industry our earnings would be tanking,” said CSX Chief Executive Officer Michael Ward. “We’re proving the thesis of the rail renaissance,” a theory that says that changes in the transportation industry have brought railroads back to prominence.
The core of that revenue growth came from what Stifel Nicolaus analyst John Larkin called in a research note “seemingly endless strength in the railroad price environment.”
Part of that strength, the company said, comes from improvements in more hands-on metrics, such as more trains leaving and arriving on time and fewer injuries suffered by employees. That leads to higher customer satisfaction, allowing prices to trend higher. “We’re doing a better job enforcing operating rules,” Ward said. “Maybe we weren’t doing the best job of that in the past. When we weren’t running well, managers spent all the time working to get the trains out.”
The new focus is better both for the company and its employees, he said. “I just got my 30-year pin last month. For 28 of those years, it was how do you shrink the company. The last two years have been how do you grow, how do you reinvest. It’s a lot more fun.”
CSX’s stock closed up 5.21 percent on Wednesday, gaining $2.53 to $51.05.