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CSX sees rebound in the third quarter, although earnings still down year over year (Courtesy of the Jacksonville Business Journal) – After a second-quarter that featured the largest year-over-year revenue drop in the company’s history, CSX Corp. saw its third-quarter earnings bounce back — although they still came in below Q3 2019 figures.

Net earnings for the quarter tumbled 14% to $736 million or 96 cents per share, three cents above analysts’ expectations, down from $856 million or $1.08 a share a year ago.

Revenue, expenses and operating income all dropped 11% from the year-ago quarter. Revenue for the Jacksonville-based railroad was $2.65 billion, expenses $1.51 billion and operating income $1.14 billion.

Operating ratio — a measure of efficiency in which lower is better — came in at 56.9 percent, a slight improvement from 58.8 percent a year ago.

“The good news is we’re an extremely financially strong company now,” said CEO Jim Foote told the Jacksonville Business Journal. “From a financial perspective, we weathered this severe storm extremely well. We can be hit with a lot of things and not be damaged.”

The railroad has $2.9 billion on hand on Sept, 30, up from $1.5 billion a year ago.

The year has been volatile for the railroad, which saw business dry up right after the pandemic hit before coming back.

“The last six months have truly been surreal,” Foote said on a call with analysts. “On last quarter’s call, we discussed the largest and most rapid sequential volume declines in CSX’s history. Now, just three months later, record sequential increases.”

Despite the bounceback, CSX’s saw declines across the board compared to a year ago in the amount of merchandise cargo it carried, which includes cars, chemicals, forest products and more. The volume of coal plunged 27%, leading to a 36% decrease in coal revenue.

However, the volume of intermodal shipments grew by 7% — setting a company record — keeping intermodal revenue basically flat at $445 million for the quarter, compared to $447 million in the same period in 2019.
The strength of intermodal, which requires luring shippers who have been using trucks to switch to rail, sets up CSX well for the future, executives said.

“I think we’re well-positioned to continue to grow all of our business — maybe not coal, but all of our business — based upon the way we run the company today, based on the way we were able to effectively meet our customers’ needs in an extremely trying time and prove to many, many, many shippers that they can trust us,” Foote said.
The company expects that volume increase to continue into 2021.

“We expect a robust peak season: Around Thanksgiving time is usually when we see that e-commerce peak, to Christmas time. We expect that to be very strong — actually, it has been strong through the pandemic, just as people have been staying at home and ordering stuff online — but we expected to pick up even more robustly going forward,” Executive Vice President of Sales and Marketing Mark Wallace said on the analyst call. “Speaking with our customers, we expect that to continue deep into Q1.”

The company has done well over the course of the pandemic because of its adherence to precision scheduled railroading, the model brought to CSX by former CEO E. Hunter Harrison and continued by Foote, said Jeff Windau, an industrials analyst with Edward Jones.

“They are well-versed in precision scheduled railroading,” Windau told the Business Journal. “They were able to have that engrained in their culture. When you see these rapid declines in volume, they were able to react quickly. … That’s one of the elements that has set them apart: Having the culture and having PSR engrained in their business.”

Some metrics showing how well the company adheres to its plan slipped over the quarter, however: intermodal trip plan performance went from 94% in the second quarter to 87.4% in the third, while carload trip plan performance fell from 80.5% last quarter to 73% this one. Velocity fell slightly and cars dwelled longer in terminals.

Fewer people and less equipment was needed to move the railroad’s shipments: CSX’s train length is up 13% and its tonnage up 12% with 350 fewer locomotives, while its workforce fell by 2,018 over the past year to 19,313.

CSX has $2.78 billion in free cash flow before dividends, a substantial increase from the $1.93 billion at this time last year.

“I think they had a very solid quarter,” Windau said. “Obviously, sales were down and volumes were down. But, if you look at the path they had to take, there was significant decline and a significant rebound. In that dynamic environment, it’s difficult to deliver the product on time and meet all your expectations.”

CSX’s stock jumped in overnight trading, going from $78.72 at the close to a peak of $82.30, with about 849,982 shares trading hands.

Image courtesy of CSX.