Post EHH Changes for CSX

Cowford wrote:First quarter earnings call today was very interesting - worth a listen. OR 59.5, and service levels are good (not just according to CSX). It's hard to argue against the fact that CSX has been positively transformed (though some will).

Amazing what smoke, mirrors and deferred maintenance to equipment and physical plant can do to the OR. Suck out all the money to Mantle Ridge!

mmi16 wrote:

Cowford wrote:First quarter earnings call today was very interesting - worth a listen. OR 59.5, and service levels are good (not just according to CSX). It's hard to argue against the fact that CSX has been positively transformed (though some will).

Amazing what smoke, mirrors and deferred maintenance to equipment and physical plant can do to the OR. Suck out all the money to Mantle Ridge!

Cooked books may smell good for awhile, take a bite out of them and they may bite you back...

NRGeep wrote:

mmi16 wrote:

Cowford wrote:First quarter earnings call today was very interesting - worth a listen. OR 59.5, and service levels are good (not just according to CSX). It's hard to argue against the fact that CSX has been positively transformed (though some will).

Amazing what smoke, mirrors and deferred maintenance to equipment and physical plant can do to the OR. Suck out all the money to Mantle Ridge!

Cooked books may smell good for awhile, take a bite out of them and they may bite you back...

And when that happens Mantle Ridge expects to be long gone!

As I said... OK, you naysayers, put your money where your mouths are: If this is all smoke and mirrors, please advise about when will the supposed house of cards collapse.

Cowford wrote:As I said... OK, you naysayers, put your money where your mouths are: If this is all smoke and mirrors, please advise about when will the supposed house of cards collapse.

Not going to venture into capital predictions. We could be "nabobs of negativity" (to borrow a phrase from former VP Agnew) and I would be pleased to be wrong as long as CSX profits translate into overall safety, efficient online customer service and deliveries and fairness to employees. Contango or backwardation? Durable duration? Short term vulture investors or venture big picture investors? Time will tell...

Here's a pointedly labor biased opinion piece in Railway Age of late:

https://www.railwayage.com/freight/clas ... what-cost/

"Much is being made in the railroad industry and transportation media about the Precision Scheduled Railroading (PSR) wildfire sweeping from coast to coast. Proponents of PSR will tell you that it will prove to be the industry’s savior. But it also begs the following question: Just what does the industry need to be saved from?"

Note that the editorial is bylined by the President of BLET. The bias is predictable and understandable--and even biased statements can be accurate. As to spinning off lines to regionals and shortlines, some union and some non-, the unions gave the railroads a blueprint for doing exactly that as far back as the 1970's by telling the Class I's, in effect, "sell the branch lines to a shortline and we'll give them a labor agreement we'd never give a Class I in a million years." It was all that saved the Providence & Worcester.

Cowford wrote:As I said... OK, you naysayers, put your money where your mouths are: If this is all smoke and mirrors, please advise about when will the supposed house of cards collapse.

When Wall Street wakes up!

Remember Credit Default Swaps were a 'great investment' that Wall Street swallowed hook, line and sinker and brought on the financial failures of 2007-2008. The 'best and brightest' got hoodwinked.

Just a matter of time before the CSX "kitty"is zero'd out by Mantle Ridge.
AND CSX implodes on it's self!

Rumor going around is Hulsey Yard in Atlanta will shut down on May 1st. I don't know if it's specific to EHH or not.

Cowford wrote:First quarter earnings call today was very interesting - worth a listen. OR 59.5, and service levels are good (not just according to CSX). It's hard to argue against the fact that CSX has been positively transformed (though some will).

CSX 1Q2019 operating ratio 59.5 down from 63.7 1Q2018 vs. NS 1Q2019 operating ratio 66 down from 69 1Q2018. CSX's operating ratio improvement composition 49% growth, 20% unit revenue increases (traffic mix, fuel surcharges, rate increases), and 31% cost reductions vs. NS' operating ratio improvement composition 19% growth, 81% unit revenue increases (traffic mix, fuel surcharges, rate increases), and 0% cost reductions.

CSX highlights 6% carload revenue increase from 58% growth/42% unit revenue increase with Agriculture/Food traffic, up 7%, and Forest Products traffic, up 6%, leading the way; 6% coal revenue increase attributable 83% to growth and 17% to unit revenue increase; and, cost reduction with labor costs down 3%, fuel costs down 9%, and, equipment costs down 1%. CSX lowlights intermodal volume down 5% and unit revenue flat.

NS highlights 5% carload revenue increase attributable to 100% unit revenue growth offset by a 1% volume loss driven by a 5% loss of auto traffic, and 6% intermodal revenue growth attributable 33% to growth and 67% to unit revenue increases. NS lowlights coal revenue flat with unit revenue growth offset by volume losses and reductions of 1% labor costs and 6% fuel costs offset by 6% increase in purchased services and rental costs.

Post-EHH, in this quarter CSX continued to outpace NS in lowering the operating ratio, however now with growth providing half the progress, though half of that growth from long-term downward-trending coal, and with intermodal lagging, and, NS relying upon carload and intermodal unit revenue growth to a major degree and intermodal growth to a smaller degree in a market turning toward increasing trucking competition pressures. Moving through the year we can anticipate CSX beginning to pivot with its intermodal business, while at NS, full implementation of PSR with its resulting cost reductions and potential traffic impact.

When it comes to the long battle between CSX and NS, post-EHH continues to be an interesting time, and I agree, Cowford, that it's hard to argue against the fact that CSX has been positively transformed by PSR.

QB 52.32 wrote:

Cowford wrote:First quarter earnings call today was very interesting - worth a listen. OR 59.5, and service levels are good (not just according to CSX). It's hard to argue against the fact that CSX has been positively transformed (though some will).

CSX 1Q2019 operating ratio 59.5 down from 63.7 1Q2018 vs. NS 1Q2019 operating ratio 66 down from 69 1Q2018. CSX's operating ratio improvement composition 49% growth, 20% unit revenue increases (traffic mix, fuel surcharges, rate increases), and 31% cost reductions vs. NS' operating ratio improvement composition 19% growth, 81% unit revenue increases (traffic mix, fuel surcharges, rate increases), and 0% cost reductions.

CSX highlights 6% carload revenue increase from 58% growth/42% unit revenue increase with Agriculture/Food traffic, up 7%, and Forest Products traffic, up 6%, leading the way; 6% coal revenue increase attributable 83% to growth and 17% to unit revenue increase; and, cost reduction with labor costs down 3%, fuel costs down 9%, and, equipment costs down 1%. CSX lowlights intermodal volume down 5% and unit revenue flat.

NS highlights 5% carload revenue increase attributable to 100% unit revenue growth offset by a 1% volume loss driven by a 5% loss of auto traffic, and 6% intermodal revenue growth attributable 33% to growth and 67% to unit revenue increases. NS lowlights coal revenue flat with unit revenue growth offset by volume losses and reductions of 1% labor costs and 6% fuel costs offset by 6% increase in purchased services and rental costs.

Post-EHH, in this quarter CSX continued to outpace NS in lowering the operating ratio, however now with growth providing half the progress, though half of that growth from long-term downward-trending coal, and with intermodal lagging, and, NS relying upon carload and intermodal unit revenue growth to a major degree and intermodal growth to a smaller degree in a market turning toward increasing trucking competition pressures. Moving through the year we can anticipate CSX beginning to pivot with its intermodal business, while at NS, full implementation of PSR with its resulting cost reductions and potential traffic impact.

When it comes to the long battle between CSX and NS, post-EHH continues to be an interesting time, and I agree, Cowford, that it's hard to argue against the fact that CSX has been positively transformed by PSR.

Cost reductions come from deferring maintenance - you can get by for a while with deferred maintenance, then the house comes crashing down.

That's exactly the problem--you can get away with minimal maintenance for awhile without its being noticeable, particularly to an analyst perusing computerized data on the 74th floor of a Manhattan office building who may not realize the significance of different types of railroad costs. I believe that in ICC days (I don't know whether this is the case today) track replacement had to be expensed rather than amortized, so that even if the new track was expected to last for 20 years it had to be shown as an expense for the quarter in which it was incurred, rather than spread out over its service life, so you could cut out a lot of maintenance in Q2 and Q3 and look like a hero--until it caught up with you. And if you get out in time, it will catch up with the next guy, not you.

ExCon90 wrote:That's exactly the problem--you can get away with minimal maintenance for awhile without its being noticeable, particularly to an analyst perusing computerized data on the 74th floor of a Manhattan office building who may not realize the significance of different types of railroad costs. I believe that in ICC days (I don't know whether this is the case today) track replacement had to be expensed rather than amortized, so that even if the new track was expected to last for 20 years it had to be shown as an expense for the quarter in which it was incurred, rather than spread out over its service life, so you could cut out a lot of maintenance in Q2 and Q3 and look like a hero--until it caught up with you. And if you get out in time, it will catch up with the next guy, not you.

And when you exceed the 'real' service life of rail - it starts breaking - UNDER TRAFFIC! If you are lucky MofW and Signals only have to repair the broken rail to extinguish a track circuit that remains on after a train has passed. If you are not lucky 30 - 40 - 50 cars get piled up!

mmi16 wrote:Cost reductions come from deferring maintenance - you can get by for a while with deferred maintenance, then the house comes crashing down.

This year, 2019, CSX is replacing ~21% more rail than NS, 39% more rail than BNSF, and 44% more rail than UP, and, replacing 9% more ties than NS, 100% more ties than BNSF, and 26% more ties than UP, proportional to each carrier's route mileage. CSX reported 1Q2019 FRA Train Accident Rate down 35% vs. 1Q2018. Of the 31% of operating ratio improvement last quarter, cost reductions came from fuel, labor and equipment rental with the rest, 69%, coming from pulling in more revenue.