CSX Profits Up on Higher Pricing

CSX Corp. reported today a better-than-expected quarterly net profit as strong pricing offset higher fuel costs and weaker freight volumes, Reuters reports.

Fourth-quarter net income rose more than 5 percent to $365 million, or 86 cents a share, from $347 million, or 75 cents a share, a year earlier. Excluding one-time items, profit increased to 85 cents a share from 57 cents. Wall Street analysts had expected 64 cents before one-time items, according to Reuters Estimates.

CSX reported surface transportation operating income of $609 million, compared with $505 million a year earlier. Revenue increased 7.6 percent to $2.58 billion from $2.4 billion even though freight volumes were flat for coal and fell in the automotive and intermodal categories. Like most other U.S. railroads, CSX has reported strong results in the past few quarters, largely because of strong pricing and rail network improvements.

CSX Chief Executive Michael Ward said the company plans price increases of 5 percent to 6 percent for 2008 and expects freight volumes to be flat to slightly up. "We still anticipate being able to implement those price increases," Ward said. CSX also reiterated its long-term financial targets of double-digit growth in operating income and earnings per share, plus free cash flow of $800 million to $1 billion before dividends by 2010.

Wall Street certainly rewarded CSX this week (and NS for that matter) for its results. Amazing that CSX has surpassed the $10 billion/yr revenue threshold. The biggest question is whether the railroad can hold onto all those hard-fought price increases in the long-term. Most likely yes, as many of those gains were tied into multi-year contracts that will (hopefully) outlast the looming recession.

I think all of the Class Is are dealing with the same issue, hitting steadily rising fuel prices as a headwind.

I suspect they're where they think they want to be...a higher-priced service; and less of it being sold. More cash in and less operating costs.

But that's unsustainable. If shipments are down there's surplus capacity; and that invites a price war. ESPECIALLY if the industry or business is showing record profits on reduced movement.

(No, I don't have figures on tonnage or carloads. But the seniority roster's been whacked hard...I'm down to where I haven't been for five years; starting to wonder if I might be set back as a conductor. That's a pretty good indication that the railroad's doing a LOT less than it had been.)

CR Engineer, the current situation is more complex than you let on.

Consider:

Despite a 2% tonnage dip, 2007 revenue ton-miles equaled 2004/2005 levels and well exceeded 2002/2003. And this was accomplished on a system that, on a route-mile basis, was nearly 10 percent smaller than in 2003.

Much of the revenue gains are in long-term contracts. These agreements lock in prices over many years (particularly in the coal segment), so will continue to reap benefits despite capacity fluctuations.

High fuel prices will continue to help maintain high pricing levels.

NS and CSX have learned to play nice with one another. I'm not suggesting collusion or price fixing but they both learned some nasty lessons on "buying" business after the breakup of Conrail. I'd imagine both are reluctant to relive those experiences.

CSX is adding capacity... I'd expect them to continue focusing on the golden triangle: Chicago-NYC-FL, and continue divesting less prosperous lines.

The extent of layoffs may be accounted for, in part, by retirement attrition rates being lower than expected. I can't state this for a fact, but CSX (and other class 1s) have been gearing up for massive turnover due to the retirement rules.[/b]