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Company earningsNewsRail

CSX views 2H with guarded optimism

CSX aims to retain some of the cost-cutting measures it implemented in Q2

CSX (NASDAQ: CSX) is “cautiously optimistic” about volumes in the second half of 2020, noting that while volumes have rebounded significantly in recent weeks, the coronavirus, the election and overall economic uncertainty remain potential headwinds.

“There remains a lot of uncertainty around the pace of the recovery and the continuing impact of COVID-19 on states and businesses,” said Mark Wallace, CSX’s executive vice president for sales and marketing, during CSX’s second-quarter earnings call on Wednesday, July 22. “Couple that with what’s going on with the upcoming election in November and other geo-political issues – that all shapes our view that while we’re encouraged with the increases we’re seeing today, we remain cautiously optimistic about the back half.”

Wallace said customers’ consensus about the back half of 2020 is that the outlook remains unclear. But CSX “has been pleased” to see volumes recover in its merchandise and intermodal segments.

Within the merchandise segment, the reopening of the automotive plants has helped other markets such as steel and plastics, according to Wallace. Agricultural products and the beverage business are also seeing their supply chains reopen, he said.

Meanwhile, April and May were “tough months” for the intermodal segment, Wallace said. But volumes started to improve in June, especially for domestic intermodal because the U.S. economy was reopening and retailers were seeking to replenish inventories. E-commerce was also seeing a surge in business, according to Wallace. 

The coronavirus pandemic and its subsequent lockdowns contributed to CSX’s rail volumes reaching their lowest point this spring, company executives said. But then after the sheltering-in-place restrictions were removed, volumes rebounded by 25% over a six-week period.

“This was the most disruptive quarter I have experienced in my career, both the fastest decline in volumes followed by one of the most rapid increases in volumes in the company’s history. Reacting with those swings while dealing with the pandemic has been and continues to be challenging,” said CSX President and CEO Jim Foote. 

Operational changes made during the pandemic

To trim network capacity to meet demand and cut costs, CSX took measures such as placing over 1,000 locomotives and railcars in storage, reducing shifts at some diesel shops, and moving heavier semi-yearly work to other facilities, according to Jamie Boychuk, CSX’s executive vice president of operations. CSX also mixed its auto network with its manifest and intermodal networks in some areas and it reduced train starts, Boychuk said.

CSX will retain some of these measures as volumes rebound, and it will add assets back if needed, according to Boychuk. But within the six-week period where volumes rebounded by 25%, CSX used only 15% more locomotives in that timeframe.

The company also increased train length by 4% and train weight by 7%, and it plans to continue lengthening trains, according to Boychuk. 

Meanwhile, hundreds of train and engine employees have been brought back and have been positioned in areas where traffic might increase. 

“We used this time during COVID-19 almost like our practice hour to be prepared on how to run trains differently, on how to really adjust our network. We’re using more distributed power; we are doing more of a train mix,” Boychuk said.

He continued, “Are we going to have to continue to add some assets? Absolutely. It continues to improve and go above the pre-COVID volume. Definitely we’ll be putting some assets back in and bringing some more people off furlough but I’ve always said that every asset we bring in will earn its keep.”

Second-quarter financial results

Second-quarter net profits for CSX slipped 43% amid a pandemic-induced 26% drop in revenue.

Net income totaled $499 million, or $0.65 per diluted share, in the second quarter of 2020 compared with $870 million, or $1.08 per diluted share, in the second quarter of 2019.

(CSX)

Second-quarter revenue fell 26% to $2.26 billion amid lower economic activity driven by the COVID-19 pandemic, CSX said. Volumes fell 20% to 1.26 million units, while revenue per unit slipped 7% to $1,794.

Meanwhile, expenses in the second quarter fell by 19% to $1.43 billion amid volume-related reductions and continued efficiency gains.

For more on CSX’s second-quarter results, go here

Click here for more FreightWaves articles by Joanna Marsh.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.

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