CSX’s first-quarter operating ratio falls under 60 percent on higher profits

CSX (NYSE: CSX) achieved an operating ratio of less than 60 percent in the first quarter amid continued efforts to employ precision scheduled railroading (PSR) throughout its network.

The railroad, whose network serves primarily the eastern U.S., reached an operating ratio of 59.5 percent in the first quarter of this year, compared with an operating ratio of 63.7 percent in the first quarter of 2018. Operating ratio, which is often used by investors to gauge a company’s profitability, measures operating expenses as a percentage of revenue. A lower percentage indicates that the company is making more profit.

First-quarter net earnings totaled $834 million, or $1.02 per share, which is 20 percent higher than net earnings of $695 million, or $0.78 per share in the first quarter of 2018.

This first-quarter profit increase comes as CSX continues to deploy PSR throughout its network. PSR, which can lower expenses because it maximizes a company’s assets, is an operational tool that seeks to schedule railcars on a fixed schedule rather than on an on-demand basis.

“The CSX team of exceptional railroaders continues to execute across all aspects of our business, delivering new all-time high service levels,” said CSX president Jim Foote, president and chief executive officer. “These results reflect the strength of our Company’s operating model and our commitment to providing a best-in-class service offering to our customers.”

CSX posted volume gains for several commodities, including automotive, core chemicals, agricultural and food products and minerals. Volumes were flat for metals, while fertilizer volumes declined.

Domestic intermodal volumes also fell as CSX rationalized low-density lanes, but international intermodal volumes rose amid new service offerings to inland ports.

For coal, domestic coal volumes fell amid lower prices for natural gas, a competing generation fuel, but domestic coke and iron ore rose on increased domestic steel production. Export coal volumes were down for metallurgical coal but up for thermal coal.

As the company looks toward the remainder of the year, it is focusing on growing its merchandise segment, which includes commodities such as chemicals, automotive, agricultural and food products, forest products, minerals, fertilizers and metals and equipment.

“The continuing turnaround in our merchandise business is, without doubt, the result of our improved service levels,” Foote told investors during the company’s first-quarter earnings call. Foote pointed to CSX reaching new records in the first quarter for train velocity and dwell time for railcars at terminals. Train velocity reached 20.4 miles per hour, while terminal dwell time, which is the amount of time a railcar spends at a terminal, averaged 8.9 hours in the first quarter.  

In comparison, train velocity averaged 17.5 miles per hour in the first quarter of 2018 and 19 miles per hour in the fourth quarter of 2018. Terminal dwell time averaged was 10.4 hours in the first quarter of 2018 and 9.3 hours in the fourth quarter of 2018.

CSX officials were also confident that improved service under PSR would attract businesses that could also ship via trucks.

“This operating model works best for transforming the merchandise business into a much more effective competitor with the highway,” Foote said.

CSX expects to maintain a capital expenditures budget of between $1.6 billion and $1.7 billion for 2019. Of that, CSX spent $353 million for capital expenditures in the first quarter of this year, down from the $368 million it spent in the first quarter of 2018.

“Our reduced asset intensity, especially in rolling stock, has enabled us to sustain lower levels of capital investment without compromising safety or reliability,” CSX chief financial officer Frank Lonegro told investors.

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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. Her transportation background extends to writing about automotive fuels and additives for Hart Energy Publishing and producing summaries on advanced transportation research for a federal government agency. In her spare time, she likes writing travel articles, taking photographs, and singing and dancing. She has a bachelor's degree in music and political science from Barnard College, a master's in journalism from Boston University, and a master's in musical theater from Boston Conservatory.

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