CSX was impacted by the overall headwinds (the manufacturing recession, trade issues, tough comparisons) and some more local (the de-marketing, coal – revenues down 22% - particularly export coal weakness, the Philly refinery explosion, the GM strike – NS has traditionally been a Ford shop). So, revenues declined 8% on a 7% volume drop (that export coal margin whammy). Expenses dropped 9% and headcount by 7% - efficiency. The downbeat report was noticed – the WSJ headline was “CSX: Rail Revenue Drops; 2020 Forecast Weak” (my emphasis). But, are better times ahead? Not in coal, of course, but the rest should be up - in IM and merchandise (CEO Jim Foote: “80% of our business (base) should be doing extremely well”) – and there is even talk in Philadelphia of rebuilding the refinery. CSX predicted flat-to-down revenue but that inflection around mid-year. The PSR track record in intermodal going back to CN is prune-to-grow over a several-year period….
- Their Q4/19 OR improved, though not (no longer?) by much, 30bps to 60%; the call for an essentially flat FY19 OR (59%E vs 58.4 2020A) was met with a fair amount of resistance from analysts.
- They had a terrific operating/service quarter (under the new metrics, to be sure) – notably car trip plan success in carload (82.8% up from 67.3% and IM (95.5% from 73.4%). Train velocity improved 12% and dwell by 9% in the quarter. Crew starts were down 1% more than the carload drop; locos were down 10% YOY. It’s worth noting that the 22% decline in Other Revenue was due in large part to lower demurrage (etc) revenue – which combined with the trip plan compliance improvement adds real credence to the claim that this policy was “behavior change encouragement” not simply “another source of revenue” (it also was a bot of “existing contract rules enforcement”).
- 2019 was a great year for CSX safety improvement – FY personal injury rate -15% and train accident rate by 41% - PSR isn’t about safety risk; however, the PI rate worsened by 12% in the quarter….
- Capex was down another 5% in 2019, but should be flattish in 2020; CSX stated that “core Capex” was actually up 13%. The Capex level was 48% of “adjusted free cash flow before dividends; shareholder distributions were 2.5X Capex. Long term debt increased by over $1.2B (9%; interest expense increased by 11%).
- CSX management compensation plan expires, I believe, at year-end….Has anyone heard from EVP Ed Harris?