CSX faced a number of headwinds in 2019, but are better times ahead?

Abhbw 2010

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?