CSX Surges to Record High as Railroad Gets More Efficient

(Bloomberg) -- CSX Corp. jumped to a record after improving a key efficiency measure by more than expected, even as the railroad struggled with winter storms.

The company’s operating ratio, a broad measure of efficiency, improved by 4.2 percentage points to 59.5 percent on cost reductions and faster-running trains. The measure also got a boost from a real estate sale and a tax benefit, the company said.

The improvement positions CSX for additional profit gains as Chief Executive Officer Jim Foote extends a strategic overhaul that began in 2017 under his predecessor, Hunter Harrison. Using the “precision scheduled railroading” that Harrison previously used to transform three other carriers, CSX has expanded operating-profit margins and posted the biggest share gains among major U.S. railroads the last two years.

“Of all the railroads, we regard CSX as having the best current combination of excess capacity and strong operations, which is the perfect recipe for translating volume growth into earnings growth,” Rick Paterson, an analyst with Loop Capital, said in a note. “The issue, of course, is where that volume growth is going to come from.”

Shares rose 4.5 percent to $79.33 at 12:01 p.m. in New York after advancing to as much as $80.51, the highest since shares started trading in 1980.

‘Best Combination’

While CSX has proven it can boost efficiency, it must now show investors it can also increase sales, Paterson said. Cargo volume was little changed from a year ago as gains in chemicals and food products were offset by a drop in containerized freight, an area in which CSX is eliminating some less profitable routes.

Foote, who took over after Harrison died in late 2017, is looking to take some business from the trucking industry, which carries “tens of billions of dollars” of freight that should be hauled by railroad, he said. Customers have turned to trucks because trains typically struggle to hit tight delivery windows, but CSX’s improved efficiency is making its rail service more reliable, Foote said in an interview.

“We used to say we were 70 percent on time and we’d be there somewhere between four and eight days. Now we’re out there 75 percent of the time, but we’re to the day and almost to the hour,” Foote said. “We’ll get it up to 90 percent. It just takes time to grind it out, change the operation, get more fluid.”

The goal is ambitious for a rail industry that’s notorious for unreliable service. Trucks are 95 percent on time and that’s why shippers are willing to pay 15 percent to 20 percent more to haul heavy commodities by truck over long distances, Foote said.

The amount of truck freight for the taking is “huge,” Foote said. “As the railroads get more focused and adopt some of these scheduled railroad principles, yes, it should allow us to significantly grow traffic across the network.”

To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren

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