CSX eyes flat to lower revenue in 2020

A photograph of a train hauling tank cars in winter. There is snow on the ground.

Eastern railroad CSX (NASDAQ: CSX) expects its annual revenue to be flat to 2% lower in 2020 amid a systemic decline in coal volumes and an industrial economy that might take some time to improve, company executives said Thursday during CSX’s fourth-quarter earnings call.

“We expect underlying economic demand to remain relatively consistent with current levels. It took industrial activity awhile to cool off, and it will take awhile to heat back up,” CSX CEO Jim Foote told investors. 

The potential decline includes more than $300 million in potential losses or “headwinds” because of a slowing market for export coal. European thermal coal demand has cooled amid weather conditions that don’t encourage increased coal consumption and falling prices for natural gas, which is used to generate electricity. Export prices for Europe-bound metallurgical coal are also expected to decline this year.

Meanwhile, manufacturing indicators such as the Purchasing Managers Index suggest that a near-term increase in U.S. industrial activity is unlikely, said Mark Wallace, CSX’s senior vice president for sale and marketing.

“We’re not forecasting a hockey stick recovery, but any improvement in the macro[-economic] environment would be upside us,” Wallace said.

Nonetheless, CSX expects its merchandise volumes to grow in 2020, with volumes “stronger” in the second half of the year than in the first half of the year. Merchandise volumes consist of commodities such as agricultural products, minerals, auto parts and chemicals.  

CSX also anticipates intermodal volumes to “do well” in 2020, including for the first half of the year, now that the railroad has completed rationalizing its lanes. The company has been shedding some intermodal lanes and focusing on others since 2018, which is when CSX implemented precision scheduled railroading.

CSX is targeting a yearly operating ratio of 59% for 2020, compared with 58.4% in 2019. Operating ratio, which is operating expenses as a percentage of revenue, can be an indicator of a company’s financial health. To keep costs down, CSX said it is targeting efficiencies that won’t affect service, such as labor costs. 

The railroad also expects its budget for capital expenditures to remain between $1.6 billion and $1.7 billion, which is in line with the budget for 2019. 

“It took the railroad industry decades of poor service to drive the business off the railroads onto the trucks. We are not going to get the business off the highway back on to the railroad in two weeks. So we’re going to have to earn it. … We’re going to have to not only put up good metrics but prove to the customers that these metrics are as equal to a truck and that this business model is sustainable,” said Kevin Boone, CSX’s chief financial officer.

He continued, “And when we do that, we’ll continue to see where we grow our merchandise and intermodal volumes at a rate that is faster than the industry.”

Fourth-quarter results

Net profit for the fourth quarter of 2019 slipped 8.5% amid declining revenues due to lower volumes and coal market headwinds. 

Net earnings for the fourth quarter totaled $771 million, or 99 cents a share, compared with $843 million, or $1.01 a share for the fourth quarter of 2018. Fourth-quarter revenue slipped 8% to $2.89 billion amid lane rationalizations for CSX’s intermodal segment, a softer industrial economy and declining coal volumes.

Despite the drop in revenues, fourth-quarter costs were down amid continued efficiency gains and volume-related savings, CSX said. Expenses for the fourth quarter of 2019 fell 9% to $1.73 billion. Fuel expenses fell 7% because of decreases in the per-gallon price, lower volumes and company efficiencies that included a more focused utilization of distributed power and energy management software. Meanwhile, fourth-quarter operating income slipped 8% to $1.15 billion.

CSX reached a fourth-quarter record operating ratio of 60%, compared with 60.3% in the fourth quarter of 2018. The company’s full-year operating ratio was a record 58.4%, compared with 60.3% for 2018. Operating ratio can be an indicator of a company’s profitability.

Operating metrics improved in the fourth quarter, with velocity increasing 12% to 21.3 mph and terminal dwell time, which is the amount of time a train spends at a terminal, falling 9% to 8.4 hours.

“Our long-term strategy is to continue to leverage our service, regain business that has been lost from the industry, while maintaining what I consider to be extremely good margins and grow our operating income, cash flow and earnings per share of the company,” Foote said.


2019 Value 2018 Value Y/Y Gross Change Y/Y % Change
Freight revenue $2,885,000,000.0 $3,143,000,000.0 ($258,000,000.0) -8.2%
Carloads 857,000 916,000 -59,000 -6.4%
Revenue per carload $1,875,000,000 $1,907,000,000 -$32,000,000 -1.7%
Intermodal shipments 682,000 732,000 -50,000 -6.8%
Intermodal revenue per carload $658,000 $672,000 -$14,000 -2.1%
Employee counts 20908 22475 -1,567 -7.0%
Train velocity (mph) 21.3 19 2 12.1%
Dwell time (hours) 8.4 9.2 -1 -8.7%
OR% 60.0% 60.3% -0.3% -0.5%
EPS $0.99 $1.01 -$0.02 -2.0%