CSX seeks to manage expenses and costs

A photograph of a train traveling through a forest.

CSX (NASDAQ: CSX) is seeking areas where it can cut even more costs as a way to counter the anticipated downturn in rail volumes in the second quarter due to the COVID-19 pandemic, according to executives speaking during the company’s first-quarter earnings call on April 22.

“We’re focused on taking out structural costs” through measures such as eliminating train starts and keeping labor costs down, said CSX Chief Financial Officer Kevin Boone.

As CSX’s rail volumes have fallen by over 20% in recent weeks, CSX has adjusted operations to match rail demand, although some initiatives also serve a dual goal of improving network efficiencies, according to Jamie Boychuk, CSX executive vice president of operations. CSX has reduced its use of rail assets, including storing around 400 locomotives in March, and the company has eliminated 50 merchandise trains from its daily plan while keeping the merchandise train length consistent, Boychuk said. CSX has also reduced train delays by 66%, he said.

“We’ve started to adjust our network to where we see demand sit,” Boychuk said.

Although CSX has made these operational changes, executives said they’ve stayed in close communication with each other and with customers so that CSX can gauge how to modify operations so that customers still have the service they need.

“We have worked too hard to get this right to go backwards” with service levels, said CSX President and CEO Jim Foote, adding later that “we have worked like dogs to get the service levels of this railroad up to where they belong.” 

But Foote declined to lay out the various scenarios that outline their expectations for rail volumes for the year, citing too many unknowns. The range of how U.S. production and consumer confidence might rebound and recover is too wide to predict, he said. 

“We’ve certainly looked at all the alphabet: the V, U, L and W” of possible recovery scenarios, Foote said, referring to the different types of trajectories that graph or model an economic recovery. One reason why CSX’s scenarios are so varied is because they have different rail volume inputs, he said.

But one constant of sorts is CSX’s expectations to spend roughly $1.6 billion to $1.7 billion on capital expenditures so that the railroad can conduct maintenance on its network and prepare it for a volume rebound, Foote said. However, CSX might revisit that total figure later this year as it still looks for potential non-essential spending items that it can defer to next year, he said. 

When asked about how CSX might benefit from the e-commerce boom that has been fueled even further by the COVID-19 pandemic, Foote said he saw two opportunities. One is that as the U.S. economy is expected to recover sometime in the future, Foote said his personal view is that there might be a focus to have more manufacturing take place in the U.S., which would ultimately benefit the railroads. The other is that e-commerce has transitioned some players in the trucking industry to become large quantity shippers, bringing them on par with the railroads, and “because of our service, as we go forward, I think that will be a big opportunity for us,” Foote said.

In its April 22 earnings release the company stated its first-quarter net profit fell 7.7% amid lower revenues and a record operating ratio.


2020 Value 2019 Value Y/Y Gross Change Y/Y % Change
Freight revenue $2,855.0 $3,013.0 ($158.0) -5.2%
Carloads (000s) (incl. intermodal) 1,514 1,531 -17 -1.1%
Revenue per carload $1,886 $1,968 -$82 -4.2%
Intermodal shipments (000s) 660 657 3 0.5%
Intermodal revenue per carload $639 $651 -$12 -1.8%
Gross ton miles 95.3 96.7 -1 -1.4%
Revenue per ton mile $48.50 $48.60 $0 -0.2%
Fuel Expense (millions) $192 $233 -$41 -17.6%
Employee counts 20,627 22,194 -1,567 -7.1%
Train velocity (mph) 21.2 20.4 1 3.9%
Dwell time (hours) 8.3% 8.6% -0.3% -3.5%
OR% 58.7% 59.5% -0.8% -1.3%
EPS $1.00 $1.02 -$0.02 -2.0%

First-quarter 2020 net income was $770 million, or $1 a share, compared with $834 million, or $1.02 a share in the first quarter of 2019, the company said on April 22. Meanwhile, CSX’s first-quarter operating ratio was a record 58.7%, compared with 59.5% for the same period a year ago.

More of CSX’s first-quarter financial results are available here.