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CSX Executive James Foote Promises to Continue Hunter Harrison’s Vision for Railroad

Date: 2018-02-01
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The new management team at CSX Inc. released improved financial results for the fourth quarter of 2017 and promised to carry out former CEO Hunter Harrison’s vision of a new, more efficient and more profitable railroad.


Harrison died Dec. 16, less than a year after being named CEO of CSX, based in Jacksonville, Fla. During his brief tenure, Harrison set into motion a period of dramatic change as the railroad implemented a new operating model called “scheduled railroading” in which trains are kept running more of the time and at higher speeds using fewer employees and fewer locomotives and railcars.


“We are committed to seeing his vision through and making CSX the best railroad in North America,” President and CEO James Foote said in a conference call with investment analysts Jan. 16.


$CSX reports strong performance in Q4 2017 as benefits of new operating model deliver positive momentum to end the year. Learn more: https://t.co/L03k7M379J pic.twitter.com/esNAMhRIyL — CSX (@CSX) January 16, 2018

As proof, Foote said his first official act after succeeding Harrison was to instruct the chief engineer to bulldoze a closed hump yard in Atlanta, a place where locomotives and railcars are stored and eventually assembled into completed trains.


“There’s no turning back,” Foote said emphatically, adding that he also has made changes to hold operating personnel more accountable for improvements in train speed and dwell time. “We have a ton of opportunities to harvest,” he noted. “We’re on the right path.”


For the fourth quarter ended Dec. 31, CSX posted net earnings of $4.1 billion, or $4.62 per share, compared with $458 million, or 49 cents, in the same period last year. The results included a $3.6 billion net tax reform benefit from the new Tax Cuts and Jobs Act and a $10 million net restructuring charge. Excluding these, adjusted net earnings were $573 million, or 64 cents.


Revenue of $2.9 billion was a decrease of $174 million, or 6%, from the previous year, primarily due to the $178 million impact of an extra fiscal week in 2016 that resulted from the company’s 52/53 reporting calendar in 2016.


CSX operates a 21,000-mile rail network covering 23 states and the Canadian provinces of Ontario and Quebec.




Harris


On Jan. 8, Foote brought in another former Harrison protégé, Ed Harris, to serve as executive vice president of operations. Harris worked at Illinois Central Railroad when it was acquired by Canadian Pacific Railroad, which was headed by Harrison at the time and served as a model for a system that has produced industry-leading profit margins.


Harris, who later joined Canadian Pacific Railway and most recently served as a senior adviser to Global Infrastructure Partners, an investment fund that owns rail and highway infrastructure assets throughout the world, said the changes at CSX over the past eight months are comparable to the changes made at Canadian National Railway over three years.


“The pace of transformation that CSX has accomplished in such a short period of time has been remarkable, and I am excited to get to work,” Harris said after beginning his job to oversee all of the railroad’s mechanical, engineering, transportation and network operations.


While the revamping of rail operations at CSX caused service issues and cost the company business, Foote and Harris pointed to signs of progress in the year-end financial report.


The company earned $5.5 billion, or $5.99, on revenue of $11.4 billion for the full year, although the bulk of the profit was due to the tax benefit in the fourth quarter. Operating profits were $3.7 billion, an increase of 8% from $3.4 billion in 2016 and the company’s operating ratio, which measures expenses as a share of revenue, improved to 67.9% for the year compared with 69.4% in 2016.


Year-ago net income was $1.7 billion, or $1.81, on revenue of $11.1 billion.


Although total revenue for CSX essentially was flat for the year, Foote said rail traffic volume was mixed with declines in shipments for automobile, chemical and food products and increases for coal and intermodal goods.


Coal benefited from strong export sales, and intermodal was bolstered by a surge in international container volume and strong peak season shipments that offset losses from earlier in the year, Foote said.


Foote said the company is moving away from a hub-and-spoke strategy for intermodal freight in order to focus on developing direct, high-density routes for its trains.


CSX recently converted its intermodal terminal in North Baltimore, Ohio, to handle local traffic and, Foote said, the company has no plans to invest in new intermodal facilities. However, he noted that the company is looking at how it can provide better service for intermodal goods coming to East Coast ports and traveling to destinations in the Midwest and beyond.


Looking ahead, Foote said the company will seek opportunities to raise rates while continuing to reduce the total number of employees and contractors on the payroll and limiting capital expenditures to maintain existing rail infrastructure.


“You will see a solid step down in the operating ratio for the next three years,” Foote assured investment analysts.


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