CSX boosts outlook on higher volume and revenue

CSX raised its outlook for the year after reporting that second-quarter volume, revenue, and operating income all rose amid the ongoing traffic rebound.

“We now expect full-year revenue growth in the mid to high single-digits, operating margin expansion of greater than 350 basis points, and free cash flow growth of greater than 80%,” Chief Executive Steve Angel said Wednesday on the railroad’s earnings call.

The railroad (NASDAQ: CSX) previously expected mid-single digit revenue growth and operating margin improvement of between two and three points. “The updated outlook reflects strong volume growth, improved financial performance, and the continued focus on productivity and cost control,” Angel said.

“We continue to see opportunities to strengthen service execution, improve productivity, and drive long-term efficiency across the railroad. Those efforts remain central to our goal of delivering sustainable improvement over time.” Second-quarter operating income rose 17%, to $1. 5 billion, as revenue grew 10%, to $3. 93 billion.

Earnings per share increased 23%, to 54 cents. The railroad’s operating ratio improved 2. 4 points, to 61. 7%. Overall volume was up 6% for the quarter. Intermodal led the way with 9% growth. Merchandise and coal carloads both were up 4% compared to last year.

Within merchandise, every commodity category was up with the exception of automotive, off 1%, and forest products, which was unchanged.

CSX expects to see ongoing highway-to-rail freight conversions in intermodal and merchandise due to tight truck supply, stronger demand, and a forecast of stable to slightly positive coal volume for the second half of the year.

“Customers are increasingly turning to rail for their supply chain needs,” said Maryclare Kenney, chief commercial officer, “and we are focused on earning their business through competitive service offerings and reliable execution.” Although average train speed improved 3% for the quarter, terminal dwell increased 6%.

Intermodal trip-plan performance decreased two points to 88%, while carload trip-plan performance decreased to 71%, down four points from a year ago. On-time train departures improved by one point, to 70%, while on-time arrivals fell by a point, to 54%.

“The bottom line is that the quarter showed we can handle stronger volumes and do it safely and efficiently,” said Chief Operating Officer Mike Cory. “And while we count on those two things to continuously improve, our next step is really to convert that into more consistent fluidity and service.” Cory said there would be a “modest increase” in headcount.

Acknowledging that the dwell and trip-plan performance “aren’t where we want them to be,” he said, “The short version of that is the demand came in much stronger than we expected, and we were tighter on crews in some of our locations. But we managed through that by being safer and more efficient.”

Among the efficiency moves, he said, was a 5% increase in average tonnage per merchandise train. The railroad posted a 4% improvement in fuel efficiency. Fuel costs remain a significant concern, said Chief Financial Officer Kevin Boone. “The big factor here on the margin side will be the fuel,” Boone said. “We’ve seen a lot of volatility in the fuel price.

Certainly, we face the fuel lag in the second quarter of the year, and that should go away. But all bets are off on where the fuel could go. We saw a pretty dramatic increase this past week.” Boone also disagreed with a suggestion that the railroad’s productivity and cost-control gains had come from addressing “low-hanging fruit.”

“I would say expenses and efficiencies are never low-hanging,” Boone said. “There’s a lot of work that goes into the efforts. Coming into the year, we had a plan, and we’re delivering on that plan, which I’m encouraged about.” An initial focus, he said, had been looking at outside expenses.

“We’re looking at all of our contractors, everything that we pay outside of the company first. And quite frankly, Mike and his team have come to the table with ideas on insourcing, and we found opportunities to insource activity and use our employees to do that work. And that’s materialized in the savings as well. We see other opportunities there.”

CSX’s key safety metrics improved for the quarter, with the personal injury rate down 19% and the train accident rate down 30%. Subscribe to FreightWaves’ Rail e-newsletter and get the latest insights on rail freight right in your inbox.

Read more: First look: Union Pacific earnings First look: Norfolk Southern earnings First look: CSX earnings Street flip: Intermodal rail charges ahead in latest data Peak fatigue? Intermodal slows in latest data The post CSX boosts outlook on higher volume and revenue appeared first on FreightWaves.