Although a higher than anticipated attrition rate in the second quarter is slowing the pace of operational improvements, CSX still expects to continue to improve its service metrics in the third and fourth quarters.
“We’re in great shape to handle whatever traffic comes to us. … We only have one restriction right now and it’s crews, and we’re doing everything we can possibly do to hire as many people as we can,” President and CEO Jim Foote told investors during CSX’s earnings call Wednesday afternoon.
The freight railroad’s executives were surprised that the attrition rate of new hires was higher than what CSX has previously experienced or anticipated, and so the focus now is to look at compensation strategies as well as analyze the reasons for the attrition and find ways to improve the vetting of new hires, according to Foote and others on the call.
CSX (NASDAQ: CSX) has a target of 7,000 train and engine employees, which is roughly where headcount was for that category pre-pandemic. That figure could be achievable by the end of the third quarter, according to Foote.
But CSX also plans to continue hiring for more train and engine employees past the 7,000-person target to prepare “for anticipated growth over the next year or two,” said Jamie Boychuk, CSX executive vice president of operations.
CSX had nearly 6,700 active train and engine employees in the second quarter.
As CSX seeks to increase its workforce in the third and fourth quarters, the company said it will continue to focus on keeping terminals open and fluid during ongoing supply chain constraints. As network fluidity increases, that should improve the performance of CSX’s merchandise segment, according to Boychuk, who said CSX has also added assets to the network to better meet customer commitments and offset the impact of crew shortages.
Prioritizing trains on the network
To accommodate shippers’ needs, CSX adjusted its operations in the second quarter to prioritize bulk traffic, such as grain and coal, “which we would never have done before,” Boychuk said. Bulk volumes usually are stockpiled, but low coal stockpiles in the Carolinas and the need to ensure chicken feed in Alabama caused CSX to sometimes prioritize bulk traffic over merchandise traffic.
As a result, “when you are prioritizing different flows of traffic that you never really had before,” it can result in merchandise traffic seeing a 24-hour delay or a delay getting from terminal to terminal, Boychuk said.
“When we can get back to a normalized workforce with respect to being able to move every train and not having to make those tough decisions … you’re going to start to see that flow move better,” Boychuk said.
CSX’s intermodal trip plan performance was 90% on time in the second quarter, but its carload trip plan performance was 59% on time.
Despite macroeconomic uncertainties in the second half of the year, truck capacity shortages and customers’ focus on meeting environmental, social and governance standards by using freight rail should help CSX and the broader freight rail industry over time, executives said.
“Ninety percent of our hump terminals are running very well. Flat switching terminals are running well. Where we get congestion or a little bit of a bottleneck is at different crew change points where we don’t have crews to keep those trains moving or we [have] to make a decision on which train moves quicker than a different train,” Boychuk said. “So we’re very confident that the network is better than probably what it was in 2019, and we’re ready to go once we get the folks trained up.”
2nd-quarter 2022 financial results
CSX’s second-quarter 2022 profits were roughly flat compared with a year ago.
Net earnings were $1.18 billion, or 54 cents per share, in the second quarter of 2022, compared with $1.17 billion, or 52 cents per share, in the second quarter of 2021.
Operating income was $1.7 billion, compared with $1.69 billion a year ago.
Revenue rose 28% to $3.82 billion on higher revenue in nearly all markets, including automotive, minerals, coal and agricultural and food products. Pricing gains, fuel surcharges and the addition of Quality Carriers also contributed to second-quarter revenue gains. Expenses rose 63% to $2.1 billion.
CSX’s operating ratio rose from 43.4% to 55.4% in the second quarter amid the financial impact of acquiring Quality Carriers and Pan Am Railways, as well as higher fuel prices. CSX’s sale of real estate to the commonwealth of Virginia was a tailwind to OR, Foote said.
Investors sometimes use OR to gauge a company’s financial health, with a lower OR implying improved health.
“I am very proud of CSX’s entire team of employees, which now includes Pan Am railroaders, for their hard work and dedication over this quarter,” Foote said in a news release. “Though volatile commodity prices and persistent inflation have added uncertainty to the economy, our efforts remain focused on adding the resources needed to deliver improvements in our network performance, lift customer satisfaction and develop new rail service solutions to drive meaningful growth over the long term.”
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