The tone of CSX’s first-quarter 2023 earnings call was different from last year’s for a key reason: CSX has more train crew now to meet demand, while last year the railroad was still on the search for new hires.
That difference helped improve service — terminal dwell fell by 20% and train speeds rose by 16% in the first quarter— as well as helped grow CSX’s (NASDAQ: CSX) net profit by 15% to $987 million year over year.
“Our network is running well, and we intend to do even better and show that CSX can sustain reliable service over time, which is essential for us to profitably grow our railroad,” CSX President and CEO Joe Hinrichs said in prepared remarks during the earnings call Thursday.
CSX’s headcount levels are at “a good number” to keep service levels where they are now, according to Jamie Boychuk, executive vice president for operations, who said the railroad is still working on filling its train crew ranks by another 150 to 200 people to reach a target of 7,400 employees, which will help provide coverage for vacations, he said.
In the first quarter, CSX’s merchandise traffic grew by 4%, amid carload gains for minerals, metals and equipment, and automotive products.
While weather was more challenging in March and less so in January and February, volume growth for CSX’s merchandise volumes “really is about just a service recovery and our ability on a year-over-year basis to capture more of the demand that was out there even though we’ve seen a little bit of softness in some markets,” said Kevin Boone, executive vice president for sales and marketing.
Growth in those industries is expected to continue through the year, officials said. Coal is another segment from which CSX is benefiting from “healthy” export demand.
But CSX anticipates international intermodal activity to be down “substantially” in the first half of the year as warehouses grapple with excess inventory.
“There are varying opinions on when the international market will recover. Some of our larger customers expect some kind of pickup in the second half. We have seen some stability over the last two to three weeks, which is encouraging, but we’ll face difficult comparisons through the third quarter and then the fourth quarter gets a lot easier,” Boone said.
CSX expects to base its revenue outlook for the year on the revenue ton-mile versus U.S. gross domestic product growth to account for some uncertainty over when market conditions might improve. This change is so CSX can further factor in the growth coming from the commodities that are part of its merchandise segment.
The railroad is also continuing to develop its industrial real estate program, through which it seeks potential customers to build facilities on an expedited basis on sites that are served by CSX. CSX is courting companies that might be seeking to diversify their supply chains and build capacity in the eastern U.S., according to Boone.
“For CSX, this represents a great opportunity. Our network connects the major population centers of the Northeast with the fast-growing areas of the Southeast that are highly attractive for companies looking to expand,” Boone said in prepared remarks.
CSX responds to questions about rail safety and potential regulatory actions
Given current uncertainties in the broader market, CSX will be watching to ensure its power needs are sufficient, with the possibility of taking locomotives out of the network if conditions warrant, according to Boychuk, who said CSX’s operations team is also working with the sales and marketing teams to ensure there are enough rail cars for customers.
With rail safety still largely in the public eye amid recent train derailments, CSX officials commented during the earnings call on recent safety initiatives and regulatory actions.
CSX plans to install 53 additional hot box detectors across its network, which should reduce the average spacing between the detectors from 16.2 miles to 14.9 miles, according to Boychuk. CSX will be monitoring real-time data for trend analysis from these detectors to ensure that any potential issues are addressed before any wheel bearings reach critical temperatures.
Boychuk also stressed that new hires are undergoing extensive safety training.
Hinrichs said he has been actively involved in discussions with federal and state leaders about proposed regulations that could impact railroad operations. While not named on the earnings call, these proposed regulations include bills in Congress to bolster rail safety as well as proposed and passed rules addressing train crew size at the national and state levels.
“They know that it’s better for our economy, our environment and our communities for railroads to move a greater share of the nation’s freight. They also know that CSX is eager to be part of solutions that are effective, data-driven and will make our whole industry safer,” Hinrichs said.
“We do not want safety performance to be a competitive advantage for CSX, but want it to be something our entire industry is proud of. We have been encouraged by our conversations with senior policy leaders and we’ll continue to engage with them in the months ahead, sharing best practices and building on our common ground.”
CSX was the first U.S. Class I railroad to announce in the first quarter that it reached sick leave agreements with several unions. The latest agreement, announced April 7, was for members of the Sheet Metal, Air, Rail and Transportation Workers-Mechanical Department.
CSX’s Q1 2023 results
CSX’s net profit was $987 million, or 48 cents per diluted share, in the first quarter of 2023, compared with net profit of $859 million, or 39 cents per diluted share, in the first quarter of 2022.
Revenue grew 9% to $3.71 billion amid “solid volume growth” in merchandise and coal. Higher fuel surcharges and pricing gains also contributed, CSX said.
Operating income rose 14% to $1.46 billion year over year, and operating ratio improved to 60.5% from 62.4% in the first quarter of 2022. Operating ratio is a metric investors sometimes use to gauge the financial health of a company.
Expenses also grew in the quarter, rising 5% to $2.24 billion on higher fuel costs and impacts to depreciation and amortization.
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