CSX Drops to Lowest Value Since 2013 as Profit Seen Fallingby
CEO says cargo decline can be seen as `freight recession'
Railroad to focus on cost cuts, price increases, productivity
CSX Corp. fell to its lowest price in almost three years as demand for rail cargo is expected to drop this year in what Chief Executive Officer Mike Ward called a “freight recession.”
Coal carloads will decrease and demand for international freight will be hurt by the strong dollar, CSX executives said on a conference call with analysts Wednesday. The only bright spots this year will be shipments of autos and housing.
“If you take out the recession, no, we haven’t seen these kind of pressures in so many different markets.” Ward said on the call. “You can almost think of it as a freight recession.”
Railroads have cut costs and raised prices to make up for the cargo weakness that began last year. Freight fell 2.5 percent for all large U.S. rail companies after the declines accelerated to 6.5 percent in the fourth quarter, according to the Association of American Railroads.
CSX fell 5.7 percent to $22.35 at the close in New York, the lowest level since February 2013. The decline was the biggest in almost a year. CSX plunged 33 percent in the last 12 months.
Other railroads also tumbled. Norfolk Southern Corp., CSX’s eastern competitor, fell 5.9 percent and Union Pacific Corp., the largest publicly traded railroad, dropped 3.2 percent.
CSX expects per-share earnings to decline in the first quarter and for the full year. Domestic coal shipments will be about 76 million tons this year, about a 10 percent drop from an October forecast, as utilities burn cheap natural gas. The company’s outlook for moving 20 million tons of international coal this year has “downside sensitivity.”
The strong dollar is hurting shipments of goods such as metals, which face increased import competition, and causes farmers to store crops to hold out for improved international prices, Ward said in an interview. While 2016 won’t be as bad as the 2009 recession when rail cargo plummeted 15 percent, there is still concern the U.S. economy may falter.
“You can’t eliminate the risk that if the consumer loses some confidence that this thing would move into either no growth or a potential recession,” Ward said.
Railroad service improvements will be capped by efforts to reduce crews and haul longer trains, which run at slower speeds and require more time in switching yards to cobble together, Ward said. CSX increased its train lengths by 14 percent in the fourth quarter from a year earlier, he said. Capital expenditures will be reduced by $100 million from last year to $2.4 billion in 2016, he said.
“We’re going to focus on what we can control,” Ward said. “We’re going to be very focused on the cost side of the business more so than average.”