CSX Drops as Harrison Avoids `Hoggish' Outlook for RailroadBy
Veteran railroader dismisses quarrels over accounting gains
‘Service disruption has been way overplayed,’ CEO says
CSX Corp. tumbled the most since Hunter Harrison was hailed as its rescuer-to-be six months ago, after he resisted getting “hoggish” about the railroad’s forecast in his second full quarter at the helm.
The carrier reported earnings that topped analysts’ expectations yet stuck with its outlook for this year. That prompted an analyst to suggest during a conference call Wednesday that second-half results won’t be a strong as initially forecast.
“We’re certainly comfortable with the guidance that we said earlier in the year and that we still reiterate now,” Harrison said in a subsequent interview, during which he expressed frustration with outsize expectations from analysts.
“Some of them are saying ‘Well you have to do even better than this to move on,’ ” he said. “I think the conservative way is to do it this way and not get so aggressive and hoggish.”
The shares dropped 5.9 percent to $51.42 at 1:54 p.m. in New York, after falling as much as 7.3 percent, the most intraday since Jan. 13, 2016. The stock remains up about 38 percent since Jan. 18 of this year, when Harrison announced he would step down from Canadian Pacific Railway Ltd., fueling speculation he would join CSX.
The Jacksonville, Florida-based railroad improved its adjusted operating ratio, a measure of efficiency, by six percentage points in the second quarter. Harrison has closed yards, changed how train cars are linked up and begun seven-day service in an effort to cut costs, employing a playbook he’s used to turn around three other companies. CSX’s operating ratio was worst among the seven large North American carriers last year.
Analysts noted that CSX topped estimates partly because of nonrecurring accounting gains, including $55 million from a judgment related to condemned property.
“If we get the check in the mail, we’ve got to put it in the second quarter,” Harrison said. “How can somebody expect us to know back in first quarter what the judge is going to say or what the ruling is going to be.”
Analysts also pointed out that CSX’s freight traffic didn’t grow as fast as for rivals, suggesting that disruptions to customers from Harrison’s overhaul may be to blame. CSX’s second-quarter carloads increased 1.6 percent from a year earlier, the slowest among large U.S. railroads, according to weekly data from the Association of American Railroads.
Customers can expect “a little pain and suffering” in the short term and most recognize that CSX’s changes ultimately will improve service, Harrison said. Out of roughly 500 customers accounting for 90 percent of CSX’s business, only two may have experienced substantial problems, he said.
“Service disruption has been way overplayed,” he said during the 2 1/4-hour conference call. “That has really not, in my view, affected any top line.”
Automotive, chemical and domestic-coal cargo will remain soft this quarter, the company said in a presentation for the call. CSX projected that volume would rise from export coal, agriculture, minerals, metals and containers.
CSX may be able to shed properties, possibly generating “a billion plus,” Harrison. The company occupied seven locations in Jacksonville that will be consolidated into just two, he said by example. Proceeds from real-estate sales will be “gravy” and aren’t figured into the company’s outlook, he said.