A Railroad's Earnings Win Isn't an All-Clear
It’s hardly the sign of a booming economy when profit gains come at the expense of jobs.
Beneath a profit beat, an economic warning.
Photographer: Luke Sharrett/BloombergCSX Corp.’s results were better than many feared they would be, but they came at the expense of several hundred jobs.
The railroad on Wednesday said third-quarter revenue declined 5% as the the uncertainty wrought by the trade war and a slump in coal shipments weighed on cargo volumes. Even so, CSX’s earnings per share for the period beat analysts’ estimates and its operating ratio – a measure of profitability in which a lower number is better – fell to 56.8%, compared with 58.7% a year earlier and 57.4% in the second quarter. That reflected in part a $145 million decline in expenses from a drop in fuel prices and operating costs, as well as the reduced headcount.
CSX has been aggressively trying to improve its efficiency via the sometimes controversial methodology of “precision scheduled railroading,” which is designed to reduce the amount of cars, manpower and capital needed to run a railroad. This cost-cutting push has become more important as the macroeconomic backdrop has weakened. Overall volume fell 5% in the third quarter at CSX, led by slumps in cargo-container and coal traffic. Shipments of metals, chemicals and cars also declined. The company reiterated its expectation for sales to decrease as much as 2% in 2019, a sign that the guidance cut it announced in July wasn’t the cautious approach management billed it as but an accurate assessment of a gloomier reality. Along those lines, United Rentals Inc. on Wednesday the high end of its revenue guidance for the year, with CEO Matthew Flannery noting that “lingering economic uncertainty could impact construction and industrial activity.”