CSX set three all-time quarterly financial records in Q2

With an extremely harsh winter in the rearview mirror and broad-based traffic growth across most markets in the driver's seat, CSX Corp. set all-time quarterly records for revenue, operating income and earnings per share in the second quarter.

Revenue climbed 7 percent to $3.2 billion, operating income rose 6 percent to $997 million and earnings increased 4 percent to 53 cents per share compared with second-quarter 2013 figures. In addition, volume rose 8 percent to nearly 1.8 million units, net earnings increased 2 percent to $529 million and the operating ratio held steady at 69.3.

Revenue and earnings growth was driven by strong demand in the merchandise and intermodal sectors — which now account for about three-quarters of CSX's revenue — and domestic coal market.

"We're excited by the growth we're seeing. We experienced sustainable demand across our portfolio," said CSX Chairman, President and Chief Executive Officer Michael Ward during the Class I's second-quarter earnings conference held this morning.

Merchandise revenue climbed 11 percent to nearly $2 billion and volume rose 8 percent to 760,000 units in part because the strong 2013 grain harvest helped drive up corn, soybean, ethanol and export grain shipments, said Executive Vice President and Chief Sales and Marketing Officer Clarence Gooden. In addition, the railroad registered volume growth in the construction sector and oil- and gas-related markets, especially in crude, liquified petroleum gas and frac sand shipments, he said.

Intermodal revenue rose 6 percent to $449 million and volume climbed 7 percent to a record 691,000 units as both domestic and international business posted growth. Coal revenue decreased 3 percent to $744 million but volume increased 6 percent to 330,00 units. Domestic coal volume jumped 15 percent — in part because of utilities' stockpile replenishments — and export volume tumbled 12 percent due to soft market conditions for thermal and metallurgical coal, said Gooden.

CSX's second-quarter operating expenses increased 7 percent to $2.2 billion primarily because labor and fringe benefit costs rose 4 percent to $809 million, material, supplies and other costs climbed 11 percent to $621 million, and equipment rent costs jumped 19 percent to $114 million.

The railroad's headcount increased 1 percent in the quarter to 31,400, and headcount likely will increase another 1 percent to 2 percent by year's end, said EVP and Chief Financial Officer Fredrik Eliasson.

Because business levels are expected to remain strong across most markets and the railroad needs to expand capacity to keep up with demand, CSX plans to increase its 2014 capital spending budget by $100 million to $2.4 billion, he said. The additional capital predominantly will be used to improve more infrastructure and acquire additional freight cars, said Eliasson.