CSX set operating ratio, income records in 2Q despite weak export coal demand

Growth in merchandise and intermodal volumes more than offset a large decline in export coal demand for CSX Corp. in the second quarter, during which the Class I continued to post strong results in safety, service and efficiency. The combination of those factors helped the Class I register mostly solid financial results in the quarter.

Earnings per share climbed 6 percent to 52 cents, revenue increased 2 percent to nearly $3.1 billion, operating income rose 2 percent to a record $963 million, net income ratcheted up 4 percent to $535 million, volume inched up 1 percent to 1.65 million units and the operating ratio dipped 0.1 points to a record 68.6 compared with second-quarter 2012 figures. The results bested Zacks Consensus Estimates of 47 cents per share in earnings and $3.02 million in revenue.

Solid core pricing and volume growth, and "exceptional operating results" played major roles in driving financial results, said CSX Chairman, President and Chief Executive Office Michael Ward during an earnings conference held this morning.

Same-store sales rates increased an average of 2.3 percent in the quarter, helping the Class I achieve inflation-plus pricing in a low-inflation environment, said Executive Vice President of Sales and Marketing Clarence Gooden. In terms of operating results, on-time originations reached a record 91 percent, on-time arrivals climbed to a record 82 percent, average terminal dwell time fell to a record-low 21.9 hours and average system velocity increased to 23 mph versus second-quarter 2012's 20.9 mph.

Revenue generated by commodity segment shows coal revenue declined 6 percent to $770 million and volume fell 6 percent to 310,000 units primarily because export coal volume plunged 23 percent in a depressed global market for thermal coal, said Gooden. Domestic coal volume rose 5 percent versus a weak comparison in second-quarter 2012, he said.

Merchandise revenue increased 4 percent to $1.8 billion and volume rose 3 percent to 702,000 units, driven by an 11 percent jump in chemical business, mostly related to oil and gas drilling, said Gooden. Intermodal revenue climbed 4 percent to $425 million and volume rose 2 percent to 644,000 units primarily due to record domestic volume propelled by truck conversions and organic growth, he said.

The operating expenses portion of CSX's ledger shows total costs rose 2 percent to $2.1 billion as labor and fringe benefit expenses increased 4 percent to $777 million and depreciation expenses went up 5 percent to $276 million. Headcount dropped 3 percent year over year to 31,288, but inched up 1 percent compared with the first quarter. However, fuel costs declined 3 percent to $397 million due to efficiency and a 2 percent drop in the average price of diesel to $3.08 per gallon, said EVP and Chief Financial Officer Fredrik Eliasson.

Overall, CSX's performance in the quarter and through the year's first half has kept the railroad on track to achieve a high-60s operating ratio by 2015 and a mid-60s ratio longer term, he said.

— Jeff Stagl