CSX’s first-quarter profits fell as congestion hurt volumes and revenue while driving up the railroad’s expenses. 

CSX (NASDAQ: CSX) has been struggling operationally this year after a string of harsh storms. Roundabout detours required by the rebuilding of the hurricane-damaged Blue Ridge Subdivision and the closure of the Howard Street Tunnel in Baltimore for a clearance project have reduced the railroad’s ability to bounce back from bad weather.

CEO Joe Hinrichs said that providing consistent, reliable service strengthens the railroad’s relationship with its customers and leads to volume growth.  

“Unfortunately, our performance fell short of our expectations. As a result, we left good business on the table, reduced our revenues, and our inefficiencies meant we incurred more expense. We take full accountability for our performance this quarter and we are not standing still,” he told investors and analysts on the railroad’s Wednesday afternoon earnings call.

First-quarter operating income declined 22%, to $1.04 billion, as revenue decreased 7%, to $3.42 billion. Earnings per share declined 24%, to 34 cents.

The railroad’s operating ratio increased 5.9 points, to 69.6%, as expenses rose by 2% for the quarter. The congestion added $45 million in costs, while lower fuel surcharge revenue and slumping export coal prices contributed to the revenue decline.

Overall volume declined 1%. Merchandise traffic declined by 2%, as automotive traffic dropped due to reduced vehicle production. Intermodal volume increased by 2% thanks to increased port traffic, while domestic volume was flat. Coal slumped 9%, led by a 12% drop in export coal tonnage. Domestic coal, which primarily is thermal coal used for electricity generation, declined 4%.

Chief Commercial Officer Kevin Boone said freight demand remains strong despite the trade war that is creating economic uncertainty. “If markets hold, we see opportunities to capitalize on improved network performance,” Boone said.

CSX was unable to handle demand for grain and coal unit train service during the quarter.

The trade war and related uncertainty prompted CSX executives to reduce their outlook for the year. The railroad still expects to see full-year volume growth but withdrew prior guidance of low- to mid-single-digit growth.

Boone expressed optimism about continued growth in industrial development projects on the CSX network, which he said would benefit the railroad now as well as long term if tariff policy ultimately boosts U.S. manufacturing.

Two dozen customer facilities opened on CSX in the first quarter, including projects for Chick-fil-A, Hyundai, Nova Chem, aluminum producer Novelis and steelmaker Nucor. The facilities will add 28,000 annual carloads once production ramps up fully. 

Also in the works: up to 50 more projects scheduled to come online by the end of the year. Meanwhile, CSX’s industrial development pipeline remains strong, with roughly 600 projects in the works.

CSX’s key operational metrics reflected the impact of congestion. Average train velocity fell 3%, while terminal dwell increased 19%. On-time train originations fell 9%, to 68%, with on-time arrivals dropping 21%, to 55%.

Service metrics also declined for the quarter compared to a year ago. Intermodal trip plan compliance declined 4%, to 90%, while carload trip plan compliance slumped 16%, to 69%. Customer switch performance, however, was 93%, a decline of 2%.

“I have no excuse as to where we are other than a buildup of a series of significant events that really took away the capacity that we had planned once we took down the Howard Street Tunnel,” Chief Operating Officer Mike Cory said. 

The railroad is taking several steps to smooth operations, he says. Among them: placing extra locomotives in service, boosting mechanical staffing to speed locomotive servicing, transferring train crews to congested terminals, and temporarily reducing trackwork in the areas hardest hit by congestion.

Flooding this month in the Nashville, Tennessee, and Cincinnati areas – on CSX’s corridor linking Chicago and the Southeast – further complicated operational recovery efforts.

“It is going to be a gradual process to get the network back, and so it’s not going to be overnight,” Cory said. The Howard Street Tunnel and the Blue Ridge Subdivision, the former Clinchfield main line in the rugged mountains along the Tennessee and North Carolina border, aren’t expected to reopen until fall.

CSX’s safety performance improved during the quarter, with the personal injury and train accident rates both declining from a year ago as well as from the fourth quarter.

Related:

CSX detours 16-plus trains per day as Baltimore tunnel work begins

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