Revenues of $3.2 billion, an 8% increase over the same period last year, “is evidence of CSX’s ability to leverage the continued economic momentum that is driving strength across nearly all markets CSX serves, coupled with secular growth trends in the intermodal and energy markets,” said President, Chairman and CEO Michael J. Ward. “With the high level of demand and operations that remained stable, we produced operating income of $976 million and an operating ratio of 69.7%. On the strength of this performance, we expect to sustain double-digit earnings growth and margin expansion in 2015, and continue to target a mid-60s operating ratio longer term.”
“As the economy continues to expand, our company’s record third-quarter results are built on the foundation of CSX’s network reach, sustainable growth opportunities, and the efforts of our 31,000 employees,” said Ward. “At the same time, we are focused on the execution of our core strategy. That means enhancing our ability to grow faster than the economy, price above inflation, make strategic investments, and produce ever more efficient operations to continue delivering superior shareholder value.”
CSX recently entertained—and rejected—a merger bid from Canadian Pacific Railway. “While CSX’s stock should react favorably to its results, some of the strength may be offset by possible concerns that the operational improvement could reduce CP’s leverage in the event that the Canadian carrier attempts to seek CSX’s shareholders to force a merger of the two carriers,” said Cowen & Co. Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl, who feels the timing is not ideal for a mega-merger. “If CP has shelved the offer, it could mean that a Class I merger may not be revisited for a while. However, given the tenacity of CP’s management, we would not be surprised if the company resorts to other means for making the deal happen. Indeed, management could team up with Pershing Square Capital in taking the proposal directly to CSX’s shareholders. While the activist fund has won many accolades from investors for its remarkable success in turning around CP over the past couple of years, a merger between the two carriers will likely still face many hurdles, not the least of which will be the Surface Transportation Board, which has been listening intently to shippers’ service and rail pricing concerns. Other regulatory and national security authorities will likely be involved.”
However, if a CP-CSX merger does take place, expect other Class I’s to follow quickly, said Seidl: “This could eventually cut the number of North American Class I’s in half, something that the regulators will take under very serious consideration before giving their blessings on the first merger. If a CP-CSX union occurs, Norfolk Southern would be the next target, in our opinion, as CN, Union Pacific, and BNSF could each contemplate forming their own transcontinental railway.”
CSX’s stock rose 9% following reports of CP’s merger proposal.