Revenue in the quarter was $3 billion, driven by growth across many of its markets and an improved pricing environment, partially offset by the impact of low natural gas prices, lower fuel recoveries and the strong U.S. dollar, CSX said. At the same time, the benefit of lower fuel prices and cost-saving initiatives more than offset higher inflation and volume-related costs in the quarter. As a result, operating income increased by 14% to $843 million and the operating ratio improved 330 basis points to 72.2%.
“In this dynamic economic and business environment, CSX’s core earnings remain strong and we are continuing our drive to provide excellent service for our customers and value for our shareholders,” said Chairman and Chief Executive Officer Michael J. Ward.
The CSX Board of Directors approved an increase in the quarterly dividend and a new share repurchase program. The 14% increase in the dividend, to $0.18 per share, is payable on June 15, 2015 to shareholders of record at the close of business on May 29, 2015, CSX said. This is the 13th increase in 10 years, representing a 26% compound annual growth rate during that time, the company added.
“Pricing is a bright spot, for now,” noted Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “In addition to coal, CSX faces a number of potential headwinds in the remainder of the year, including reduced volume levels in crude, forest products, metals and fertilizer; the lack of liquidated damages benefits (big benefit in 1Q15); and the potential for some intermodal freight rerouted from U.S. West Coast ports making its way back. The volume pressures could mean that the higher level of operating resources acquired in 2014 in response to a capacity crunch coupled with a demand spike may have to be scaled back down again starting late in 2015 if freight levels remain challenged. That said, ramping down can be done more expeditiously than ramping up, and CSX has already started planning for such a scenario, as evidenced in the variable train initiatives put in place a month ago. On the brighter side, CSX continued to be positive on its ability to accelerate price increases. All-in core pricing and merchandise and intermodal pricing were 1.6% and 3.4%, respectively, in 1Q15, following 0.7% and 2.7%, respectively, in 4Q14, and 0.2% and 2.5% in 3Q14. We are encouraged by this trend but believe that continued acceleration may become difficult toward the latter end of the year if demand remains sluggish.”
The new, $2 billion share repurchase program is expected to be completed over the next 24 months. This follows the completion of CSX’s previous repurchase plan, during which the company brought back $1 billion worth of shares. Since 2006, CSX has repurchased nearly $9 billion in shares.