CSX Chief Financial Officer Frank Lonegro on Feb. 17, 2016 highlighted the company’s track record of success during the energy market transition and updated expectations for company performance at the Barclays Industrial Select Conference in Miami, Fla.
Over the past five years, CSX has grown its merchandise and intermodal business faster than the economy and delivered strong pricing and efficiency gains in the face of a secular decline in coal and shifts in other energy markets. As a result, the company delivered compound annual growth in earnings per share of 4% during that period and an operating ratio below 70% for 2015.
However, the intensifying coal headwinds and the impact of the strong U.S. dollar and low global commodity prices that impacted CSX in 2015 are expected to further challenge results in 2016. CSX expects coal volume to decline more than 20% and most other markets to continue posting year-over-year declines this year.
“Based on the trends so far this year, we expect volume to decline in the mid-high single digits this quarter and to gradually moderate as we move through the year,” Lonegro said. “We expect first quarter earnings to decline significantly, reflecting both this volume environment and the fact that we are cycling more than $100 million in unique items from the first quarter of 2015.”
For 2016, the company continues to target $200 million in productivity savings. In addition, Lonegro reiterated that CSX continues working to further reduce structural resources and to match resources with volume declines near term while also remaining well-positioned to serve demand shifts once the economic challenges begin to subside.
“In this environment, we continue to focus on the things most in our control, including delivering safe, reliable service that increases operational efficiency and supports strong pricing for the value we provide to customers,” Lonegro said. “As we look toward a future with significantly less coal, our strategy includes rationalizing and realigning the network to match decreased demand in some markets and adjust to increases in others, investing in clearance and terminal projects to leverage intermodal growth, and optimizing technology to serve the CSX of tomorrow as we continue to target a mid-60s operating ratio longer term.”