Re­struc­tur­ing rolling along at CSX rail

New chief ex­ec­u­tive of­fi­cer says he’s pleased with con­sol­i­da­tion ef­forts so far

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - THE AS­SO­CI­ATED PRESS JOSH FUNK

OMAHA, Neb. — CSX’s new chief ex­ec­u­tive is de­fend­ing the re­struc­tur­ing progress made in the first four months since he was hired to lead a turn­around of the rail­road.

CEO Hunter Har­ri­son, who’s pre­vi­ously led turn­arounds at three other rail­roads, says he’s pleased with the im­prove­ment so far.

“I thought we had a hell of a quar­ter,” Har­ri­son said Wed­nes­day.

The Jack­sonville, Fla.-based rail­road has taken nearly 900 lo­co­mo­tives and 60,000 freight cars out of ser­vice and laid off 2,300 peo­ple this year. Har­ri­son said those changes haven’t all paid off yet.

Changing the op­er­at­ing model a rail­road uses is dif­fi­cult be­cause ev­ery­one who works there is used to op­er­at­ing a cer­tain way. Har­ri­son said the level of re­sis­tance is about what he ex­pected.

CSX is work­ing to elim­i­nate in­fra­struc­ture it doesn’t need and con­sol­i­date op­er­a­tions. That in­cludes shut­ting down most of the rail­road’s 12 rail yards to elim­i­nate re­dun­dancy.

The rail­road will also con­sol­i­date all of its dis­patch­ing into one cen­tral lo­ca­tion in­stead of the cur­rent nine early next year.

CSX re­it­er­ated last week that it’s on track to achieve a fore­cast 25 per­cent im­prove­ment in earn­ings per share this year. An­a­lysts sur­veyed by Fac­tSet had been pre­dict­ing ad­justed an­nual earn­ings per share this year of $2.29.

Har­ri­son was hired by CSX in March af­ter pres­sure from the Man­tle Ridge hedge fund that owns 5 per­cent of the rail­road. Har­ri­son pre­vi­ously led turn­arounds of Cana­dian Pa­cific, Cana­dian Na­tional and the Illi­nois Cen­tral rail­roads.

CSX Corp. said ear­lier this month that its sec­ond-quar­ter net in­come im­proved 15 per­cent to $510 mil­lion, or 55 cents per share, as it hauled 2 per­cent more freight. That’s up from $445 mil­lion, or 47 cents per share, a year ago.

Coal was some­what of a bright spot in the quar­ter with a 7 per­cent in­crease in the vol­ume CSX hauled. But de­mand for coal has crum­bled over the past sev­eral years be­cause nat­u­ral gas has been so cheap and en­vi­ron­men­tal con­cerns have been grow­ing

Har­ri­son of­fered a bleak long-term out­look for the fuel and said he wouldn’t make any ma­jor in­vest­ments to haul coal.

“Fos­sil fu­els are dead. That’s a long-term view,” Har­ri­son said. “It’s not go­ing to hap­pen overnight. It’s not go­ing to be two or three years, but it’s go­ing away in my view.”

The rail­road’s quar­terly re­sults were weighed down by $122 mil­lion in re­struc­tur­ing charges. With­out those charges, the rail­road said it would have re­ported earn­ings per share of 64 cents.

Most of the $122 mil­lion re­struc­tur­ing charge in the sec­ond quar­ter was re­lated to Har­ri­son’s hir­ing. CSX agreed to cover $84 mil­lion in com­pen­sa­tion that Har­ri­son for­feited at Cana­dian Pa­cific when he re­tired early. Share­hold­ers ap­proved those pay­ments last month.

CSX op­er­ates more than 21,000 miles of track in 23 East­ern states and two Cana­dian prov­inces.

AP/GENE J. PUSKAR

A CSX freight train passes through Home­stead, Pa., ear­lier this year.

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