CSX 4Q15 Earnings Call Notes

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Michael Ward

EPS down 2%, revenue -13%, volume -6%

‘CSX reported fourth quarter net earnings of $466 million or $0.48 per share, down 2% from the same period in 2014. Revenue declined 13% in the quarter. A strong pricing was more than offset by the impact of lower fuel recovery, a 6% volume decline and the continued transition in the Company’s business mix.”

Broader economy is the wildcard

“Obviously a little bit of potential downside in the export; it’s a little hard to gauge this early. I think probably the wildcard is the rest of the economy. And it is very early in the year to try to gauge that. Obviously I think if you look at most prognosticators, they’re saying the first half of the year probably looks weak on the industrial side but potentially it recovers. And I guess we don’t really have a better crystal ball than that a couple of weeks into the year and that’s probably the wildcard in the entire thing.”

Frank Lonegro

Coal drove majority of volume decline

“Volume decreased 6% from last year with coal driving the majority of the decline. Low natural gas prices coupled with the impact of significant flooding in South Carolina impacted domestic coal volumes while low commodity prices and the strong U.S. dollar challenged export coal in many of our merchandise markets. ”

Expect challenging freight environment to continue

“we expect volumes to decline in the first quarter. We expect the challenging freight environment to continue as the headwinds associated with coal, low commodity prices and a strong U.S. dollar more than offset the markets that will show growth”

Fredrik Eliasson

don’t see natural gas rebounding

“I mean obviously we don’t foresee natural gas rebounding significant than from where it is today. And as a result most likely for the rest of the year, we expect our coal plants that we serve to be dispatched last. We are seeing obviously excess stockpiles right now.”

Contract trucking prices have remind high even if spot market weak

“The contract side on the trucking side, it’s still holding up, even the spot market is very soft. And the key thing for our team is to continue to sell through this down cycle and make sure we provide value to our customers by selling a longer term commitment in terms of making sure they have access to our network. And so that we work through this down cycle right now and sell for the long-term.’

There’s still a 10-15% gap in pricing between rail and truck

“you know that still we have probably 10% to 15% gap between what the truck prices are and what our prices are. And one of the key things in intermodal space is the strong service product. And as we think about our service product here this year entering into ‘16, it is clear that it’s very different than it was a year ago and that is also going to be very helpful as we approach contract season and we put new contracts in place.”

There are still prevalent macro drivers too in trucking

“I think all of us still know that the macro drivers that we talked about for a long time are still prevalent. If we think about some of the productivity challenges that the trucking industry will face is we get to ‘17 with the electronic logs, as unemployment continues to come down, it’s going to be harder to retain the drivers without outsized increases in driver pay.”

Expect auto sales to be 18.2m in 16

“if you look at the North America light vehicle production, I think we’re earning up about 17.5 here in ‘15 and the projection is for 18.2 next year, so that provides us good growth opportunities; U.S. sales also based on the projections that we’re seeing indicates good growth. The Mexico shift is clear, so the North American light vehicle production numbers are probably skewed a little bit more towards Mexico which we don’t capture as much but we still capture some of that”…”we follow what producers tell us and then we adjust our fleet and service accordingly. And right now, it looks like we’re going to have another year of growth but not anywhere closer to where it’s been since ‘09 but still nice growth and especially in this environment; we need these sorts of growth opportunities.”