CSX 1Q16 Earnings Call Notes

Frank Lonegro

Earnings down 19% from the prior year

“Overall, net earnings were $356 million down 19% versus the prior year, and EPS was $0.37 per share down 18% versus last year.”

Expect volumes to decline in 2Q

“Looking forward we again expect volumes to decline in the second quarter, the challenging freight environment will continue as headwinds in coal, energy and metals volume are expected to more than offset the markets that will show growth. Automotive is expected to grow, as light vehicle production continues to be a bright spot in the economy. Minerals will benefit from the continued ramp up of the new fly ash remediation project and continued highway construction, driving aggregate movement.”

Slowly recovering domestic steel production environment

“Despite a slowly recovering domestic steel production environment, metals is expected to be unfavorable year-over-year as the market works off excess supply from the strong US dollar and imported product. ”

Comp per employee is up 4-5%

“comp per employee is about 4% or 5% higher. There’s a couple of driver, some of those are industry related and some of those are CSX specific. Clearly you have general wage inflation of 4% a year or so, and then with probably as the biggest driver for us health and welfare inflation. As the industry is reducing resources, you’ve got fewer employees to spread the health and welfare cost over. So both of those are industry in nature.”

comps will be tough until the fourth quarter

“?the second quarter and probably even third quarter are going to be challenging quarters from the volume perspective. It’s not really until we get to the fourth quarter we will have a little bit easier comparisons year-over-year both on the coal side and on the general merchandize side as well.”

It is helpful that the dollar has weakened but even with the relief it’s still not until the fourth quarter that you will see improvements

“the dollar’s still well above its 10 year average of so forth, but it is clear that it’s been helpful in certain areas the fact that it has taken a step back to last two months or so. ..But it is fair to say that even with that sort of a relief over the last two months on the dollar; you’re looking in to the fourth quarter I think until you’re going to start seeing meaningful improvements in the volume performance.”

Still see economy having uninspiring growth for the next couple of quarters

“If taken to the highest level from what we see the economy, I think we still see the overall economy progressing in that 2%-2.5% range, kind of uninspiring growth. Clearly we’re still dealing with the aftermath that we saw last year both on the energy side and also the strength of the dollar and the low commodity prices. And as I said earlier that’s going to be with us for at least another two quarters and it is also why we guided to volumes to be down a little bit more year-over-year sequentially in the second quarter. ”

In last two weeks: Merchandize business has stayed strong, some weakness in coal, auto still looks good and intermodal has been weak

“Specifically the last couple of weeks to your question, we look at our four key markets merchandize, intermodal, coal and auto. Our merchandize business has stayed probably some of the two strongest weeks in fact in the last two weeks, but then we have seen some weakness in our coal markets which is consistent with our guidance…Our auto business was very strong early on in March. We probably had 65% of our cars under load and that’s kind of cycling through that right now. But we continue to see good strength there for the rest of the year, and yes we have seen a little bit of weakness in the intermodal space over the last few weeks, but I don’t think anything that has structurally changed there.”

Have seen a downtick in sequential pricing

“We’re certainly not immune to what’s going on in the market place and I think you’ve seen a reflection of that here in the quarter versus the fourth quarter as you’ve seen a sequential downtick in our pricing.”