CSX 2Q16 Earnings Call Notes

CSX’s (CSX) CEO Michael Ward on Q2 2016 Results

9% volume decline driven by coal

“Yesterday CSX reported second quarter earnings per share of $0.47, compared to $0.56 per share in the same period last year. Revenue declined 12% in the quarter; a strong pricing across nearly all markets, was more than offset by the impact of a 9% volume decline, which included a 34% decline in coal, as well as negative mix and lower fuel recovery.”

Continues to be a challenging freight environment

” it’s clear this continues to be a challenging freight environment with plenty of macroeconomic headwinds. Thanks to the extraordinary work of our employees, CSX is delivering record levels of efficiency and rightsizing resources to the business demand of today.”

Need more than just a hot summer to normalize coal inventories

” it is helping, but you have some of our utilities that we serve have an awful lot of coal on the ground at this point and it’s going to take more than just really hot summer to get it back to where it needs on average.”

Frank Lonegro

Expect y/y volumes to decline in 3Q

“Now let me turn to the market outlook for the third quarter. Looking forward we expect year-over-year volumes to decline in the third quarter, in the mid to high single digit range. Despite some markets growing, the majority of our markets will be down with the most significant declines continuing to be concentrated in coal and crude oil.”

Auto expected to still grow

“Automotive is again expected to grow, as light vehicle production remains higher on a year-over-year basis. Minerals volume will be higher with a continued ramp up of the new fly ash remediation business and ongoing strength in construction, which drives demand for aggregates.”

Comps will begin to ease in back half of year

“There are comps that begin to ease as we get into the back half of the year. Although as we mentioned, volumes in the third quarter will be down mid-to-high single digits, with crude down international intermodal losses in the coal as we mentioned on a year-over-year basis down as well.”

Fredrik Eliasson

Inventories are still at a high level

“Inventory is still at the high level, has been a sequential decline just a little bit, but it’s still high versus historical basis. So that’s certainly impacting the international part of our intermodal business more perhaps than it does on the domestic side, which is also why you’re seeing the steamship line continuing to struggle quite significant than demand on that side is very week at the moment.”

Overcapacity in truck is impacting our markets

“I think short term meaning for the next 12 months or so we see a period of excess capacity out there that certainly is impacting things but overall you have a chance to see it where it comes each and every quarter.”

A little early to say if the panama canal expansion will have impact on volumes

“In terms of Panama Canal obviously it is very recent, as little too early to tell, we have said this for a while that there is so many different drivers that comes into play here, that is very difficult to predict exactly what’s going to happen. The good news is that we have a flexible network. We will be able to handle additional volume coming into the East Coast. If that happens and we’re working very closely both with international customers and with the ports to make sure we have the capability that we need if it is a bigger shift that we’re currently anticipating.”