CSX 3Q15 Earnings Call Notes

CSX Corp’s (CSX) CEO Michael Ward on Q3 2015 Results

Low nat gas and commodity prices challenging many of our markets

“low natural gas prices are clearly challenging domestic coal volume. More broadly, low commodity prices and the strength of the US dollar continue to challenge many of our other markets.”

Expect volumes to continue to decline in Q4

” Looking forward, we expect volumes to decline in the fourth quarter. Although we are projecting stable to favorable conditions for several key markets, this will be more than offset by unfavorable conditions for the remainder of the portfolio.”

Intermodal, automotive strong. Ag Neutral. Chemicals, crude and coal weak

“Intermodal continues to be a strong growth engine as our strategic network investments support highway to rail conversions and growth with existing customers. And automotive is expected to grow along with light vehicle production trends. Agriculture is neutral as strength during the fall harvest season and our improved efficiency will be offset by weakness in export grain and the continued risk of ethanol imports driven by a strong US dollar in a challenging global market. Chemicals is expected to be down materially, as energy markets reset to an environment marked by low crude oil prices and reduced drilling activity. We expect that crude oil volumes may be down at least 25% in the fourth quarter on a sequential basis. Metals is unfavorable as the strong US dollar and high levels of imports continue to negatively impact domestic steel production levels.”

Coal will have more headwinds next year

” as we look at the inventory levels at utilities that we serve, they are still at elevated levels. So we are going to have some headwinds next year. And that’s kind of the foundation. And that 21 million tons that I alluded to, which is the sequential quarterly run rate, is probably about 15 million tons on the utilities side and about 6 million tons on account of that net coke and iron ore.”

Feel good about our ability to continue to push pricing

“strong pricing is a critical component of what we’re trying to do from an overall value equation. It’s one of the key levers we are pulling. And, as we tip to improve our service product, we feel good about what we are going to do going forward as well.”

Truckload prices have gotten weaker in the past 4-6 months

“In terms of the truck market, it’s clearly sequential over the last, probably, four to six months, it has gone softer. But you also have to remember that, if you look at where truck prices are today, versus the beginning of last year, they are still up significantly.”

Balancing locomotive fleet

‘I think where we are with locomotives, our active locomotives have decreased in terms of number sequentially from quarter one to quarter two to quarter three and to accomplish that, we are returning leases and we are also paying back horsepower hours. So those are the outputs, what we’re moving out of the active count. We are, as you mentioned, getting new locomotives. We have 65 yet to receive in the fourth quarter and another 65 rebuilds, of which a portion of those are 4X, locomotives for our local fleet. Overall, we intend to manage demand by storing locomotives as the next option to take out any excess that we would have. And you mentioned the purchases in 2016 also that, yes, we are receiving 100 in 2016. But we will manage our locomotive fleet based on demand and obviously balancing that with service.”

Still seeing vibrancy in intermodal even though spot trucking rates are down. Contract rates are firm

“We are still seeing good vibrancy. There is no doubt, though, that at least on a spot basis right now that the truck rates have come down. But on the contractual side continues to have, as far as we can see, a pretty good rate increase on the contractual side, because I think people are cognizant of what will happen longer term, both in terms of driver retention and some of the negative productivity initiatives that the trucking industry is facing.”

Good vibrancy in some of the core tenants of our economy still

“I think that if you look at some of the core tenants of our economy, such as the housing and the automotive side, you continue to see good vibrancy, obviously growth from a low base in housing and auto being at the peak demand, but continued expectations for growth there. The core chemical business is also doing okay. And then with the lower fuel prices, I think the consumers are feeling a little bit stronger.”

We are very dependent on industrial but we are getting more exposure to the consumer side of things

“Clearly, we are very much dependent on the industrial economies. That’s a big driver of ours. But at the same time, we do our — we are getting more and more exposure to the consumer side of things as we continue to grow our intermodal business. That’s helping to offset that.”

*analyst comment* inventory correction may be because people over ordered after the port disruption

“Just on the economy, again, there has been some talk that what we are seeing, at least in part, is an inventory correction that’s related to the West Coast port disruption. Because, in effect, shippers over ordered when they weren’t sure how quickly inventory could move through the supply chain. I’m just curious if that’s a dynamic that you are seeing in the marketplace?”

I do think that inventory levels are coming up

“I do think that that’s a good point. We are seeing that the inventory levels are coming up. I think we referred to it in our paper market, for example. And as you look at some of the official statistics out there, you have seen an increase in customer inventory.”

JS Earnings Call Notes BLK, USB, UNH, CSX, BAC

Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.


Blackrock (BLK) CEO Larry Fink says one of the strengths of the firm’s business model is that clients can switch asset allocation and funds internally rather than leave Blackrock & take their funds to a different asset manager

“A number of those outflows from institution clients, however, have been offset by inflows by the same clients into BlackRock’s active strategies. This is a very important component that we all should be focusing on, because as we discussed how we are building our unique business model, having the ability to have clients internally move assets around whether it’s from beta to active or active to beta, this allows us to continue to build deeper and more elongated relationships with our clients.”

Blackrock (BLK) CEO Larry Fink says a large majority of their fixed income investors are pension funds and insurance companies 

“70% of our fixed income investors are pension and insurance companies. They’re not influenced by market moves. They’re trying to match a liability, and that’s the problem with the narrative, they’re not the players who’re going to whip around the interest rates.”

Blackrock (BLK) President Robert Kapito downplayed his enthusiasm of “active” ETF’s

One of the benefits of the ETFs is the transparency, the diversification, and that enhances the trading and the liquidity of these. So, we’re not sure that this is an opportunity we’re going to pursue. We’re thinking about it, and we’ll just see how the market continues to evolve. So, we’re not ruling it out, but right now, we’re not looking at that, and we view that as something that will compete more directly with mutual funds than it will with the normal ETFs.”




U.S. Bank (USB) CEO Richard Davis, who has been notoriously patient on the yield curve rising, finally expects to see a stronger 2nd half for the U.S. economy and thus a potentially rising yield curve

I’m actually more optimistic on the revenue for the second half because things have turned the corner.”

While the compliance costs for his bank have kept increasing

“Expenses will come down as we watch our nickels and dimes, but I will tell you the cost of compliance has erased a lot of the benefits I would otherwise hope to have gotten a year-and-a-half ago when we started this as we’ve continued to add the compliance personnel, audit personnel, and not just in those areas but in the front line where we have that same compliance responsibility that’s gone up substantially.”




UnitedHealthcare Group (UNH) CEO David Wichmann said his firm is using games to incentivize his insurees to stay healthy and reduce costs

“We are bridging the direct link between consumer engagement and lower per member cost trend and with employers’ help further engaging consumers in their own health and wellness. This includes our product development efforts like Rally in cutting-edge areas like incentives, gamifications, missions and social networks. Engaging people on their own care informs them as real consumers and translates into better care, better care resource use and lower costs.”




CSX CEO Michael Ward said even though revenue fell, reducing expenses helped lead to a record quarter of profitability

“we have the resources in place to meet customer demand across the network, supporting improved service performance and operational efficiency. That efficiency coupled with lower fuel prices helped decrease expenses by 9% and delivered all-time records in operating income at $1 billion and an operating ratio of 66.8% for the quarter.”
And they’re seeing reduced labor expenses as well as productivity initiatives across their workforce 
“We expect labor inflation to be around $25 million in the third quarter, which is a reduction from the level seen in the first half as union wage inflation becomes less of a headwind. In addition, we expect labor and fringe expense to benefit from further network fluidity improvement and efficiency as we remain focused on increasing train length and aligning crew starts.”
CSX CEO Michael Ward said railroads continue to take market share from trucking
“Strong intermodal performance will continue as our strategic network investments support highway to rail conversions and growth with existing customers.”
Bank of America (BAC) CEO Brian Moynihan says the firm continues to focus on reducing expenses and rightsizing the business

“Revenue was up and expenses were down comparably against both periods.  On the expense side we told you that we achieved this new BAC cost savings back in the third quarter of last year. However we didn’t give up on our focus on expenses and you can see those in the results. It’s the lowest non-litigation expense base since 2008.  So we just continue to apply technology to continue to long-term reduce expenses. So the goal we have in some is to keep the expenses flat as revenue increases.”

Bank of America (BAC) CEO Brian Moynihan says the firm will close more banking branches as a result of customers placing an emphasis on mobile transactions 

60% of our sales are all digital now.  There are about 10,000 appointments scheduled in the mobile device a week at the branch, that allows us to have a more efficient branch structure, even though we may have less, we may have bigger branches because you have more sales going on in them.”

CSX 2Q15 Earnings Call Notes

6% decline in topline 1% decline in volume

“significant operating efficiency helped offset year-over-year declines in revenue and volume. Starting with the topline, revenue in the quarter declined 6% to $3.1 billion. Pricing gains were more than offset by lower fuel recovery, a changing business mix, and a 1% volume decline as we cycled last year’s demand surge.”

Expenses fell faster though

“efficiency coupled with lower fuel prices helped decrease expenses by 9% and delivered all-time records in operating income at $1 billion and an operating ratio of 66.8% for the quarter.”

Core pricing continued to improve

“Core pricing continues to improve sequentially and for the quarter was up 3.5% overall and 3.9% excluding coal.”

Lower headcount

“we expect third quarter average headcount to decline sequentially by approximately 1% as we align employees to the lower demand environment.”

Domestic coal expected down 15% in the quarter

“Domestic coal continues to be a significant headwind and we now expect that market to be down close to 15% in the third quarter.”

Volume environment not as strong as anticipated

“…the volume environment is not as strong as we had originally anticipated.”

Probably more downside to coal volumes next year than upside

“just to clarify what Clarence said, I think there is probably more downside to the coal volume next year than there is upside. If the current — if gas prices stay, and the exports markets kind of remain challenging.”

Continue to see a strong pricing environment

“We continue to — we see a strong pricing environment as well. But it really depends on how massive will this coal headwind be in the second half.”

Any competitive share loss is based on fuel

“On the revenue-ton mile as you summarized, it is all in fuel. On the rates of sales in the trucking market, we still find that these truckers are keeping their rate structures up this year into 3% to 5% range on the trucking renewal rates. ”

All the issues for trucking still remain despite lower crude prices

“That has changed in the highway issues that are around, congestion that’s in the highway in America. We still have the driver issues and shortages that are facing the trucking companies as we go forward. If you look at what’s happening in Congress today, we still will have a highway transportation bill probably be passed with the continuing resolutions and no new confusion of the money to rebuild the highways and the infrastructure in this country, so all the issues that we’ve talked about over the past few years still remain. So, intermodal to me looks, is a very positive thing going forward for the next two or three years.’


We’re excited to announce that Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.


Netflix CEO Reed Hastings believes the business is significantly under penetrated in international markets

“For most global Internet firms, the U.S. is 20%-35% of usage and revenue; we’re not anywhere close to that yet but we’re continuing to invest in international.” 

Netflix Chief Content Officer Ted Sarandos says the company is seeing the highest returns of its capital in its own original content 

“What we’re seeing is that dollars invested in our original programming are more efficient in that for every dollar spent, we get more bang for the buck in terms of hours viewed. and hours viewed leads to higher retention, more word of mouth, and more brand halo.”



Bank of America CEO Brian Moynihan says the bank has been laying off employees in various departments to drive efficiencies but the bank has also been adding headcount in sales and relationship-focused bankers

“We continued to reinvest in sales capacity. So just in our consumer business, headcount is down year-over-year but we have a thousand more sales people roughly out there selling. And so the idea is to continue to drive sales people into the businesses.”



Intercontinental Exchange CEO Jeff Sprecher on how they’ve grown different verticals of the business over the years

“Well, we have our historical data business that we grew organically, which was all commodities data set. And when we acquired the New York Stock Exchange, we acquired along with it obviously the data from trading U.S. equities and equity options. And then we acquired the Liffe Exchange, which gave us really an interest rate data footprint. We’ve built a new company called ICE Benchmark Administration, which is the company that took over the LIBOR administration, the Gold Fix and the ISDAFIX.  So we’ve got this new footprint of what are really regulated benchmarks going forward, very global, very important regulated benchmarks.  But what you’ve seen is the evolution of my company from trading into clearing and now increasingly into data and indices.”

Intercontinental Exchange CEO Jeff Sprecher sees growth in the derivatives business coming from Asia 

“We’re betting that Singapore is that nexus for all of Asia, which would include China, Japan and these growth areas of Malaysia, Indonesia and, Vietnam.”

Intercontinental Exchange CEO Jeff Sprecher sees significant operating leverage inherent in the data intensive business model of the stock listings and benchmark listings business

“There is also a very big footprint in our business that’s no longer volumetric.  Things like over-the-counter clearing where daily volumes are not reported but are growing tremendously, and then we’ve ended up with a very large data and listings business. But basically recurring revenue business that is growing against a relatively fixed cost. So, similar model to when the business went from analog to digital on trading, which the allure of that was this fixed technology cost against growing volumes.”

Intercontinental Exchange CEO Jeff Sprecher on the recurring nature of the NYSE listings business model=

“The listings franchise on the New York Stock Exchanges is a business that has been growing. There’s been a lot of IPOs in the last year or so.  And that is a massively recurring business with at least 2,500 listed companies, lots of ETFs and other things that are providing annuity revenue against a very fixed cost base.  So, you take all that together and about 40% of our business is in a form that is much more recurring than it used to be in the past.”



Wells Fargo CEO John Stumpf said that physical banking branches will remain a key part of how they intend on serving customers even though consumers are adopting mobile banking on a massive scale

“We’re in the information business as much as on the retail we’re in the financial services business, so this is really about connecting all the channels, not about trying to drive customers into what’s cheaper for us. That’s not how we think about that. We think about what’s best for the customers, and branches still remain an enormously important part in that.”

Wells Fargo CEO on John Stump discussed the firm’s recent bolstering of its investment banking unit

“The way we think about business here is around relationships, relationships with team members. My 11 direct reports have an average of 28 years with the company. We think of relationships with our customers, our communities, our shareholders. Buffett’s been an owner of ours for 25 years. We love long-term things, so as it gets to investment banking activities, we think of that as another solution, another product, another service.  Most of the revenue that comes from that business is from existing customers who have been doing business for a long, long time.  I only care that we do the right thing for customers.”



JP Morgan CFO Marianne Lake said a number of macroeconomic events occurred which helped JP Morgan’s transactional revenue

“A number of macro events occurred in the quarter including central bank actions, the Swiss Bank decoupling, stronger dollar and oil price volatility which supported market performance broadly and currencies, emerging markets, rates, commodities and equity.”

JP Morgan CFO Marianne Lake said loan performance in the bank’s energy exposure weakened during the quarter as a result of lower oil prices

“This quarter’s reserve build was at downgrade in the E&P portfolio and if the current price environment continues, it’s reasonable to expect some further reserve builds during 2015 but relatively modest.”



CSX CEO Michael Ward sees a robust pricing environment for transportation companies who are moving large physical goods

“We still see capacity as been very tight.  If you notice our minerals business was I think around 11% or so based on a lot of highway infrastructure, projects going on particularly in the region and country that we serve, so we’re seeing truck capacity staying relatively tight. Coast wise barges have been very strong and strong demand, so we still see capacity fairly tight and we still see a strong need for transportation, pricing does seem to be very robust if you look at the spot truck load market it is remaining fairly strong. So we see that it’s still a very strong, robust pricing environment.”

CSX 1Q15 Earnings Call Notes

projecting flat demand as tough comp from last year

“we expect a generally flat demand environment in the second quarter as we cycle the strong surge in pent-up demand during last year’s second quarter then volume increased 8%. Overall we are projecting favorable conditions for 49% of our markets in the second quarter and stable to unfavorable conditions for the remaining 51%.”

Infrastructure positive for minerals, ag is neutral, auto should grow modestly

“Increased infrastructure development products are driving a favorable output for minerals. Agriculture is neutral as strengthened domestic grain shipment is offset by weaken export grain market resulting from the strong U.S. dollar. Automotive is expected to grow modestly driven by projected North American light vehicle production.”

Chemicals market down

“The outlook for chemicals market is also neutral due to a reduction in drilling activities stemming from the low commodity price environment. As a result we expect crude volumes from the remainder of the year to hold relatively flat to the level we saw in the first quarter. ”

Volume may be moderating, but we still have a high baseline from last year

“I think a couple of things about how you think about with regards to the moderating volume forecast, we still have quite a strong baseline from the growth we had last year.”

“we are actually glad to be in a position where we may indeed have a slightly higher level of resources than we need”

We can furlough locomotives if we want, but we don’t plan on doing that in the next couple of quarters

“the obvious results or the obvious initiatives that we can take when volume moderates is we can put our locomotives into storage very quickly, we talked about that a couple of years ago, and certainly the furlough aspect is available to us, so we think about it, we think about it hard, we have some strategy around it. We do not see that coming into play over certainly the next couple of quarters with the kind of baseline growth we have from prior year.”

Fuel surcharges will be coming down

“from a fuel perspective I think you’re going to continue to see pressure in the remaining three quarters of the year. We benefitted a little bit here in the first quarter from the lag, so you’re going to continue to see that impact in RPU for the full year, at least based on where we’re seeing fuel today and probably more so than we saw in the first quarter.”

“but fuel surcharge revenue will be low and it will year-over-year it is going to impact the yields negatively throughout the year.”

There could be more volume sent through the East coast as a result of the west coast port strike

“I continue to believe that there will be diversions to the Gulf in the East Coast as more and more customers get comfortable with what is going to finally emerge with the canal and with the post West Coast strike. It’s just too early to see how that’s going to settle out and as you know there is a lot of congestion up and down in the East Coast so that’s going have to settle down for people to make decisions, but I think you’ll see more than what even we had anticipated seeing as time moves on over the course of the next couple of years.”

If coal stays challenging, we have to grow intermodal and other merchandise, and price above inflation

“I think you’re quite right, so, I guess as we look forward the coal has been a challenge to both the eastern roads. And I think as we look forward it’s about how do we grow the other businesses intermodal or merchandize above the rate of the general economy which we have been doing. Price above inflation which, that is actually accelerating and start getting new cost out”

We have a fair amount of congestion on the east coast. There needs to be a lot of infrastructure improvement

“they have certain amount of congestion on the West Coast and a certain amount of backup still exists on the West Coast that is going to take a few more weeks ahead of us to get straight. And regards to the East Coast, we still have congestion on a lot of ports on the East Coast. There is going to be a requirement for lot of infrastructure improvement on the East Coast to handle the larger vessels, the deeper water requirements that are going to be required for the larger ships and that’s going to take place over the next several years.”

We had a big crop last year. Dollar is impacting our ability to export soybeans

“our ag products we still have a large carryout from the last year’s crop. And in fact one of the largest that we have ever recorded in the United States. The South American soybean crop in particular is strong this year and given the fact that we have a strong U.S. dollar, it’s impacting our U.S’s ability to export soybeans. We still have by historical standards a fairly strong export.”

Given highway congestion and truck capacity rail has a strong value proposition

“I think given the fact that capacity particularly on the truck side of the business is and with the highway congestion with the driver issues that our customers are facing, with the overall value proposition that rail is offering. I think that our pricing and the value that we’re offering I think we can re”

CSX 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Expect positive demand conditions in the first quarter

“Looking forward, we expect a positive demand environment in the first quarter with stable to favorable conditions for 96% of our markets and unfavorable conditions for the remaining 4%.”

chemicals, construction, automotive all favorable

“chemicals is favorable as we continue to capture opportunities in the domestic oil and gas industry. Housing starts are expected to rise considerably in 2015, which should drive a favorable outlook across our construction markets, forest products, minerals and waste and equipment. Automotive is favorable, driven by growth in North American light vehicle production and the recovery of volume lost to trucking last year.”

Coal stockpiles are about right

“We see the stockpiles, both in the north and the south are pretty much where we expected them to be. They’re at normal levels, in both the north and the south.”

We don’t see lower oil prices having any impact on our business

“as we look out through 2015 we don’t see any significant impact at all in our crude oil by rail into the eastern markets and certainly in our frac sand markets where we’re moving into the Utica and the Marcellus area, where the natural gas and the natural gas liquids are we don’t think it will impact the frac sands that we’re moving into those areas at all.”

We think lower crude prices are very positive for the US economy

“There has been some studies that come out that essentially only ten states have employment that’s directly impacted by the oil boom, is less than 2% of the U.S. population. For us the crude by rail is less than 2% of our business. It — for the average U.S. tax — U.S. person it’s like a tax break of almost $2000 a year. So puts a lot of dollars into the economy. From any indication that we see it’s a positive experience for the American tax payer, for the American economy. So I think lower crude oil prices is a very positive for our economy and very positive for CSX.”

The big issue in trucking remains driver availability

“The big issue that has been in trucking remains the big issue in trucking and that is driver availability. Most people that I am aware of don’t want their sons to grow up to be truck drivers. And so truck drivers become an issue. People don’t want to be away from home five, six, seven days. There is issues in passing the drug test to get a commercial CDL.”

Fuel surcharges come down more slowly than the price of fuel itself

“what we pay to the pump probably declines faster than the fuel surcharge revenue itself. So that’s another benefit that we saw here this quarter.”

CSX 1Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Total volume declined 2% in the quarter versus the same period last year”

“domestic coal headwinds persist, although we expect volume to be relatively stable on a sequential basis. For the full year, we continue to anticipate domestic volume will decline about 5% to 10%. At the same time, our best estimate for 2013 export coal volume remains about 40 million tons and year-over-year pricing decline should moderate throughout the year.”

“Overall merchandise revenue increased 2% to over $1.7 billion. Chemicals was the key driver in the industrial sector growing 11% on strength and energy related products, including crude oil, liquefied petroleum gas and frac sand. In the agricultural sector, feed grain shipments to the Southeast were lower as a result of last year’s severe drought in the Midwest. In addition, ethanol shipments declined as a result of lower production, increased competition from imports and lower gasoline demand.

Regarding the construction sector, building products and aggregates increased on the strength of a slowly improving housing environment. However, this was partially offset by lower shipments of paper products as the use of electronic media continues to replace paper. Looking at the second quarter, in the industrial sector, we continue to see growth opportunities in chemicals, particularly in commodities related to the oil and gas drilling.

The automotive market will remain strong although we are now cycling tougher comparables. We expect the agricultural sector to remain soft with lower grain shipments and continued weakness in ethanol, more than offsetting increased fertilizer demand. Finally we anticipate a slow steady recovery in the construction sector will drive growth in building products and aggregates.”

“Over the next several months we envision a transition period where coal begins to stabilize at a lower level”

“Our military shipments have been down. This is second, almost third year in row, that our military shipments have been down. They are mainly being impacted, on a year-over-year basis, by the war material that we were sending overseas…its not as much about sequestration as war. It was the war.”