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Jul 18, 2017

CSX reports 8% revenue rise in first full quarter under Hunter Harrison

CSX Q2 adjusted earnings-per-share beats highest estimate

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CSX Corp (CSX.O), the third-largest U.S. railroad operator, posted a better-than-expected rise in quarterly net profit on Tuesday, helped by improved coal shipments, and the company also announced a US$500 million increase to its share repurchase program.

But shares fell 3.4 per cent after-hours as the company's projection for full-year profit growth fell short of analyst expectations. CSX also said it was evaluating its strategy for distributing cash to shareholders, which one analyst said was a possible sign the railroad will dish out less cash to investors.

The Jacksonville, Florida-based railroad said second-quarter revenue rose eight per cent, on growth across nearly all of its freight markets. Coal revenue jumped 27 per cent.

Freight volumes at the railroad rose two per cent versus the year-earlier quarter.



Coal has made something of a comeback this year, after precipitous declines over the previous two years as utilities switched to burning cheaper natural gas and unseasonable weather kept coal inventories high.

Chief Executive Hunter Harrison said the railroad was working to streamline resources and better use assets. Harrison, who previously held the CEO posts at Canadian Pacific Railway Ltd (CP.TO) and Canadian National Railway Co (CNR.TO), joined in March amid high hopes by shareholders for dramatic profit growth.

"Although there still remains a lot to be done, we are confident that these initiatives will drive improved customer service, greater resource efficiency and superior shareholder value," Harrison said in a statement.

For the most recent quarter, CSX posted net income of US$510 million or 55 cents US per share, up from US$445 million or 47 cents US per share a year earlier. Excluding one-time items, CSX reported earnings per share of 64 cents US.

On that basis, Wall Street analysts had expected CSX to post second-quarter earnings of 59 cents US per share.

The company's results included a US$122 million restructuring charge related to the company's decision to lay off close to 1,000 managers in the first and second quarters.

Including the charge, CSX posted an operating ratio — or operating expenses as a percentage of revenue, a key rail metric for Wall Street — of 67.4 per cent, an improvement over the same period in 2016 of 68.9 per cent.

The company said that adjusting for restructuring charges, it expected a full-year operating ratio in the "mid-60s" and earnings per share growth of around 25 per cent versus 2016.

But analysts have projected full-year earnings per share of US$2.31, nearly 28 per cent above the US$1.81 the railroad reported for 2016.