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Apr 17, 2018

CSX sees stronger profits on cost-cutting efforts

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CSX Corp (CSX.O) easily topped Wall Street forecasts for first-quarter profit as the No. 3 U.S. railroad operator benefited from a cut-throat efficiency and cost-cutting drive, sending its shares 5 per cent higher on Tuesday.

CSX has been cutting jobs and the number of locomotives and rail cars it operates to boost profitability, as part of an overhaul launched by Hunter Harrison, the industry veteran who took over as CEO last year but passed away eight months after.

"We are drastically changing the way we operate the railroad by taking millions of unnecessary steps out of the business process that we use to run the railroad," CSX Chief Executive Jim Foote, who has promised to take Harrison's turnaround effort forward, said on a call with analysts.

"When there was a change in upper management, people kind of compensated and said 'well we are not going to get what Hunter Harrison was going to give us'," said Edward Jones analyst Dan Sherman.

"But with (Tuesday's) result it's possible that's not true at all, and we'll get exactly what Hunter had promised," Sherman added.

Jacksonville, Florida-based CSX said its operating ratio, which measures operating expenses as a percentage of revenue, fell to 63.7 per cent in the first three months of 2018 from 73.2 per cent a year earlier.

CSX wants to bring operating ratio — a closely watched measure for railroads — down to 60 per cent by 2020 through more cost cuts.

The railroad operator said last month it would cut an estimated 2,200 jobs by the end of the year and 4,000 more in 2020.

The company's profit rose to $695 million in the three months ended March 31, from US$362 million a year earlier.

Results in the year-earlier quarter included restructuring expenses of US$110 million.

Excluding one-time items, CSX earned 78 cents U.S. per share, topping analysts' average expectation of 66 cents, according to Thomson Reuters I/B/E/S.

Revenue rose slightly to US$2.88 billion.

Freight volumes, however, fell 3.8 per cent, impacted by a decline across all of CSX's markets including chemicals and agricultural products.

Shares of CSX rose 4.6 per cent to US$59.19 in after-hours trading on Tuesday.