CSX predicts challenging year for railroad in 2016

AP News
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Posted: Jan 13, 2016 2:57 PM
CSX predicts challenging year for railroad in 2016

OMAHA, Neb. (AP) — CSX Corp. expects to deliver lower profits in 2016 as weak demand for coal and crude oil persists and the strong U.S. dollar continues to limit exports.

The railroad's forecast for lower freight volume suggests the overall U.S. economy may be slowing after several years of steady growth.

"We're calling it almost a freight recession," Chairman and CEO Michael Ward said Wednesday. "We really think there are some challenges on the industrial side of the economy."

The railroad's fourth-quarter results showed an overall 6 percent drop in all shipments. Coal led the decline with a 32 percent drop in carloads, but few sectors showed any growth.

Ward said the railroad will continue working to improve productivity and cut about $200 million in expenses in 2016.

CSX also plans to reduce its capital spending this year by $100 million to $2.4 billion and park some older, less-efficient locomotives that aren't needed.

"2016 will be a more challenging year," Ward said. "Volume in the first quarter and for the full year will decline as growth in some markets continues to be offset by the significant impact of continued coal declines, low commodity prices and a strong US dollar."

Coal demand has fallen significantly over the past several years because of environmental concerns and because cheap natural gas prices prompted some utilities to switch fuels.

Intermodal shipments of containers that arrive in ports via ship grew 4 percent for one of the only major bright spots in CSX's traffic report. Automotive shipments improved 5 percent in the quarter.

The Jacksonville, Florida-based railroad said Tuesday its fourth-quarter profit declined 5 percent to $466 million, or 48 cents per share, on $2.78 billion revenue.

The quarterly results were helped by a one-time property sale that added $80 million, or 5 cents per share, to CSX's profit. Analysts surveyed by Zacks Investment Research expected adjusted earnings of 46 cents per share.

Citi analyst Christian Wetherbee said the railroad's results were better than he expected thanks to tight cost controls.

CSX operates more than 21,000 miles of track in 23 Eastern states and two Canadian provinces.

Its shares fell $1.67, or 7.1 percent, to $22.03 in afternoon trading Wednesday. Its shares are down more than 34 percent over the past year.