Michael Ward, chairman, president and CEO of CSX, has plenty of reason to sound cheerful after reporting a 36 percent jump in net profit, to $414 million, for the second quarter.
The operator of one of the nation’s largest freight railroads had more than a 15.5 percent profit margin on revenue of nearly $2.7 billion. Its 22 percent gain in receipts year-over-year reflected solid growth in traffic, continued gains in freight rates and a close eye on costs that gave CSX a record low operating ratio of expenses relative to revenue.
And even as many economists, government officials and business leaders question whether the economic recovery might falter toward a double-dip recession, Ward thinks the good times will continue.
“We don’t see that,” he told CNBC in a television interview. “We see continued strength and growth here. We expect to have a very good year.”
Last year’s second quarter was the low point of the recession for major railroads, but the economy has been on a steady uptrend since then, boosting demand for rail transportation from freight customers. The Class I U.S. railroads increased carload traffic 7.8 percent in the first half of 2010 over last year and expanded intermodal container volume 15.8 percent.
“We’re really seeing this gradual recovery, which we’re very encouraged about,” Ward said. “As we see it, with the markets we serve, we think we’re going to continue to see strength throughout the remainder of this year.”
That’s good news for an industry with a slew of upcoming financial reports: Union Pacific and Canadian National will release earnings on July 22, followed by Norfolk Southern and Kansas City Southern on July 27 and Canadian Pacific a day later.
Stock analysts liked the CSX numbers, which came in stronger than expected, and the buoyant view of the economy from a carrier that deals with thousands of shippers.
Jon Langenfeld of Robert W. Baird & Co. cautioned, “Deceleration in CSX’s volume growth rate is inevitable in upcoming quarters,” but said rail pricing strength and its productivity focus mean CSX can continue to expand its margins.
The eastern U.S. carrier held expenses to an 18 percent year-over-year increase, less than the increase in receipts. Freight volume rose 13 percent, and ongoing pricing gains helped push up the revenue per unit hauled at CSX Transportation by 8 percent.
Most rate increases came on bulk railcar loadings, including an 18 percent per-unit gain on coal as CSX enjoyed strong export coal demand.
With a new, higher-priced intermodal contract in place with western partner Union Pacific Railroad, CSX’s per-unit average receipts on container and trailer loadings shrank by 9 percent to $565 per intermodal box. But intermodal volume jumped 18 percent.
Its trains ran slower on average in the 2010 second quarter, as velocity of 20.9 miles per hour fell 4 percent. It also saw a 12 percent drop in on-time train arrivals as traffic increased from the 2009 quarter, and an 8 percent decline in on-time departures.
Contact John D. Boyd at email@example.com.