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CSX delays 4Q results
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January 27, 2000: 1:44 p.m. ET
Problems seen persisting into 1Q, but carrier raises earnings forecast
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - CSX Corp. did not release final fourth-quarter results Thursday, as expected, saying it still needs to close the books on the Dec. 10 sale of much of its Sea-Land Service ocean shipping operations to Maersk Line.
But the Richmond, Va., company did disclose most of the operating statistics for its rail and logistics units that now make up most of the company's remaining operations, and those numbers showed significant drops in income despite higher revenue.
CSX said when it reports fourth quarter results Feb. 9, earnings will be in the 20- to 24-cents a share range, down from 51 cents a share a year earlier. On Dec. 20, it warned investors that earnings for the period would be in the 18- to 24-cent range.
Problems from Conrail purchase linger
Chairman and CEO John Snow told analysts the company's operational problems are improving, but he didn't say the problems are behind it.
"We're not going to have numbers to write home about in the first quarter, although they will show improvement," Snow said. "The first quarter will continue to have some residue from the difficulties of the fourth quarter, but nothing of the magnitude. We're starting to get our arms around it."
The company did not spell out what it expects to earn in the first quarter. Analysts surveyed by First Call expect a profit of 44 cents a share in the period, up from 36 cents a share a year ago.
Drop in profit despite jump in revenue
While much of the drop in profit came from losses at Sea-Land prior to the sale, the railroad also continues to be hurt by operating problems from the integration of about half of the former Conrail system into its network, which began June 1.
Photo: CNNfn.com
Problems integrating the former Conrail assets into CSX's rail network will continue to hurt financial performance in the first quarter, company officials warned Thursday, although they said they are getting their arms around the problems.
Rail revenue, which includes railroad and intermodal divisions, climbed 27.4 percent to $1.8 billion due to the addition of the Conrail business. But rail operating income fell 45 percent to $145 million.
The ratio of operating expenses to revenue, a key measure of a railroad's financial performance, worsened significantly. Even excluding employee separation and restructuring charges, the ratio rose to 89.1 percent from 81.8 percent a year earlier.
For the year, rail operating income fell 19.9 percent to $852 million from $1.1 billion a year earlier, despite a 17.5 percent increase in revenue to $6.6 billion. Annual operating expenses rose to 86.2 percent, excluding special items, from 81.5 percent a year ago.
Sea-Land lost money in its last quarter
The company's other operations lost an estimated $37 million, compared with $18 million in operating income a year ago. That includes estimated losses from Sea-Land's international container business before the sale. The company said many customers left Sea-Land before the sale was completed, some shifting to Maersk so they could build their volume with the future operator.
Photo source: Maersk Line
CSX says its non-rail operations had an estimated operating loss of $37 million in the fourth quarter, primarily because customers pulled business away from Sea-Land Service before its Dec. 10 sale to Maersk Line.
Company officials said they believe rail income should increase later in the year, especially on continued growth of intermodal traffic, or freight that moves in boxes that can travel on rail, ship or highway. But revenue from moving coal and new vehicles is expected to drop.
Concerns about future mergers
Snow also elaborated on the company's position that the proposed merger between Canadian National Railway and Burlington Northern Santa Fe Corp. is bad for the industry, saying it will push other railroads into mergers before they're ready to do so.
"I hate to see our attention diverted from fixing the rail problems," he said. "We have a lot of hard work ahead of us in the next six months. If we get into a merger free for all, a lot of the creative energies of the company will be diverted."
But he said as much as CSX would want to wait at least two years before considering another deal, he doesn't think it or other railroads will be able to wait if the CN-BNSF deal moves forward.
"As much as a railroad might like to stand still, it probably can't sit still because there are other players out there who will say, 'We can't forfeit a two-year advantage to someone else,'" he said.
"If it (the CN-BNSF merger approval process) goes forward, it will be catalyst for the end game for the railroad industry," Snow said. "And in that end game, no one wants to get left out. If you're left out, the terms of trade can turn very sour for you."
There are now seven major railroads in North America, and a general belief in the industry that the next round of mergers will end with only two, each covering much of the continent.
Fear of more rail regulation
While Snow conceded that BNSF and CN's previous mergers went more smoothly than the Conrail deal, he said the timing is wrong for such a deal, and he urged regulators to not accept the application at this time.
He also said he was worried that if the merger application does move forward, it will give a boost to those who want to push for greater regulation of the rail industry.
"Proceeding with mergers at this time is very likely to produce unwanted, unfortunate and untoward regulatory results," he said.
Snow, along with the heads of Norfolk Southern, Union Pacific Corp. and Canadian Pacific Ltd., have signed a joint statement objecting to the CN-BNSF deal.
Officials with the CN and BNSF have criticized other railroad objections to the proposed merger as self-serving and not in the interest of rail customers.
Shares of CSX (CSX) were up 1/8 to 30-1/16 in midday trading Thursday. 
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CSX Corp.
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