CSX’s Operating Ratio Increased on Expense Management



Declining expenses

In its July 14 earnings release, CSX (CSX) reported a 6% decline in its total revenues. However, its operating expense declined by 9%, or $200 million, from the prior year’s second quarter. The decline was mainly due to lower fuel, labor, and fringe expenses.

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Fuel charges

Fuel charges for CSX decreased by $153 million in 2Q15, mainly due to a 35% reduction in locomotive fuel prices and $129 million in reduced expenses. Volume-related costs declined by $12 million. Plus, locomotive fuel reduction technology and improved processes helped drive $4 million in efficiencies. Other fuel savings of $8 million were primarily due to lower non-locomotive fuel costs.

Materials and supplies

CSX’s material and supplies expenses declined by $62 million, mainly due to efficiency savings of $25 million. These savings were driven by general and administrative initiatives, as well as a reduction in operating support costs.

A gain of $17 million resulted from the sale of an operating rail corridor. The decline was partially offset by inflation, which resulted in $11 million of additional costs.

Labor and fringe

Labor and fringe expense increased by $16 million, mainly due to inflation. This resulted in $30 million of additional costs, driven by union and management wages. Labor costs also increased by $12 million due to an amended locomotive maintenance agreement in mid-2014, where CSX now provides oversight of the labor force. As a result, outside service costs shifted from materials, supplies, and other costs to labor and fringe. Overall, expenses for this change are neutral for the quarter.

CSX’s interest expense, equipment, and other rents expense also declined in the second quarter. Other income increased $16 million, primarily as a result of a prior year environmental cleanup costs related to non-operating activities that did not recur in the current year.

CSX’s total debt to earnings before interest, taxes, and depreciation ratio is 2x, which fares well when compared with its peers:

  • Union Pacific (UNP): 1.14x
  • Canadian National Railway (CNI): 1.58x
  • Kansas City Southern (KSU): 1.92x
  • Norfolk Southern (NSC): 1.99x
  • Canadian Pacific Railway (CP): 2.09x
  • Genesee & Wyoming (GWR): 4.21x

Together, these companies form 9.30% of the Industrial Select Sector SPDR ETF (XLI).


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