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Jacksonville-Based CSX Plans System Upgrades to Help Increase Revenues

Posted on: Friday, 12 August 2005, 21:00 CDT

Aug. 12--NEW YORK -- CSX Inc. will invest an additional $300 million to $400 million in capital improvement projects in 2006 and 2007, company officials said Thursday, laying the groundwork for the company to increase revenues and improve its operating ratio by 2010.

The Jacksonville-based railroad company revealed its strategic plans for the next five years during a conference of investors and financial analysts held at the New York Stock Exchange. It was the company's first such meeting in three years, and an upbeat one, with CSX coming off its sixth quarter of record earnings.

The jubilation shone most clearly at the end of the day, when Michael Ward, CSX's president, chairman and chief executive officer, rang the bell closing the trading day at the stock exchange. Around 20 company executives were on hand for the event.

For the hundred-plus member audience at the conference, many of whom were financial analysts, the highlight came earlier in the day, when Chief Financial Officer Oscar Munoz laid out the company's outlook for the next five years. During that period, he said, CSX should see its operating income jump 10 percent to 12 percent, while earnings per share will rise by 12 percent to 14 percent.

"What's impressive about these double digits is they're organic," said Munoz. "It's a growth company that's generating cash flow."

That cash flow will enable the company to lay more track and buy more locomotives, projects that will push the company's capital spending budget to $1.3 billion or $1.4 billion, Munoz said during the conference, held in a Tiffany glass-ceiling room where traders used to meet.

"As you earn the right to spend, you have the money," he said.

None of the CSX executives who spoke at the conference, which included half-a-dozen of the company's leaders, focused on 2006, although they said that growth should be steady next year.

Instead, they focused on the long-range plans of the railroad, which Ward said has a geographic advantage as the country's demographics change. CSX tracks run throughout the East Coast and are particularly strong in the Southeast, which has seen, and is expected to continue to see, its population grow.

"It was appropriate to talk about the future," Ward said in an interview after the conference. "I wanted [the analysts] to have a picture of the company and its bright future. Putting it in context makes a difference."

Those on hand seemed to agree. "It was interesting to get a deeper look at the company," said Peter Bates, a T. Rowe price analyst. "For me it was helpful."

Few other analysts at the conference would agree to be quoted by name, either citing their employers' policies or saying they wished to review the figures first. Several, however, said they were pleased to see CSX looking toward the future.

That future does include some hurdles the company will have to overcome. Although it has seen its revenue grow and share price jump over the past several quarters, it still lags near the bottom of the country's major railroads when it comes to measurements like operating ratio, a standard industry measurement of fiscal health.

CSX's ratio of 81.9 percent is about six points worse than industry leader and CSX competitor Norfolk Southern Corp., which has a ratio of 76 percent, and behind Burlington Northern, which posts a ratio of 78.1 percent.

That will change, Munoz said. The company's prior goal of 80 percent "is no longer a goal or an option," he said. "We've got to get as good as the next guy."

In meeting that goal, the company's leaders think they'll be helped by increasing capacity on their tracks, particularly by building sidings, tracks laid next to main lines that allow trains to pass each other.

The company is also focusing on its commitment to scheduled service, in which each train is given a particular departure time, rather than being sent out as needed. Over the past 18 months, company leaders have impressed the importance of things like on-time departure and rigorous adherence to schedules, said Tony Ingram, CSX's chief operating officer.

"We cannot change the plan every day," he said. "We have to require our people to do the same thing every day."

Taken together, the executives told the conferences, those steps will propel the company forward over the next five years.

"The future of CSX," Ward said, "is as bright and promising as it has ever been in our history."

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Source: Times Union

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