Jan 18, 2018
One of the often cited reasons for the failure of the Northeastern Railroads in the 1970s was the redundant capacity brought about by the loss of core business, such as Anthracite Coal, Steel and Manufacturing in the Urban centers. The second major factor was regulation, which may have prevented the carriers from acting quickly enough to changes in business patterns.
Possibly, in this Post Staggers era, CSX failed to react to changes in business and excess capacity issues, which are easier to correct than excess capacity issues. Not all business is profitable business. The Penn Central, for instance, was losing a Million Dollars per Day, while barely able to handle all the business they were getting. Simply stated, the high volume of low yield loads was straining capacity, while at the same time it failed to generate sufficient revenue to meet expenses.
Hopefully, CSX will be able to sustain revenue growth through more efficient use of their capital assets. Depending on how this trade issue plays out, the other carriers may soon find themselves with a different ratio of business to capacity. SX's downsizing, may well place them in better position to deal with these changes.
I read in a recent meeting with Wall Street analysts, UP's CEO was pressed to answer why they weren't more like CSX. Time will tell if CSX "precision railroading" is an industry elixir. My question would have instead been to CSX's CEO to ask how much spare capacity remains on the primary routes in his system.
How much debt is being taken on for stock buy backs and how much salvage value has been taken to the bottom line by equipment divestiture already.
Hedge funds suck all the financial vitality out of their victims and saddle the company with intolerable amounts of debt that was all 'invested' in the bottom line for dividends and other forms of 'investor' remuneration.
Hedge Funds (Mantle Ridge) are corporate vampires, designed with the sole intent of sucking as much cash as possible out of their victim. The management that hedge funds stick in place are there for the sole purpose of liberating cash to the hedge fund.
Sadly, the above is all quite true.
Not that mergers of prior decades did not do the same, selling off the carcass' assets and dumping employees/those obligations, simply to enrich the parent of the victim. Also, they were and are still done to eliminate competitors, instead of battling for shippers head to head...
I have yet to see Hedge Funds attack their own kind. I am sure there are many hedge funds that have over leveraged themselves and are more than ripe to be gobbled up by other funds. Is there 'professional courtesy' among corporate thieves? Since hedge funds don't abide by any other forms of courtesy why shouldn't they attack their own kind. Cannibals are cannibals no matter what the fare.
Meanwhile, while CSX gathers accolades from Wall Street, NS is excelling without turning the railroad upside down:
News - July 25 2018 (AP) — Norfolk Southern's second-quarter profit raced ahead 43 percent as the railroad handled 6 percent more freight.
The company said Wednesday that it earned $710 million, or $2.50 per share, in the quarter. That's up from $497 million net income, or $1.71 per share a year ago. The results surpassed the $2.31 per share that Wall Street analysts surveyed by Zacks Investment Research expected on average. <snip> Shares of Norfolk Southern have increased 11 percent since the beginning of the year, while the S&P 500 index has increased 5.5 percent. The stock has increased 37 percent in the last 12 months. [End]
The difference between running the railroad as a business, versus using it as a money pump?
Suspect NS hired a number of the CSX sharp pencil brigade that EHH terminated.
Just read today that NS also approved an 11% increase in its quarterly dividend from 72 to 80 cents per share.
On another note, I'd forgotten that NS reopened its Birmingham, AL-Columbus, GA-Macon, GA. line (former CofG) earlier this year to relieve serious congestion on its Birmingham-Atlanta main. NS has long been cautious about selling off and tearing up lines and this is an example where its conservation has paid off.
I hope you are correct. If so, they're a lot better business folk than most (if not all) of the other North American Class 1 operations.
NS has always been a lean property with a low operating ratio. The only times in memory that they had operating issues was the immediate aftermath of the Conrail split. They also had to adjust when coal revenues tanked. CSX, on the other hand has been a cumbersome operation, especially since Chessie System acquired Family Lines. They were much too slow in incorporating efficiencies, and their results reflected that. The current results indicate that they are beginning to catch up to the NS operating efficiencies, but still have a ways to go.
I worked for a large manufacturing firm for many years and the contrasts between NS and CSX always seemed present. NS had clean boxcars, CSX did not. NS gained tonnage with better ratemaking, CSX fought with itself internally on cost structure and lost out, and NS service was consistently superior. NS even offered to run unit trains of our product at times, which saved money and provided even better service. This may have changed over the years, but I agree with Wojo that NS remains in my mind as the tighter operation.
It's interesting that NS's current operational congestion is a result of too much business!
CSX's supposed OR efficiency is because of too little business.
Sort of reminds me of Pre Conrail days, when the Reading appeared to run rings around the Penn Central. They did everything better. After the Conrail split up, CSX brought on board, several ExCons to run the railroad. The ExCons found CSX operating and business practices appalling, and began to institute efficiencies, based on what Conrail did. For their trouble, they ExCons were run out of Jacksonville on a rail, and the ole boys resumed business as usual. That's why until recently, they had a poor OR with the same level of business.
CSX problems are twofold, 1 Not enough high value business, 2 Too much track and infrastructure. Management's problem was that they didn't recognize they had a problem.
Understand that ole Uncle Pete is also dealing with some congestion issues. The economy is doing quite well right now, and that's where the volume is coming from. Efficient roads like UP and NS can deal with that, and are not really hurt when the economy turns slow, because they are always improving themselves. CSX is well behind the curve when it comes to self improvement, but is trying hard to change. Change is always difficult, with much resistance.
The difference is UP has not chopped itself apart internally. Theirs is just from growth.
Physical plant changes were being implemented on CSX for anticipated traffic volume increases until Mantle Ridge gained control of the corporation and stopped those things that weren't near completion and tore up a number of concepts that were working and squeezed all the short term cash out of the property as well as discouraging customers from continuing to 'Ship CSX'.
My memory says there was a fight to prevent Mantle Ridge from taking over, due to fears they'd do just these same things?
I can't remember all that happened, but I do recall that in 2016 Pershing Square attempted a purchase of NS, with Pershing's Bill Ackman and Hunter Harrison as point men. NS blocked Pershing's invasion and Harrison hitched with Mantle Ridge to position for an assault on CSX where they found a more receptive audience.
Believe you're right. NS, being a financially strong property with "happy" shareholders was able to fend off the corporate raiders. CSX, with "unhappy" shareholders, and weak performance wasn't. The only result that counts for most people, is that since the changes, the stock price has doubled, and is catching up with the other railroads. Things change rapidly in todays business environment. Avon remained open, for example, when they found it was essential. Everyone forgets that Conrail went from over 125,000 employees to less than 25,000 in a little over 20 years. Twenty years after the split, there are still folks unhappy about that. Bottom line in todays environment, is that a company needs strong Capitalization to remain competitive.