OMAHA, Neb. (AP) — CSX’s new chief executive is defending the restructuring progress made in the first four months since he was hired to lead a turnaround of the railroad.
CEO Hunter Harrison, who’s previously led turnarounds at three other railroads, says he’s pleased with the improvement so far.
“I thought we had a hell of a quarter,” Harrison said Wednesday.
The Jacksonville, Florida-based railroad has taken nearly 900 locomotives and 60,000 freight cars out of service and laid off 2,300 people this year. Harrison said those changes haven’t all paid off yet.
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Changing the operating the model a railroad uses is difficult because everyone who works there is used to operating a certain way. Harrison said the level of resistance is about what he expected.
CSX is working to eliminate infrastructure it doesn’t need and consolidate operations. That includes shutting down most of the railroad’s 12 railyards to eliminate redundancy.
The railroad will also consolidate all of its dispatching into one central location instead of the current nine early next year.
But Wall Street appeared disappointed with CSX’s guidance for the rest of the year, and the railroad’s shares fell 5.1 percent, or $2.77, to close at $51.87 Wednesday.
CSX reiterated that it’s on track to achieve a forecast 25 percent improvement in earnings per share this year. Analysts surveyed by FactSet had been predicting adjusted annual earnings per share this year of $2.29.
The 72-year-old Harrison was hired by CSX in March after pressure from the Mantle Ridge hedge fund that owns 5 percent of the railroad. Harrison previously led turnarounds of Canadian Pacific, Canadian National and the Illinois Central railroads.
CSX Corp. said Tuesday that its second-quarter net income improved 15 percent to $510 million, or 55 cents per share, as it hauled 2 percent more freight. That’s up from $445 million, or 47 cents per, share a year ago.
Coal was somewhat of a bright spot in the quarter with a 7 percent increase the volume CSX hauled. But demand for coal has crumbled over the past several years because natural gas has been so cheap and environmental concerns have been growing
Harrison offered a bleak long-term outlook for the fuel Wednesday and said he wouldn’t make any major investments to haul coal.
“Fossil fuels are dead. That’s a long-term view,” Harrison said. “It’s not going to happen overnight. It’s not going to be two or three years, but it’s going away in my view.”
The railroad’s quarterly results were weighed down by $122 million in restructuring charges. Without those charges, the railroad said it would have reported earnings per share of 64 cents.
Most of the $122 million restructuring charge in the second quarter was related to Harrison’s hiring. CSX agreed to cover $84 million in compensation that Harrison forfeited at Canadian Pacific when he retired early. Shareholders approved those payments last month.
CSX operates more than 21,000 miles of track in 23 Eastern states and two Canadian provinces.