OMAHA, Neb. – CSX expects profit to decline for remainder of the year as freight volume slows and it plans further cost cuts to offset what the railroad’s chief executive called a “challenging” environment.
The railroad reiterated a dreary outlook for the year and bleak long-term prospects for coal demand Thursday.
CSX reported this week that second-quarter profit tumbled 20 percent to $445 million with volume sliding 9 percent. It still beat Wall Street expectations, but that’s because it’s slashing costs.
Chairman and CEO Michael Ward said the railroad expects to achieve $350 million worth of productivity improvements this year.
“It’s clear this continues to be a challenging freight environment with plenty of macroeconomic headwinds,” Ward said.
The strong U.S. dollar and weak commodity prices are hurting exports and industrial companies, Ward said.
CSX Corp. expects volume to decline in the mid-to-high single digits in the third quarter. The only areas the railroad expects to improve in the quarter are automotive and mineral shipments. All other sectors are likely to decline.
The railroad said Thursday it plans to up its capital spending by $300 million, to $2.7 billion, so it can avoid financing charges on some locomotive purchases it originally planned to complete next year.
The volume of coal slid 34 percent during the quarter, extending several years of sharp declines in demand as utilities switch to cheap natural gas and more restrictions on greenhouse gases take effect.
Stifel analyst John Larkin said some investors may be too optimistic about coal’s future. He believes demand for coal will continue to wane.
Ward said CSX is planning for a future where coal is a smaller part of the railroad’s business, so it is working to grow shipments of intermodal containers and other merchandise.
“Our view is that coal is in a secular decline,” Ward said.
CSX operates more than 21,000 miles of track in 23 Eastern states and two Canadian provinces.
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