CSX Profit Widens While Lower Volumes, Weather Squeeze Union Pacific
CSX Corp. CSX -0.60%decrease; red down pointing triangle said profit jumped in the latest quarter as the freight railroad handled more cargo, while Union Pacific Corp. UNP -0.72%decrease; red down pointing triangle said bad weather in California and softening volumes muted its earnings for the period.
The Jacksonville, Fla.-based railroad, which operates in much of the Eastern U.S., said operating income rose 14% in the first quarter compared with the same period a year earlier, fueled by fewer service disruptions and higher shipments of merchandise and coal. The increased demand lifted revenue for the quarter by 9% to $3.71 billion.
Union Pacific said operating income declined 3% year-over-year in the first quarter while business volumes fell 1% as fewer carloads of industrial chemicals, forest products and grain offset higher demand from the automotive industry, the Omaha, Neb.-based railroad said. Freight revenue rose 4% to $5.7 billion.
“Volume is looking cloudy to us,” said Chief Executive Lance Fritz in an earnings call Thursday.
Mr. Fritz said the railroad, which like others had struggled with a shortage of workers, is in a strong position for the rest of the year in terms of labor availability. The company said it had 11,874 train, engine and yard employees in the first quarter this year, up 5% from a year ago, and that it has over a thousand trainees in the pipeline. Mr. Fritz added that the company’s 10% turnover rate in the last five years is unlikely to change and that attrition would help with cost adjustments if volume weakens more.
The railroad said that despite a lackluster first quarter, it expects its margins to improve in the coming months as weather conditions improve and trainees assume their roles.
“We need consumers to continue to be healthy, spend some. They don’t have to go crazy,” said Mr. Fritz. “We need the industrial economy to continue to do what it’s doing, and we need inventory and this whole destocking to calm down after the first quarter or the first half. All those I think are pretty reasonable expectations.”
There has been heightened scrutiny over railroad safety following the derailment in February of a Norfolk Southern Corp. freight train and the subsequent release of hazardous material in East Palestine, Ohio. The Federal Railroad Administration recently recommended that railroads review and update their rules regarding how trains are assembled to reduce the risk of accidents.
Railroads have said they supported more funding for research into detectors that are placed along tracks that identify problems with railcars and locomotives.
“In engaging the legislators in D.C., we help them understand what would actually move the ball in terms of safety, where regulatory efforts would make a difference and where it wouldn’t,” said Mr. Fritz.
Regulating crew size and train lengths wouldn’t, said Mr. Fritz. He said that since 2019, train length at Union Pacific is up about 20% while mainline and siding derailments, or those that occur outside rail yards, have declined 26%. “So there’s zero corollary between train length and derailments.”
Jamie Boychuk, executive vice president of operations for CSX, said the company has increased the number of wayside detectors in its network, reducing the space between detectors from around 16 miles to 14.9 miles. “We won’t take shortcuts,” Mr. Boychuk said.
In February, Union Pacific said it plans to name a new chief executive this year, hours after a major shareholder publicly urged the railroad company’s board to oust Mr. Fritz.
Mr. Fritz said Thursday that the company has hired an external consultant to help with the CEO search now under way.
Shares of Union Pacific rose 0.3% Thursday to close at $202.60. Shares of CSX, which reported after the markets closed, rose nearly 3% to $31.73 in after-hours trading.