CSX's New CEO Promises 'Different Strategy'

By Paul Ziobro 

CSX Corp. Chief Executive Hunter Harrison promised changes big and small at the railway, from idling excess locomotives to clearing bottlenecks at major interchanges, in his first public remarks since taking the top job last month.

Mr. Harrison said during a call with analysts Thursday that the precision-railroading strategy he implemented at his previous stints running Canada's two largest railroads could help trains run faster along CSX's complicated map in the eastern U.S., which include more interconnected routes and shorter hauls.

"It's a pretty drastic change, but a pretty simple model," Mr. Harrison said in an interview. "It's like a football team going from a running attack to a passing attack. It's still football, something you're familiar with, but a different strategy."

A 50-year industry veteran known as a turnaround expert, Mr. Harrison said plans are under way to idle about 550 locomotives and 25,000 railcars, and the railroad is considering additional closures. It has already converted four hump yards -- where train cars are sorted for their next stop -- to flat-switching yards, which Mr. Harrison has called more efficient to operate.

Investors are hopeful that Mr. Harrison's changes usher in higher profit while providing faster, more reliable service for customers that rely on rails to ship goods. CSX shares have added about $10 billion in market value since he left his prior job at Canadian Pacific Co. in January, when The Wall Street Journal reported that he was eyeing the top role at CSX.

CSX shares were up 6.4% to $49.94 in Thursday morning trading, a day after the company reported earnings for the first quarter.

CSX's challenges include the "spaghetti bowl" of the Eastern rails, called that for the intertwined routes that CSX, Norfolk Southern Corp. and other short-haul freight lines and passenger trains use. Mr. Harrison said that CSX is working to bypass certain terminals that require extra processing.

"The way to handle that is to eat the spaghetti and get rid of it," he said.

Mr. Harrison also plans to devote attention to Chicago, a sluggish interchange where many rail networks meet, and he hinted at the potential for a partnership with another railroad network that could divert some of its traffic.

"Chicago is busting at the seams from a capacity standpoint," he said. "There's opportunities to, maybe, take business out of Chicago that will help the situation, lower our cost and improve our service."

CSX projected a 25% increase in earnings for the year, an outlook well ahead of Wall Street expectations, citing recovery in the coal market and other operational improvements it plans. It also raised its dividend and promised to buy back another $1 billion in shares.

The Jacksonville, Fla.-based railway's outlook came a day after it posted higher first-quarter earnings and a 9.6% increase in revenue.

Mr. Harrison faces another hurdle before moving forward with his strategy. Shareholders in early June are scheduled to vote on certain aspects of his compensation package, including an $89 million tab to cover the compensation he gave up when he left Canadian Pacific. Mr. Harrison has said he would step down immediately if the CSX board didn't acquiesce to the payment.

Write to Paul Ziobro at [e-mail]

(END) Dow Jones Newswires

April 20, 2017 12:28 ET (16:28 GMT)

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