CSX

Raiload

CSX reported increased revenue and modest increases in labor costs while announcing nearly $3 billion for investors

CSX told analysts second-quarter revenue was up 28% despite flat volumes. “KEVIN S. BOONE, EXECUTIVE VP AND CHIEF OF SALES & MARKETING, CSX CORPORATION: Thank you, Jim. Turning to Slide 5. Second quarter revenue increased 28% year-over-year with revenue growth across merchandise, coal and intermodal. Overall volumes were flat, where we saw strong demand across many of our markets, limited by resource constraints across the supply chain. Merchandise revenue increased 10% on flat volume, driven by price and higher fuel surcharge revenue.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CSX described an additional $56 million in costs from “inflation across labor, purchased services, and rents.” “SEAN R. PELKEY, EXECUTIVE VP & CFO, CSX CORPORATION: Higher fuel prices were also a significant factor with fuel expense up over $200 million, excluding the Quality impact. Not surprisingly, inflation is running above historical levels. And the $56 million on this slide represents inflation across labor, purchased services and rents. All other expenses increased by $50 million, with approximately $20 million higher depreciation, about $10 million lower incentive compensation expense and nearly $40 million of higher operating costs.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

In the first half of 2022, CSX funneled over $2.9 billion to shareholders through buybacks and dividends. “SEAN R. PELKEY, EXECUTIVE VP & CFO, CSX CORPORATION: After fully funding capital demands, year-to-date shareholder returns have exceeded $2.9 billion, including over $2.5 billion in buybacks and over $400 million in dividends. This brings our cash and short-term investment balance down to a more normalized $800 million. And as we go forward, we will remain both balanced and opportunistic in our commitment to return excess cash to our shareholders.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CSX blamed the tight labor market and pandemic changing employee “lifestyle preferences” for staffing struggling

CSX’s CEO: “The labor market is tight, prospective recruits have many job options, and the pandemic has had a profound effect on employees’ work and lifestyle preferences.” “JAMES M. FOOTE, PRESIDENT, CEO & DIRECTOR, CSX CORPORATION: Thank you, Matthew, and thank you, everyone, for joining us today. I’ll start by expressing my thanks to all of CSX’s employees for their hard work during another quarter of tough operating conditions. And I am very pleased to welcome everyone from Pan Am who joined the CSX team in June. We look forward to working together to build new single-line service across our combined network. Our second quarter results were solid as we continue to benefit from strong customer demand and firm pricing, but our ability to hire and retain new workers, which is vital to improving our service and growing the business, remains challenged. We are not alone in facing this problem. The labor market is tight, prospective recruits have many job options, and the pandemic has had a profound effect on employees’ work and lifestyle preferences. Our hiring process has been steady but slow. We will not let up in our efforts to grow our engineer and conductor headcount and improve network fluidity to pre-pandemic levels. (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CXS told analysts the company had “near record” injury rates and 80-90 covid cases among employees a day

CSX noted that their “injury rate increased modestly from the near record levels in the first quarter.” “JAMIE J. BOYCHUK, EVP OF OPERATIONS, CSX CORPORATION: In the second quarter, injury rate increased modestly from the near record levels in the first quarter, but remained flat year-over-year. Train accidents ticked up slightly in the prior quarter, but continued their positive trend as we focused on minimizing human factor accidents through proactive employee communications.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CSX’s CEO noted the “number of employees off at that time was around 20 or so daily with COVID; it’s now north of 80 to 90.” “JAMES M. FOOTE, PRESIDENT, CEO & DIRECTOR, CSX CORPORATION: So I think as we — a couple of us, Jamie, myself, Sean had mentioned during here, we’ve done a lot of work in terms of focusing on attrition now, in terms of what we can do from a compensation standpoint to make sure that we keep the employees that we invest in. And so I think that is the — I think that’s the issue. Also, what I said was we had a target out there of 7,000 people. And based upon where we stand today with the number of people that should be qualifying over the next 2 to 3 months, we certainly hope when we put that target out there, our employee — number of employees off at that time was around 20 or so daily with COVID; it’s now north of 80 to 90. So we hope that number comes down. And if those 2 factors come through as we expect and as we plan, we’ll hit that 7,000 number. It’s achievable by the end of the third quarter.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CSX’s CEO repeatedly expressed confusion at high attrition rates among new employees who decide “they don’t like railroading as a profession.”

CSX’s CEO said the company was facing a “much higher attrition rate than we had expected from our current workforce. And significantly, a higher attrition rate from the new people that we brought on, unfortunately, after we get them through the classroom training part and the on-the-job training part, and they actually go to work in the outdoor operating environment.” “JAMES M. FOOTE, PRESIDENT, CEO & DIRECTOR, CSX CORPORATION: Well, Scott, I’ll take the first part of your question about the hiring. And yes, I don’t know if we’re struggling more than everybody else or not. I think everybody is struggling. We’ve hired, over the last 2 years since we started talking about this issue, which we saw coming again a couple of years ago, 2,000 employees, and our numbers haven’t gone backwards. So the question has been not really as much as our ability to put employees into the pipeline and get them through the process, but a much, much higher attrition rate than we had expected from our current workforce. And significantly, a higher attrition rate from the new people that we brought on, unfortunately, after we get them through the classroom training part and the on-the-job training part, and they actually go to work in the outdoor operating environment. We’ve seen a significantly higher attrition rate than what we had ever normally experienced or than what we had anticipated.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CSX CEO: “It’s been somewhat of a surprise to all of us, the number of people that have dropped out after, again, going through all of the classroom training, all of the on-the-job training, and then working a few months and deciding that they don’t like railroading as a profession.” “JAMES M. FOOTE, PRESIDENT, CEO & DIRECTOR, CSX CORPORATION: So David, let me answer that. It’s kind of confused to what I just said a few moments ago. We’re going to have to learn our way through this as we get into the end of this year and beginning of next year to have a better understanding of what these attrition rates are. It’s been somewhat of a surprise to all of us, the number of people that have dropped out after, again, going through all of the classroom training, all of the on-the-job training, and then working a few months and deciding that they don’t like railroading as a profession. And so these are all new things for us. So one thing we know, we can easily manage down just simply by taking advantage of attrition if that’s what’s necessary. What we do know, it’s a lot more — what we have experienced anyway in the recent times here, it’s a lot more difficult for us to manage up. So in the short term, we’re going to learn about what we need to do differently and how we need to do it. And until that point in time, we’re going to do everything we can to not run short.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CSX’s CEO admitted “our employees are not happy that they didn’t get a raise for 2.5 years” while also praising Biden’s PEB

CSX’s CEO: “our employees are not happy that they didn’t get a raise for 2.5 years, let me tell you that. They tell me that all the time.” “JAMES M. FOOTE, PRESIDENT, CEO & DIRECTOR, CSX CORPORATION: So, well, we’re glad that the emergency board was appointed. It’s unfortunate, as I’ve said quite often, that it took so long to — for us to get to this point. But the wall has worked for a long, long time, and we’re hopeful that the emergency board puts out a recommendation that’s a win-win for both sides. Do we hope that once the labor issue is resolved — and our employees are not happy that they didn’t get a raise for 2.5 years, let me tell you that. They tell me that all the time.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CSX’s CEO described the PEB as “seasoned veterans of dealing with labor issues” and hoped for “a reasonable win-win solution.” “JAMES M. FOOTE, PRESIDENT, CEO & DIRECTOR, CSX CORPORATION: And so, we’re hopeful that once this is resolved, and we’re expecting that they’ll get a very fair rate, that, that will help with morale and that might help with the retention. And then final, the Board are seasoned veterans of dealing with labor issues and they are going to make a recommendation based upon the inputs and hearing from both sides. And as I said, I hope it comes out that it’s a reasonable win-win solution. And if that’s the case, we’re certainly able to accommodate that in our economics going forward.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CSX’s CEO stressed the company was limited in what it could do because it worked in a “unionized environment”

CSX’s CEO said because “we’re working on a unionized environment, and we’re not able to do too much without an agreement with the unions, including increasing their pay…We’re making it up, to a large degree, as we go along…” “JAMES M. FOOTE, PRESIDENT, CEO & DIRECTOR, CSX CORPORATION: So Well, we’re working on a unionized environment, and we’re not able to do too much without an agreement with the unions, including increasing their pay, but we have tried many options, and we’ll continue to work — to do whatever we can to try and change the working environment so that people feel like they really want to work here, simple as that. And so it’s an ongoing process like everything is. And so we don’t have any silver bullets. We’re making it up, to a large degree, as we go along because these are all uncertain times and experiences that we’ve never had before, including myself. I’ve been doing this all my life. But we’ll continue to innovate. We’ll continue to come up with ideas and try to make this the place where everybody wants to work.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)

CSX’s CEO: “We obviously got a labor — we obviously got the labor leadership to agree that we could pay the employees more. And so we couldn’t just do that.” “JAMES M. FOOTE, PRESIDENT, CEO & DIRECTOR, CSX CORPORATION: So, well, that means what I said. We obviously got a labor — we obviously got the labor leadership to agree that we could pay the employees more. And so we couldn’t just do that. I guess I would be concerned that we had slipped back to the points before to the metrics or operating performance metrics before we’ve done so much hard work over ’17, ’18 and ’19 in order to get this company running at spectacular rates. I find hard to believe that with our measurements that we are — we’re still doing an extremely good job under very difficult circumstances.” (Q2 2022 CSX Corp Earnings Call, 7/20/2022, via nexis)