(Recasts, adds details on CSX cuts to jobs, rolling stock, paragraphs 10-11)
March 1 (Reuters) – U.S. railroad operator CSX Corp said on Thursday at its first investor day since the death of former Chief Executive Hunter Harrison that more cuts to jobs, rail cars and locomotives were key to its three-year plan for boosting profitability and streamlining operations.
Harrison, a favorite of investors who had led turnarounds at two Canadian railroads, died in December just eight months into a dramatic restructuring campaign that included slashing jobs, shutting eight rail yards, mothballing locomotives and running trains on tight schedules rather than based on customer needs.
The new CEO, Jim Foote, and his revamped management team reaffirmed that it would substantially lower its operating ratio – a closely watched measure of operating expenses as a percentage of revenue to 60 percent by 2020 from 67.9 percent at year-end 2017.
Jacksonville, Florida-based CSX, the third-largest U.S. railroad by revenue, also said it expected revenue growth at a compound annual rate of 4 percent in 2019 and 2020, driven by volumes and higher pricing for freight like merchandise and intermodal – or containers that transfer between ship, rail, and truck.
“What are we here for? To make money,” Foote told investors at a conference in New York. “What are we trying to do? Drive efficiency, improve the network, improve the quality of our service, which will reduce our costs.”
CSX shares have surged about 50 percent since January 2017 and about 12 percent since March 2017 after Harrison took over as CEO following a high-stakes push by activist investor Paul Hilal of investment fund Mantle Ridge LP.
But CSX’s share growth has come amid depleted rail service and federal scrutiny.
Many rail customers have seen persistent service disruptions and delays that have raised shipping costs.
Several shippers have told Reuters that service has been steadily improving from a nadir last summer, although companies like U.S. agricultural firm Cargill Inc and coal company Murray Energy Corp are still struggling with crew and rail car shortages.
CSX said it would cut an estimated 2,200 jobs by the end of 2018 and another 4,000 in 2020. It plans to decrease the number of locomotives in service from 3,000 at the end 2017 to between 2,370-2,420 in 2020, a 20 percent reduction, and reduce the number of rail cars from roughly 136,000 at the end of 2017 to between 104,000-109,000 in 2020.
CSX also said it could raise $800 million from selling off rail lines and real estate and would spend $4.8 billion on capital like infrastructure and technology from 2018 thru 2020. (Reporting by Eric M. Johnson in Seattle and Arunima Banerjee in Bengaluru; editing by Bernadette Baum and Jonathan Oatis)
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