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About CSX: It all makes 'cents', so pray

Posted by Steve Sweeney
on Tuesday, February 21, 2017

CSX Corp.'s share price is up today to $48.89 a share in the middle of the afternoon on Feb. 21. It is higher, even, than rumors of a Hunter Harrison takeover could send it in January.

And that's just as it should be, if you believe Chris K.

Chris is one of my former editors, a mentor and a friend. And in one of those late-night bull sessions we'd raise at our newspaper long after we put the paper to bed, we'd talk. Anything was fair game: religion, office politics, politics generally, sports (office religion, really), and investing.

Chris used to tell me that the best time to invest in a company is the moment you find out about massive layoffs. And today I thought about the continued blood letting at CSX

Chris’ theory goes that when a company's executives lay off employees, the stock will soon be more valuable because there are fewer employees to pay, offer benefits to, and administer. It's like a one-time shot-in-the-arm to profitability.

Ten years ago, when we first had these conversations, I was aghast. I said how valuable employees are to a company's future and how much talent a company could lose by swinging the job ax carelessly. I was naively correct, but stock markets don't care. In the past 10 years, events have proven Chris right many times. And he's right again today.

The mechanics work out, of course. If 1,000 managers who earn $100,000 each lose their jobs in short order, CSX would save $100,000,000 without doing much. Certain folks make much more than that, and so that savings figure will probably be a lot higher for CSX in the end. That savings translates into lower overhead cost, a slightly better operating ratio, and so on. It's the perfectly logical, dogmatic thinking of quarter-by-quarter financial analysts that respects neither people nor purpose.

A few people I spoke with today speculated that the reason CSX execs are making the cuts now are to take credit for making the company leaner before E. Hunter Harrison can step in and do it for them. Another person says that this is a "best defense is a strong offense" move by execs to show shareholders they know how to be railroaders who are just as tough as Hunter. Another said the job cuts could be another spike in the ties on the railroad's CSX of Tomorrow plan that would have happened regardless of everything else going on in the world and the industry.

Maybe so. We'll soon find out what — exactly — motivated the timing of these cuts, but there’s not a thing I can do to change them. What I can do, what I will do, is light a candle tonight and think about the friends and railroaders who’ve had a tough break in the past few years. I hope and pray that whatever happens next works out in their favor.

UPDATE: New headline. March 22, 2017, 11:57 a.m. Central time.

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