CSX-If things don't get better, then what?

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CSX-If things don't get better, then what?
Posted by overall on Tuesday, September 05, 2017 8:37 AM

It appears likely that EHH cannot fix the problems of his own making at CSX.What happens now? I would really like to hear from those of you who are knowledgable in the law on this matter.

1) Will the STB intervene in some big way, such as taking over the operations at CSX?

2) Will congress seize control of CSX like they did the whole industry during WW1?

3) Will congress move to break up CSX and even restore some lines that were abandoned to introduce more competition?

I understand that the republicans,who control congress, are loath to regulate big business, but let's not forget that the CSX customers are big businesses too, with there own influence over congress. Let me remind everyone that I am not a lawyer. That's why my questions may sound silly. Some of you lawyers out there, or others who are knowledgable in the law,please chime in. Thanks in advance.

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Posted by daveklepper on Tuesday, September 05, 2017 9:00 AM

1.   Things won't get that bad.  As business is lost, the remaining business will be handled OK.  This will be the most profitable business.  Whether it will be enough, despite reduced costs, to make investors happy is another matter.

2.   Specific service problems at specific locations that are not improved, and I am predicting that eventually there will be none of these, can be handled by directed service orders.  I believe this has been done at least once in the past.  This means forcing CSX to allow another railroad on its property, and the evidence to preduce the need for directed service is not likely to arise.

3.  I do not think that in the long run, investors will be happy with HH's performance, and I think a rebuilding administration will take over eventually, with top people moving from other Class-Is.

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Posted by BaltACD on Tuesday, September 05, 2017 9:02 AM

Don't see any of those alternatives being enacted.

However, this could be the 'wake up call' that the Institutional Investors that voted EHH into the CEO position need to take have their board members force EHH out of the CEO position and onto the unemployment lines.

         

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Posted by Dakguy201 on Tuesday, September 05, 2017 9:25 AM

If you were to ask the proverbial "man on the street" I doubt that one in twenty  knows that CSX has a problem or who EHH is.  Under those circumstances, Congress is not going to act.

The regulators will hold hearings that will be ignored by the media at large.  I don't think the STB is any more eager to act in an meaningful way absent public support than is Congress.

A solution you didn't list is EHH's replacement.  Perhaps someone else would be a better choice to dig their way out of the current situation.  This could occur through large investors realizing there is a problem and acting or his deteriorating health making continuing impossible.

Finally, maybe he is right and CSX has turned the corner -- the fall months will see marked improvement.  I don't think that likely but not impossible.

 

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Posted by CMStPnP on Tuesday, September 05, 2017 11:00 AM

They can always hire Chef Ramsey to replace EHH, I guess.....lol.

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Posted by oltmannd on Tuesday, September 05, 2017 11:33 AM

If the RR improves this week and can keep the momentum, then nothing much will happen to EHH and CSX. 

If things don't improve, or slide back down hill by the end of the month, the I'd bet the CSX board shows EHH the door. The external noise and pressure will be too great.

I give CSX about a one in three chance of making much progress this month. They just changed too many things too fast to know where they really are and need to be with resources.

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Posted by Norm48327 on Tuesday, September 05, 2017 1:26 PM

oltmannd
If things don't improve, or slide back down hill by the end of the month, the I'd bet the CSX board shows EHH the door.

Hopefully, sans his 84 million.

Norm


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Posted by BaltACD on Tuesday, September 05, 2017 2:09 PM

Norm48327
 
oltmannd
If things don't improve, or slide back down hill by the end of the month, the I'd bet the CSX board shows EHH the door. 

Hopefully, sans his 84 million.

Unfortunately I suspect his $84M is locked in.  Maybe the rest of the shareholders could seek to get it from Paul Hilal that created the mess with his Mantle Ridge hedge fund.

         

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Posted by n012944 on Tuesday, September 05, 2017 2:18 PM

overall

It appears likely that EHH cannot fix the problems of his own making at CSX.

 

Appears that way to whom?

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Posted by Saturnalia on Wednesday, September 06, 2017 4:43 PM

n012944

 

 
overall

It appears likely that EHH cannot fix the problems of his own making at CSX.

 

 

 

Appears that way to whom?

 

Indeed, the metrics really aren't *that* bad, and we're already seeing signs of improvement. You can tell that by mid-August that EHH and crew realized that they had done too much to quickly, so stopped forward progress on their plans and backed up a bit in some areas to let everything else catch up. 

I'm still seeing consistent "EHH is going to kill the company" posts, comments, etc, and I hate to say it directly but it is a pretty misinformed opinion. One man cannot kill a multi-billion dollar franchise which runs not off its brand but rather its assets, like a railroad does. 

Its very clear that EHH and his team miscalculated in their moves. That is a mistake. 

But since they've begun to shown that they're learning from their mistakes, the STB, and for now the investors, are unlikely to throw them from the boat...at least as long as this trajectory continues. 

No, CSX isn't going to die. No, EHH is not evil. And no, the railroad is no longer in the downward spiral. 

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Posted by Norm48327 on Wednesday, September 06, 2017 5:14 PM

Saturnalia
n012944
overall It appears likely that EHH cannot fix the problems of his own making at CSX.

Appears that way to whom?

Indeed, the metrics really aren't *that* bad, and we're already seeing signs of improvement. You can tell that by mid-August that EHH and crew realized that they had done too much to quickly, so stopped forward progress on their plans and backed up a bit in some areas to let everything else catch up. 

I'm still seeing consistent "EHH is going to kill the company" posts, comments, etc, and I hate to say it directly but it is a pretty misinformed opinion. One man cannot kill a multi-billion dollar franchise which runs not off its brand but rather its assets, like a railroad does. 

Its very clear that EHH and his team miscalculated in their moves. That is a mistake. 

But since they've begun to shown that they're learning from their mistakes, the STB, and for now the investors, are unlikely to throw them from the boat...at least as long as this trajectory continues. 

No, CSX isn't going to die. No, EHH is not evil. And no, the railroad is no longer in the downward spiral.

Alex,

I've been watching this situation closely and can equate it to the meltdown when UP and SP merged. There is a period of adjustment both sides must acclimate to. OTOH, I see Harrison trying to make too many changes too quickly and producing confusion on the part of employees and at least temporarily reduced services to customers. While his gme plan may work out in the end in the mean chaos will rein accompanied by both delayed and lost shipments.

CSX is a different railroad than Harrison has run in the past. Whether he succeds in transforming it to his scheduled railroad remains to be seen. At present I'm thinking he has met his match. Only time will prove either us or Harrison wrong.

Norm


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Posted by Electroliner 1935 on Thursday, September 07, 2017 6:30 PM

One man cannot kill a multi-billion dollar franchise which runs not off its brand but rather its assets, like a railroad does. 

/quote]

I suspct you look at the man who controls Sears/K-Mart.
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Posted by caldreamer on Thursday, September 07, 2017 6:58 PM

Probably the best replacment for EHH would be Matt Rose of BNSF, one of the smartest men tin the railroad industry.

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Posted by tree68 on Thursday, September 07, 2017 8:03 PM

In the beginning, it appeared that EHH (along with his handlers) was well on his way to running CSX straight into the ground.

As noted, it looks like they've seen the error of their ways, at least as it applies to how fast they were making changes, and have, indeed, slowed down.  That they are taking a second look at some of their earlier pronouncements (reportedly the decision to close the hump at Selkirk is getting a review) is encouraging.

OTOH, I was in Utica (NY) the other day when a westbound manifest ambled by.  There was a little bit of everything in the consist (behind four locomotives), and they didn't appear to be in much of a hurry.  Used to be even the manifests rolled through there at a solid 50 per.

EHH made a lot of enemies, if you will, on his arrival.  It remains to be seen if he can win some of them back over with solid progress as things progress.

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Posted by Murphy Siding on Thursday, September 07, 2017 10:15 PM

Electroliner 1935

One man cannot kill a multi-billion dollar franchise which runs not off its brand but rather its assets, like a railroad does. 

/quote]

I suspct you look at the man who controls Sears/K-Mart.
 

Didn't that guy start by mounting a dead horse and went from there?

Thanks to Chris / CopCarSS for my avatar.

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Posted by Saturnalia on Saturday, September 09, 2017 8:59 PM

Murphy Siding

 

 
Electroliner 1935

One man cannot kill a multi-billion dollar franchise which runs not off its brand but rather its assets, like a railroad does. 

/quote]

I suspct you look at the man who controls Sears/K-Mart.
 

 

 

Didn't that guy start by mounting a dead horse and went from there?

 

 

There's the distinction I was trying to make but you seem to have missed: Sears and Kmart have value in their brand and sales. CSX's value is in their assets. 

Transportation - and in a single-entity business where a natural monopoly exists like a railroad - is a business that is so hard to single-handedly kill. 

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Posted by BaltACD on Saturday, September 09, 2017 9:03 PM

Saturnalia
 
Murphy Siding
 
Electroliner 1935

One man cannot kill a multi-billion dollar franchise which runs not off its brand but rather its assets, like a railroad does. 

I suspct you look at the man who controls Sears/K-Mart. 

Didn't that guy start by mounting a dead horse and went from there? 

There's the distinction I was trying to make but you seem to have missed: Sears and Kmart have value in their brand and sales. CSX's value is in their assets. 

Transportation - and in a single-entity business where a natural monopoly exists like a railroad - is a business that is so hard to single-handedly kill. [/quote]

EHH, Paul Hilal and Mantle Ridge are doing their best to make CSX a financial cripple when they dump their stock and control.  CSX won't be dead, it will have had the financial life sucked out of it.

         

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Posted by PNWRMNM on Sunday, September 10, 2017 6:54 AM

Balt,

Your claim that "EHH, Paul Hilal and Mantle Ridge are doing their best to make CSX a financial cripple when they dump their stock and control. CSX won't be dead, it will have had the financial life sucked out of it" is total and utter nonsense. Mantle is long on CSX, they need price to rise, not fall.

How does Mantle profit by wrecking CSX?

Mac McCulloch

 

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Posted by tree68 on Sunday, September 10, 2017 7:38 AM

PNWRMNM
How does Mantle profit by wrecking CSX?

Writing off the loss?  Some folks seem to be able to make money by losing money...

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Posted by BaltACD on Sunday, September 10, 2017 8:10 AM

PNWRMNM
Balt,

Your claim that "EHH, Paul Hilal and Mantle Ridge are doing their best to make CSX a financial cripple when they dump their stock and control. CSX won't be dead, it will have had the financial life sucked out of it" is total and utter nonsense. Mantle is long on CSX, they need price to rise, not fall.

How does Mantle profit by wrecking CSX?

Mac McCulloch

Suck out the cash reserves, let maintenance get deferred and suck out what isn't spent as maintenance in dividends.

Hedge Funds are not long term players in a compay - suck up all the available and liberatable cash, keep pumping up the stock value up until the dump.  Then get out and get out fast!

         

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Posted by franknelson70 on Sunday, September 10, 2017 8:37 AM

I checked on there stock price on Thursday and it was at $50.00 dollars a share ,not good , compaird to UP ,or NS which was paying a very good divedind. Things are just as bad here in Cincinnati ,including the re routing of serveral Q trains up the INDI sub. And Queens Gate yard is plugged so bad that NS is reouting trains up the old Pennsy line to Hamilton, which is single track line. Hunter Harrison is running the railroad into the ground.  If he continues on this path I look for CSX to be bankrupt by next year.

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Posted by PNWRMNM on Sunday, September 10, 2017 5:25 PM

 

Balt,

I agree that hedge funds are not widows and orphans who might sit on their stock for a generation, but paying out all the cash in the till and massively defering maintenance is not a formula for hedge fund success.

CSX has 913 million shares of stock. Earnings per share is $1.91. Dividends are less, probably 80 cents to $1. My source, suprisingly did not include that data.

Over 90% of the stock is held by institutions, the balance by individual investors. Instititions include Mantle Ridge, but are mostly mutual funds or other investment vehicles. Some of those are actively managed, which means they pay attention to what management is doing. They are always looking for the kind of shenagins you describe and usualy take them as a sign to sell. Today's stock price is $51.44. Do you really think the investors would see robbing the cash register and the fixed plant to the tune of $913 million to pay them a one time dollar dividend as a good financial plan? Investors are not THAT stupid.

You could argue that the non Mantle Ridge investors are mighty stupid for buying the story that EHH will substantially improve earnings. That is the story Mantle sold. I agree that investors over bought the EHH magic story, but he did work magic three times.

If you look at stock price over the past year from Sept to Jan 18 price was generally rising from $30 to $36.88, 20% over 6 months, which is not bad. On or about Jan 18 price jumped to $48, a 30% gain OVERNIGHT. That is the day Mantle went public with its EHH plan. Price exceeded $50 about April 20, dropped below $50 on July 25, and last closed at $51.44.

What impresses me is that the institutional investors, taken as a group, first believed the EHH is a railroad healer story. Second, despite the wailing here and on other peanut gallery sites (it seems), and despite the real service problems that EHH created by doing too much too fast, the professional investors are staying with him as indicated by the relatively stable stock price of about $50.

Mantle succeds only by being able to sell out at a profit. Sucking the life out of CSX is not in their interest. You can certainly be unhappy at the havoc EHH is wreaking with the employees, and the poor service some customers have got or are getting, but do not misunderstand what the game is.

Mantle's risk now is that EHH can not fix things well enough, fast enough. That would depress earnings and that would depress stock prices. If investors panicked in the face of adverse earning reports as strongly as they backed EHH going in, Mantle would take a big loss. That is the story and no one knows how it will come out.

Mac

 
PNWRMNM
Balt,

Your claim that "EHH, Paul Hilal and Mantle Ridge are doing their best to make CSX a financial cripple when they dump their stock and control. CSX won't be dead, it will have had the financial life sucked out of it" is total and utter nonsense. Mantle is long on CSX, they need price to rise, not fall.

How does Mantle profit by wrecking CSX?

Mac McCulloch

 

Suck out the cash reserves, let maintenance get deferred and suck out what isn't spent as maintenance in dividends.

Hedge Funds are not long term players in a compay - suck up all the available and liberatable cash, keep pumping up the stock value up until the dump.  Then get out and get out fast!

 

[/quote]

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Posted by n012944 on Monday, September 11, 2017 3:37 PM

franknelson70

I checked on there stock price on Thursday and it was at $50.00 dollars a share ,not good , compaird to UP ,or NS .  If he continues on this path I look for CSX to be bankrupt by next year.

 

 

LOL, you really don't understand how the stock market works....

 

https://www.thebalance.com/why-per-share-price-is-not-important-3140791

 

 

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Posted by jeffhergert on Tuesday, September 12, 2017 4:33 PM

n012944

 

 
franknelson70

I checked on there stock price on Thursday and it was at $50.00 dollars a share ,not good , compaird to UP ,or NS .  If he continues on this path I look for CSX to be bankrupt by next year.

 

 

 

 

LOL, you really don't understand how the stock market works....

 

https://www.thebalance.com/why-per-share-price-is-not-important-3140791

 

 

 

Isn't that the way Wall Street wants it for the average investor? 

Jeff

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Posted by BaltACD on Tuesday, September 12, 2017 5:00 PM

franknelson70
I checked on there stock price on Thursday and it was at $50.00 dollars a share ,not good , compaird to UP ,or NS which was paying a very good divedind. Things are just as bad here in Cincinnati ,including the re routing of serveral Q trains up the INDI sub. And Queens Gate yard is plugged so bad that NS is reouting trains up the old Pennsy line to Hamilton, which is single track line. Hunter Harrison is running the railroad into the ground.  If he continues on this path I look for CSX to be bankrupt by next year.

CSX, historically, has wanted their stock to trade in the $30-40 range.  When it gets above $60 and stays there for a period of time, CSX takes actions to have a stock split.

Comparing companies based on the stock price is a bad indicator of the value of the company.  Each company has a price range that they WANT their stock to trade at.  What each companies reasons are for their intended trading price would fill the Library of Congress with their strategies.

CSX under EHH will continue to pay dividend at their 'normal' rate and might even increase the dividends - where the money to pay for the dividends is coming from will be the question.

         

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Posted by PNWRMNM on Wednesday, September 13, 2017 8:35 AM

[quote user="BaltACD"]

CSX, historically, has wanted their stock to trade in the $30-40 range.  When it gets above $60 and stays there for a period of time, CSX takes actions to have a stock split.

Comparing companies based on the stock price is a bad indicator of the value of the company.  Each company has a price range that they WANT their stock to trade at.  What each companies reasons are for their intended trading price would fill the Library of Congress with their strategies.

CSX under EHH will continue to pay dividend at their 'normal' rate and might even increase the dividends - where the money to pay for the dividends is coming from will be the question.

[quote user="BaltACD"]

Like virtually all publically traded companies CSX shows their dividend rate. Go to CSX.COM, investors, stock information, dividends and split history.

From this table, which shows quarterly dividends, the most recent stock split was third quarter of 2011 as the August 31 quarterly dividend was $.12. Previous dividend was $.36 which implies a 3 for 1 stock split between the dividend dates.

Since then dividends, which are declared by the Board of Directors each quarter, have increased 1 or 2 cents per quarter from time to time in more or less steady progression to $.18 on May 29, 2015. On May 31, 2017, under new management, dividends increased to $.20 per quarter, in a continuation of the previous pattern. That is an annual rate of $.80 per share. Based on earnings of about $1.90 per share, that is a 42% payout rate, which is similar to other Class I railroads.

The answer to the question of where the money comes from to pay dividends is the very mundae, from earnings. Watch the earnings. They underpin both dividends and the stock price for railroads.

 

 
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Posted by BaltACD on Wednesday, September 13, 2017 8:47 AM

Fully understand that dividends are paid from 'profits'; however, it is what gets defined as profit and where that money comes from that is in question.  Even Penn Central paid dividends - pulling money from areas that should have been used to maintain the property and putting it into the 'profit' line on financial statements.

http://theconservativeincomeinvestor.com/2015/04/03/the-penn-central-bankruptcy-and-railroad-stock-investments/

         

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Posted by PNWRMNM on Wednesday, September 13, 2017 9:54 AM

BaltACD

Fully understand that dividends are paid from 'profits'; however, it is what gets defined as profit and where that money comes from that is in question.  Even Penn Central paid dividends - pulling money from areas that should have been used to maintain the property and putting it into the 'profit' line on financial statements.

http://theconservativeincomeinvestor.com/2015/04/03/the-penn-central-bankruptcy-and-railroad-stock-investments/

 

Oh please!

The Penn Central situation was very very different. Books have been written, unually by the economically illiterate trying to sensationalize a bad situation by discussing rearranging the deck chairs after the Titanic hit the iceburg of idiot government regulations.

The current CSX situation is in no way comparable.

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Posted by BaltACD on Wednesday, September 13, 2017 10:06 AM

PNWRMNM
 
BaltACD

Fully understand that dividends are paid from 'profits'; however, it is what gets defined as profit and where that money comes from that is in question.  Even Penn Central paid dividends - pulling money from areas that should have been used to maintain the property and putting it into the 'profit' line on financial statements.

http://theconservativeincomeinvestor.com/2015/04/03/the-penn-central-bankruptcy-and-railroad-stock-investments/ 

Oh please!

The Penn Central situation was very very different. Books have been written, unually by the economically illiterate trying to sensationalize a bad situation by discussing rearranging the deck chairs after the Titanic hit the iceburg of idiot government regulations.

The current CSX situation is in no way comparable.

Pulling money from maintenance of plant and equipment into profit is as old as the first business.  With EHH and Paul Hilal in charge who knows how the books will be cooked.

It's not comparable - at present, because we only found out about PC in its post mortem examination.  We aren't privy to the financial decisions CSX is making today.

         

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Posted by CSSHEGEWISCH on Wednesday, September 13, 2017 10:16 AM

It's well known that PRR took an operating loss in 1946 but paid a dividend anyway, probably based on dividend payments from its 1/3 interest in N&W.  This appears to have been a practice that continued into the 1960's.

The daily commute is part of everyday life but I get two rides a day out of it. Paul

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