Hunter Harrison\s Legasy and CSX\s Future

[BaltACD]

When you start pruning - everything looks marginal and you keep on pruning.

[tree68]

charlie hebdo

...if that is true, let's see a list of assets sold...

Reported on a fan site that seems pretty thorough - over 400 locomotives sold from December 2017 to the present - when other railroads are pulling units out of storage.  The site lists the units, if you want that.

Reported in the trade press - some 8000 miles of track will be going up for sale.

I have my doubts that the moneys from those sales will be plowed back into the railroad.  That cash will go straight out the door. 

[greyhounds]

I like this quote:

"Put a bunch of cost-cutting executives together at a pizza company and, eventually, one will suggest getting rid of the cheese." 

Peta, Joe. Trading Bases: How a Wall Street Trader Made a Fortune Betting on Baseball (p. 322). Penguin Publishing Group. Kindle Edition.

[SD70Dude]

tree68

charlie hebdo

...if that is true, let's see a list of assets sold...

Reported on a fan site that seems pretty thorough - over 400 locomotives sold from December 2017 to the present - when other railroads are pulling units out of storage.  The site lists the units, if you want that.

Many are leased to CN now.

[CSSHEGEWISCH]

The locomotives in question were sold to either GE or Progress Rail, both of whom are now leasing them to other carriers.

[Euclid]

tree68

It'd be hard to determine whether walking away from any given business was a good idea without looking at that specific business.  Then comes the question, what parameters do you use to make that judgement?  I would opine that your parameters might be different than EHH's, whose underlying philosophy seemed to be getting money to the bottom line where it would best benefit his investors.

One would think that transportation analysts looking at the big picture would have seen the trucking issue looming.  EHH's folks either ignored that, or didn't care, focussing on getting the money to the bottom line where it would best benefit his investors.

One could hope that CSX management would go back to making money the old fashioned way, instead of focussing on getting the money to the bottom line where it would best benefit the investors...

Here you seem to allow that walking away from certain types of business might be a good idea.  But then you opine that EHH did it for the wrong reason.  Why do you choose to believe that?

In any business, it is quite possible that there are redundant and inefficient operations that can be eliminated to make a better business.  Not all pruning is bad, and not all pruning is continued past the point where it should have been stopped.  Not all pruning is done just to raise cash at the expense of the health of the business.

Why, in the case of CXS-EHH, do you assume that the pruning was done not for the right reason to improve the business, but rather, for the wrong reason of raising cash at the expense of closing operations essential to the health of the businesses?

I would like to know if this premise is real or just the clichéd expression of a grievance against a management policy that might eliminate jobs.  It sounds like the latter when it is stated over and over again as the singular point of the masses. 

 

[tree68]

Euclid

Why do you choose to believe that?

Because of the history of the type of vulture capitalists who sought to have EHH installed as CEO.  In fact, I've opined before that he was simply the figurehead - that others were calling the shots.

Euclid

Why, in the case of CXS-EHH, do you assume that the pruning was done not for the right reason to improve the business, but rather, for the wrong reason of raising cash at the expense of closing operations essential to the health of the businesses?

See the above.  

I get that there is business that is not worth handling.  But what is that measure?  Clearly something bleeding money deserves to be cut.  But what if a traffic source just isn't making as much money as you'd like?  It's still income.  

I find it hard to believe that UPS traffic would be a money loser, but EHH seems to have shed at least some of that, according to our resident trucking expert.  Just like Amtrak, a hot intermodal doesn't fit in a schema that calls for all trains moving at the same speed.

Euclid

I would like to know if this premise is real or just the clichéd expression of a grievance against a management policy that might eliminate jobs.

I don't work for CSX, so aside from several friends who do, I don't have a dog in that race.  Nor do I own CSX stock (or any stock, for that matter).  

It's funny that folks who saw the Children's Fund's attempted takeover of CSX as a clear loot-and-run operation aren't seeing that to be the case now.  You won't see that in anything official from CSX.  Sometimes you have to read between the lines.

The big move to "precision scheduled railroading" had to be slowed when the vultures realized their actions were being seen as what they were.  

It's interesting to note that many of the trains that EHH cancelled have been slowly returned to the "schedule."  

 

[BaltACD]

tree68

It's interesting to note that many of the trains that EHH cancelled have been slowly returned to the "schedule."  

Trains seem to be returning, however, their ID's have been changed to protect the guilty.

[BaltACD]

tree68

It's interesting to note that many of the trains that EHH cancelled have been slowly returned to the "schedule." 

Trains seem to be returning, however, their ID's have been changed to protect the guilty.

[Shadow the Cats owner]

Euclid here is a little history lesson for you.  Here is a list of 2 major companies that collasped yet had been showing profits just one quarter before hand.  Enron we all know how badly they were being managed.  The other is Arrow Trucking in my industry.  They had been showing double invoices to their banks to show they where making a profit no one caught them until they literally folded overnight.  Close to 1200 drivers where caught with fuel cards shut off right before Chirstmas thousands of miles from home.  Guess where their CEO is now Prison.

[Euclid]

Shadow the Cats owner

Euclid here is a little history lesson for you.  Here is a list of 2 major companies that collasped yet had been showing profits just one quarter before hand. 

 

What am I supposed to learn from the little history lesson?  I never said a company cannot collapse while showing a profit. 

[BaltACD]

If you can't believe cooked books, just what can you believe? [/sarcasm]

[zugmann]

charlie hebdo

The 2017 report shows greater profits on the operation. The looting and selling off (if that is true, let's see a list of assets sold) that some have a "feeling" about has nothing to do with that profit

After they run out of stuff to sell or cut, then we'll see if there is still a profit.  Short term stuff doesn't tell us much.

[PJS1]

daveklepper

Actually, Euclid, from what I remember, CSX's profits have not declined but increased.  The problem is, that the increase in profits has resulted from the sale of assttes not needed under the HH rationalization scheme, and that revenue from operations has declined.  This is from memory, and admittadly I have no proof at the present moment. 

From 2013 through 2017 CSX Operating Revenues declined from slightly more than $12 billion to 11.4 billion or by five percent.  Operating Expenses declined from $7.4 billion to $6.3 billion or by 11.5 percent.  As a result, over the five years, Operating Income Before Depreciation increased from $4.6 billion to $5.1 billion or by 10.9 percent.  Pre-tax Income increased from $2.9 billion to $3.1 billion or an increase of 6.9 percent.

 

For the five years ended 2017 CSX Property, Plant, and Equipment (PP&E) grew from $37.2 billion to $44.3 billion.  CSX had a gain of $317 million from the sale of PP&E plus investments from 2013 through 2017.  This was equal to 52.8 percent of Operating Revenues over the same period. 

 

So, Operating Revenues between 2013 and 2017 declined by approximately five percent, but the decline was more than offset by a decline of 11.5 percent in Operating Expenses.  Most importantly, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) increased by 10.9 percent and Pre-tax Income increased by 6.9 percent.  A significant portion of the increase in Pre-tax Income can be attributable to the gains on the sale of PP&E. 

 

The key question is whether the assets sold were core assets or peripheral assets.  In any case, relying on the sale of assets, especially if they are core assets, only gives a corporation so much road to run on before it hits a wall.  

 

As an aside, I don’t know of any financial analysts that hang their hat on a single operating or financial metric, i.e. Operating Ratio, Gain on Sale of Investment, Return on Equity, etc.  They look at multiple indicators over time, which in most instances is at least five years.  

[BaltACD]

Recall a time back in the Hays Watkins days, CSX bought Texas Gas a conglomerate that inclued not only Texas Gas Transmission Co. by American Comercial Barge Lines and SeaLand of container shipping fame.  The CSX management personnel were due a bonus on rail operations, however, the 'extraordinary charge' aginst earnings from the purchase led management to tell the non-contract personnel there would be no bonus because of the 'extraordinary charge'.  Over the ensuing years, the various elements of Texas Gas were sold off one by one.  None of those sales ever found their way into 'operating profits', despite the initial purchase all being charged against operating profits.

Profits can be anything top management wants it to be for whatever purpose top management wants.

[BaltACD]

The Mantle Ridge model

https://www.nbcnews.com/think/opinion/toys-r-us-bankruptcy-what-happens-when-wall-street-put-ncna876536

[oltmannd]

Euclid

 

 

longhorn1969

Yes, the traffic will come back. Truck companies are having a hard time getting drivers, and RRs are more efficient at moving bulk. NS will start charging a premium and companies want competition when negotiating. CSX has gotten its house in order and making incredible profit against revenues coming in. Just add volume to the system and CSX will increase profits more so. The problem is when NS (apparently railfan favorite) stockholders start a seeing a smaller CSX with a higher profit margin and will demand the same changes.

 

 

 

 

Why is that a problem?

 

It's not a problem until it is a problem.

If you don't really understand what resources (crew, locomotive, facilities, et.al.) it takes to keep your operations fluid and being able to recover from all the lumps and bumps that come your way, you can find yourself in a very dark place that's very difficult to dig yourself out of.

It takes more resources to keep a railroad limping along in a congested condition than it does to run a fluid railroad.  If you are in a fluid condition and you cut resources so that you have little safety stock, any bump in the road can be a disaster.  One big derailment.  A bad stretch of weather.  A bump in traffic.

CSX managed to do this implementing PSR.  NS has managed to do this twice now in the past 4 years.  First on the north end, now on the south end.  UP has also managed this trick, of late.

If you try to manage OR by hammering the budget from the top down, it's very easy to fall into this trap.

There is always a lag of a few quarters before the financials catch up with the operational reality, but the cost is alway worse than benefit in the long run.

NS started having trouble in mid 2014 and didn't manage to fully dig out until late in 2015.  Look at NS's financials for 2013, 14, 15 and 16 to see the effect. 

[Euclid]

 

 

 

 

 

oltmannd

 

 

Euclid

 

 

longhorn1969

Yes, the traffic will come back. Truck companies are having a hard time getting drivers, and RRs are more efficient at moving bulk. NS will start charging a premium and companies want competition when negotiating. CSX has gotten its house in order and making incredible profit against revenues coming in. Just add volume to the system and CSX will increase profits more so. The problem is when NS (apparently railfan favorite) stockholders start a seeing a smaller CSX with a higher profit margin and will demand the same changes.

 

 

 

 

Why is that a problem?

 

 

 

 

It's not a problem until it is a problem.

If you don't really understand what resources (crew, locomotive, facilities, et.al.) it takes to keep your operations fluid and being able to recover from all the lumps and bumps that come your way, you can find yourself in a very dark place that's very difficult to dig yourself out of.

It takes more resources to keep a railroad limping along in a congested condition than it does to run a fluid railroad.  If you are in a fluid condition and you cut resources so that you have little safety stock, any bump in the road can be a disaster.  One big derailment.  A bad stretch of weather.  A bump in traffic.

CSX managed to do this implementing PSR.  NS has managed to do this twice now in the past 4 years.  First on the north end, now on the south end.  UP has also managed this trick, of late.

If you try to manage OR by hammering the budget from the top down, it's very easy to fall into this trap.

There is always a lag of a few quarters before the financials catch up with the operational reality, but the cost is alway worse than benefit in the long run.

NS started having trouble in mid 2014 and didn't manage to fully dig out until late in 2015.  Look at NS's financials for 2013, 14, 15 and 16 to see the effect. 

 

Here is what I mean when I ask, "Why is that a problem?"

According to longhorn 1969, the EHH changes to CSX have been successful.  Then he says that the problem is when NS stockholders start a seeing a smaller CSX with a higher profit margin and will demand the same changes.

So what I am asking is this:  If it works for CXS, why is it a problem to demand the same changes for NS?  The only explanation I can see for this comment is that there is something fundamental with NS that makes the CSX changes unworkable for NS.

[BaltACD]

Euclid

So what I am asking is this:  If it works for CXS, why is it a problem to demand the same changes for NS?  The only explanation I can see for this comment is that there is something fundamental with NS that makes the CSX changes unworkable for NS.

Those changes have been equally unworkable for CSX.  At present CSX and NS are racing for the ditch.

And who is the CXS you keep mentioning?

[Murphy Siding]

Euclid

So what I am asking is this:  If it works for CXS, why is it a problem to demand the same changes for NS?

      Because everyone is waiting to see if the CSX changes really are a miracle or if they follow the same pattern as the last 100 times Wall Street predators have done this type of thing to a company. Explaining it a 15th time won't make it any clearer to you if you didn't get it the first 14 times. Discuss it with the other euclids. See if they remember those discussions. 

[Euclid]

Murphy Siding

 

Euclid

So what I am asking is this:  If it works for CXS, why is it a problem to demand the same changes for NS?

 

 

      Because everyone is waiting to see if the CSX changes really are a miracle or if they follow the same pattern as the last 100 times Wall Street predators have done this type of thing to a company. Explaining it a 15th time won't make it any clearer to you if you didn't get it the first 14 times. Discuss it with the other euclids. See if they remember those discussions. 

 

 

Well yes of course that is your position.  But you see, I was responding to one poster above who apparently has not swallowed that kool-aid.  He said it would be a problem if NS investors saw the precision railroading concept working at CSX and therefore wanted it at NS.  That poster believes the concept is successful at CSX.  So I am asking why he thinks NS investors wanting the same concept for NS is a "problem" as he puts it.  This has absolutely nothing to do with what I think of precision railroading or EHH.  Maybe you should read a little more carefully before seizing the opportunity to launch your condescending, childish insults. 

[Euclid]

Murphy Siding

Because everyone is waiting to see if the CSX changes really are a miracle... 

Yeah right.  Everyone is withholding their judgement.  You're a riot.  

[BaltACD]

Euclid

 

Murphy Siding

Because everyone is waiting to see if the CSX changes really are a miracle...  

Yeah right.  Everyone is withholding their judgement.  You're a riot.  

The best predictor of future action are past actions.  To make a success out of past failure - something different has to be done.  Doing the same failed actions all over again will lead to failure again.

[Euclid]

I guess it doesn't really make any difference what we are talking about.

[zugmann]

Euclid

So what I am asking is this: If it works for CXS, why is it a problem to demand the same changes for NS? The only explanation I can see for this comment is that there is something fundamental with NS that makes the CSX changes unworkable for NS.

You're assuming some of those changes haven't been made already?

[Shadow the Cats owner]

I look at PSR the same way I look at certain Government regulations.  They all seem to be like throw enough crap at the wall and see if something will stick.  Some of the freaking ideas the regulatiors I deal with I want to look at them and go you must have sat in the back of a bus with an exhaust leak in it.  Either that or they ate lead paint as a child.  This was just last week here.  Our local FMCSA guy popped in for a quick look to see if we were in complaince.  He tried to ding us for our 1988 KW W900 not having a orange shoulder belt.  I went in 88 when that was built and the company ordered it the boss did not order it with a shoulder harness at the time.  He goes it is a regulation that all trucks 2006 and newer must have a orange shoulder belt.  I went is 1988 older than 2006 he just walked away going she is unintellagable under his breath.  Same truck he tried to ding us for not having ABS and auto slack adjustors on it also.  They were not required at the time.

[Paul_D_North_Jr]

PJS1

" . . . The key question is whether the assets sold were core assets or peripheral assets.  In any case, relying on the sale of assets, especially if they are core assets, only gives a corporation so much road to run on before it hits a wall. . . . 

John Kneiling used to call that "throwing the furniture on the fire". 

Thanks for the rest of the financial summary and the comment on using more than just one financial indicator.  Some people can't understand more than one concept at a time, or that there are shades of gray, nuance, and multiple - sometimes conflicting - goals.

- PDN. 

[charlie hebdo]

Paul_D_North_Jr

 

 

PJS1

" . . . The key question is whether the assets sold were core assets or peripheral assets.  In any case, relying on the sale of assets, especially if they are core assets, only gives a corporation so much road to run on before it hits a wall. . . . 

 

 

John Kneiling used to call that "throwing the furniture on the fire". 

 

Thanks for the rest of the financial summary and the comment on using more than just one financial indicator.  Some people can't understand more than one concept at a time, or that there are shades of gray, nuance, and multiple - sometimes conflicting - goals.

- PDN. 

 

Some statistics are more telling for short-term, some for longer.  For railroads, the OR has always been considered a good indication of efficiency, except when it contradicts the narrative some folks want to push.  Many companies sell off assets, including ones held for years because management determines those lines of business are not promising now or for the future.  Look at GE.  They are selling several lines, yet nobody is suggesting it is part of some vulture capitalism scheme. 

[tree68]

charlie hebdo

Look at GE.  They are selling several lines, yet nobody is suggesting it is part of some vulture capitalism scheme. 

It's not the sale itself.  As you note, companies have been selling off assets for years.

The question would be where are the monies from those sales going?  If they are mostly being plowed back into the company, I'm sure few would find fault with the practice.

If, on the other hand, those monies are being sent directly to the bottom line, as profits that investors can draw from, one might tend to question the motives involved.

I suspect that many here believe the latter is the case.

[charlie hebdo]

tree68

The question would be where are the monies from those sales going?  If they are mostly being plowed back into the company, I'm sure few would find fault with the practice. If, on the other hand, those monies are being sent directly to the bottom line, as profits that investors can draw from, one might tend to question the motives involved. I suspect that many here believe the latter is the case.

That should be easy enough for someone with a strong financial/accountancy background to check out, such as PJS1.  It is a matter of cold facts, not what people choose to believe.  This is not a faith-based concern.