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News Wire: CSX claims record-low operating ratio of 60.3

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Posted by Brian Schmidt on Thursday, January 17, 2019 7:50 AM

JACKSONVILLE, Fla. — CSX Corp. today announced fourth quarter 2018 net earnings of $843 million, or $1.01 per share, versus $4,140 million, or $4.62 per share on a GAAP basis ($0.64 on an adjusted basis) in the same period last year. Fourth qua...

http://trn.trains.com/news/news-wire/2019/01/16-csx-claims-record-low-operating-ratio-of-603 

Brian Schmidt, Editor, Classic Trains magazine

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Posted by BaltACD on Thursday, January 17, 2019 8:10 AM

smoke, mirrors and a sharp pencil do wonders.

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Posted by zardoz on Thursday, January 17, 2019 8:29 AM

BaltACD

smoke, mirrors and a sharp pencil do wonders.

 

BaltACD, we can always count on you to cut through the felgercarb and see things as they really are.

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Posted by charlie hebdo on Thursday, January 17, 2019 6:13 PM

I seem to recall some on here making dire predictions: revenue would decline in step with service deterioration as customers fled.   But...

Revenue for the fourth quarter increased 10 percent over the prior year to $3.14 billion, supported by increases in fuel recovery, broad-based volume growth, pricing gains, higher supplemental revenue and favorable mix. Expenses increased 9 percent year over year to $1.89 billion, or 2 percent when 2017 results are adjusted for the impacts of restructuring and tax reform benefits. This combination yielded adjusted operating income growth of 25 percent for the quarter to $1.25 billion compared to $998 million in the same period last year.


Those inconvenient number are on a GAAP basis even if some want to claim them to be fictitious.

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Posted by BaltACD on Thursday, January 17, 2019 6:15 PM

Wall Street didn't relish the news - CSX lost 29 cents a share today.

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Posted by petitnj on Friday, January 18, 2019 2:29 PM

Low operating ratios are numbers that Wall Street understands. They went to MBA school and have used their expertise to save Toys R Us, Sears, and  many others. What low operating ratios really mean is that you are not spending enough to keep trains rolling and customers happy. 

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Posted by charlie hebdo on Friday, January 18, 2019 3:04 PM

petitnj

Low operating ratios are numbers that Wall Street understands. They went to MBA school and have used their expertise to save Toys R Us, Sears, and  many others. What low operating ratios really mean is that you are not spending enough to keep trains rolling and customers happy. 

 

Odd then that revenue is up.

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Posted by Shadow the Cats owner on Friday, January 18, 2019 3:49 PM

One reason why Revenue could have gone up Demurrage charges for cars that they never picked up after they got empty.  Or revenue from selling almost 700 engines in the 4th quarter alone.  

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Posted by charlie hebdo on Friday, January 18, 2019 4:00 PM

Shadow the Cats owner

One reason why Revenue could have gone up Demurrage charges for cars that they never picked up after they got empty.  Or revenue from selling almost 700 engines in the 4th quarter alone.  

 

The sale/disposal of assets is not treated as revenue. This is a non-operating or "other" item. 

Perhaps JBS1 can instruct you.

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Posted by tree68 on Friday, January 18, 2019 4:30 PM

charlie hebdo
The sale/disposal of assets is not treated as revenue. This is a non-operating or "other" item. 

Well, it's not supposed to be, anyhow...

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Posted by kgbw49 on Friday, January 18, 2019 7:05 PM

CSX 2018 Total Revenue - $12.250 Billion

CSX 2018 Net Income - $3.309 Billion

CSX Net Income as Percent of Revenue - 27.0%

That is a very good ratio of Net Income to Revenue for a capital intensive industry.

As a comparison, CN in 2016 (2018 is not available until January 29 and 2017 is distorted by one time tax gains from the US Tax Cuts and Jobs Act) had the following:

CN Total Revenue - C$12.037 Billion

CN Net Income - C$3.640 Billion

CN Percent of Net Income to Revenue - 30.2%

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Posted by charlie hebdo on Friday, January 18, 2019 7:36 PM

tree68

 

 
charlie hebdo
The sale/disposal of assets is not treated as revenue. This is a non-operating or "other" item. 

 

Well, it's not supposed to be, anyhow...

 

These constant  and thinly veiled accusations that CSX or any other railroads are "cooking the books" are pretty specious, since so far nobody has offered any demonstrable proof of that. And yes, we all know the story of Arthur Anderson and Enron but that hardly proves that all financial statements are BS.  Other than JBS1, none of us are accountants, but at least some of us have enough coursework and some experience with audits and  financial documents to recognize "sour grapes."

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Posted by zardoz on Friday, January 18, 2019 8:44 PM

charlie hebdo
at least some of us have enough coursework and some experience with audits and  financial documents to recognize "sour grapes."

Hard to believe that a corporation would use "Creative Accounting"; after all, isn't the business world known for its fair play and honesty?

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Posted by kgbw49 on Saturday, January 19, 2019 1:23 AM

Actually some others of us are licensed accountants.

If an asset is sold for more than its depreciated book value, the gain on the sale is going to show up in an other revenue account, which will impact the bottom line and result in appropriate taxes being paid.

In the case of a railroad, a gain on sale of an asset will not show up in Operating Revenue or it would distort the Operating Ratio. The Operating Ratio is intended to measure the percentage of revenues from hauling freight that are used to pay for the costs of hauling freight. Revenues from such things as a gain on sale of an asset or interest earnings from investing cash balances are not revenues from hauling freight.

At the same time, all the cash from the sale is available to be used as the railroad determines - for capital investment, for dividends, for stock buybacks, for operational cash flow, etc.

So with the CSX Operating ratio of 60.3, I would think that any gain on the sale of an asset should not be included in the Operating Ratio calculation, but it should be included in calculation of Income Before Taxes.

This is based on a transaction in its simplest form. There can be different accounting  rules regarding deferrals, accruals, etc., that are specific to an individual industry. I am not a railroad accountant so am not familiar with any industry-specific rules. But if any asset sales such as line sales or locomotive sales are of the “plain vanilla” variety, they should impact the balance sheet and income statement as described above.

 

 

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Posted by tree68 on Saturday, January 19, 2019 5:57 AM

charlie hebdo
These constant  and thinly veiled accusations that CSX or any other railroads are "cooking the books" are pretty specious, since so far nobody has offered any demonstrable proof of that.

And no one has offered any proof that they aren't.

Call it guilt by association - vulture capitalists such as Mantle Ridge have a history of looting companies - why should anyone assume that isn't occurring with CSX?

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Posted by charlie hebdo on Saturday, January 19, 2019 9:33 AM

tree68

 

 
charlie hebdo
These constant  and thinly veiled accusations that CSX or any other railroads are "cooking the books" are pretty specious, since so far nobody has offered any demonstrable proof of that.

 

And no one has offered any proof that they aren't.

Call it guilt by association - vulture capitalists such as Mantle Ridge have a history of looting companies - why should anyone assume that isn't occurring with CSX?

 

Apply your line of reasoning to other areas beyond accounting and CSX and you have an important precondition for becoming an authoritarian state. Ike said it well in a letter in 1959: "Dictatorial systems make one contribution to their people which leads them to tend to support such systems — freedom from the necessity of informing themselves and making up their own minds concerning these tremendous complex and difficult questions.” 

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Posted by Euclid on Saturday, January 19, 2019 12:00 PM

tree68
 
charlie hebdo
These constant  and thinly veiled accusations that CSX or any other railroads are "cooking the books" are pretty specious, since so far nobody has offered any demonstrable proof of that.

 

And no one has offered any proof that they aren't.

Call it guilt by association - vulture capitalists such as Mantle Ridge have a history of looting companies - why should anyone assume that isn't occurring with CSX?

 

“Guilt by association” could just be a matter of seeing what one wants to see, based on their beliefs and prejudices.  So why not be sure, and make the case by solid proof?  If it is really happening, the proof ought to be obvious and easy.

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Posted by BaltACD on Saturday, January 19, 2019 12:40 PM

Euclid
 
tree68
 
charlie hebdo
These constant  and thinly veiled accusations that CSX or any other railroads are "cooking the books" are pretty specious, since so far nobody has offered any demonstrable proof of that. 

And no one has offered any proof that they aren't.

Call it guilt by association - vulture capitalists such as Mantle Ridge have a history of looting companies - why should anyone assume that isn't occurring with CSX? 

“Guilt by association” could just be a matter of seeing what one wants to see, based on their beliefs and prejudices.  So why not be sure, and make the case by solid proof?  If it is really happening, the proof ought to be obvious and easy.

One word - ENRON

decievers never make it obvious and easy.  Obfuscation is their stock in trade.

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Posted by tree68 on Saturday, January 19, 2019 1:32 PM

Euclid
“Guilt by association” could just be a matter of seeing what one wants to see, based on their beliefs and prejudices. 

That can go both ways - those who believe everything is on the up and up, and those who believe there's skullduggery afoot.

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Posted by Convicted One on Saturday, January 19, 2019 7:44 PM

zardoz
Hard to believe that a corporation would use "Creative Accounting"; after all, isn't the business world known for its fair play and honesty?

+1  Mischief

I think it's smartest to never under estimate anyone who might have motive.

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Posted by Convicted One on Saturday, January 19, 2019 8:10 PM

tree68
That can go both ways -

Not to mention that those having their hands closest to your pockets are likely to be among the first to call you paranoid.Dinner

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Posted by kgbw49 on Sunday, January 20, 2019 11:08 AM

One suggestion is to watch the amount of long term debt reported on the financial statements over time. If they are returning amounts more than their annual Net Income to shareholders - i.e. dividends and buybacks exceeding their Net Income each year, then odds are that they are borrowing long term debt to return cash to shareholders.

For example, the last three years UP has paid out more than 100% of their net income as a result of dividends and share buybacks. In order to do this while still maintaining their capital program they have had to increase their long term debt. See slides 26, 27 and 28:

https://www.up.com/cs/groups/public/@uprr/@investor/documents/investordocuments/4q17_er_slides.pdf

In order to sustain that over the long term they will have to grow revenues and cut expenses enough to free up sufficient cash to cover the additional interest expense on the long term debt, and hope that interest rates will stay low when it is time to refinance their debt. (Most corporations do not retire debt, but rather refinance and extend it instead.)

It will be interesting to see how long railroads will be able to return more than 100% of Net Income each year to shareholders.


 

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Posted by n012944 on Sunday, January 20, 2019 2:44 PM

BaltACD

Wall Street didn't relish the news - CSX lost 29 cents a share today.

 

 

Although on Friday it shot up $2.27, so Wall Street much not have been to upset.  Odd that you did not report that after being so quick to point out the loss.....

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Posted by BaltACD on Wednesday, January 23, 2019 8:49 PM

n012944
 
BaltACD

Wall Street didn't relish the news - CSX lost 29 cents a share today. 

Although on Friday it shot up $2.27, so Wall Street much not have been to upset.  Odd that you did not report that after being so quick to point out the loss.....

Been down the last two trading days since the upward blip.

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Posted by charlie hebdo on Wednesday, January 23, 2019 9:12 PM

1/23/18  $57.10.  Today 1/23/19 $65.08.  13.98% growth is not spectacular, but hardly down the toilet.

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Posted by CSSHEGEWISCH on Thursday, January 24, 2019 7:16 AM

The rise in the share price doesn't do anything for the financial health of the firm in question.  It just shows what speculators, day traders and other lowlifes are willing to pay for the shares.

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Posted by charlie hebdo on Thursday, January 24, 2019 8:12 AM

CSSHEGEWISCH

The rise in the share price doesn't do anything for the financial health of the firm in question.  It just shows what speculators, day traders and other lowlifes are willing to pay for the shares.

 

Day-to-day and intraday prices may be the work of arbitrageurs and daytraders.  A one-year trend is a reflection of what long-term investors think about the health of a company.

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Posted by Ulrich on Thursday, January 24, 2019 12:42 PM

Ben Graham (who was one of Warren Buffett's mentors) famously stated that over the short term the stock market is a voting machine while over the long term its a weighing machine. What he meant is that over the long term the share prices reflect the true value of the company... on the other hand short term price fluctuations are often governed by emotion and fear. Best thing to do if you're nervous about the shares you own is to read up on the company.. If you feel it is doing ok then don't worry about it. If you feel the company is in trouble then by all means sell your shares... kinda how it should work. 

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Posted by BaltACD on Saturday, January 26, 2019 3:30 PM

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Posted by Ulrich on Sunday, January 27, 2019 1:20 PM

Interesting but not all that surprising given that  they're activist investors. Their startegy is to buy enough stock to gain control.. improve the business... and then sellout. It's much like someone who buys old houses, spruces them up and then sells them at a profit. I expect Mantle Ridge to sell off all their holdings in CSX shortly...just as Perishing Square sold their shares in CP when the "turn around"was done. They're not passive investors like most of us are who make our money on the long term appreciation of the value of the companies we invest in. BTW.. there are lots of other reasons to sell a stock that have nothing to do with how the business is doing.. and everyone has to sell eventually in order to realize  profit.. 

 

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