UlrichInteresting 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..
Mantle Ridge's interest has not been in improving the business - it has been about hoovering all the available cash that could be pryed loose from the company and then cashing out - hedge funds don't care about the condition of the company they loot as long as they get their 'profits' out if the company.
Never too old to have a happy childhood!
Mantle Ridge likely disagrees with this assessment. They've brought about some major changes that have left CSX on a trajectory for long term growth and profitability.. my opinion supported by what the numbers show. Everyone said the same about Perishing Square and CP.. they were going to come in and gut the company, leaving nothing but a shell in its place. Thus far that hasn't happened.. instead CP is now an industry leader headed by one of the best operations people in the biz .. nolonger the industry laggard it was for the better part of three decades. Same story at CN although no activist investor involved there. I'm not saying its perfect.. alot of pain felt by people who lost their jobs or customers who had to put up with service disruptions. Both CSX and CP have excellent people at the top, and that bodes well for the future. Those people wouldn't be there if the goal was simply to loot the property. Personally I wouldn't hestitate to invest in either company. That an activist investor sells out after the job is done doesn't reflect badly on the company... its just what they do... they're not in it for the longhaul. In the same way you could ask a home builder.. if the houses you build are so good then why are you selling them? It's the business they're in.. they don't want to tie up their capital for the longterm when they could use that capital more profitably by building more houses. In the same way Mantle Ridge likely wants to place their large but limited available capital in some other high yielding turn around opportunity instead of leaving it passively at CSX for a much lower return.
The employees who kept their jobs at all these railroads also endured, and continue to endure a lot of pain, stress and harrassment, but I guess that's just the price of success, right?
Because of the directional running co-production zones we at CN have access to the CP mainline CTC overviews. Their mainline has been pretty empty for the past few years, and what trains they do have are often quite short. Hunter and Creel's dedication to customer service is quite visible.
But Creel knows how to work the PR angle, and was touting CP's extra capacity and "room to grow" at last year's shareholder meeting, in comparison to CN's congestion with too much traffic.
Greetings from Alberta
-an Articulate Malcontent
Their actual numbers do not correspond with your suggestion of an empty mainline.
The 4th quarter for 2018 shows revenue up 17% over the previous year's 4th quarter. Operating income up 28% and operating ratio is 56.5%.
Cut the muscle and intellegence from a company and the customers and remaining employees pay the price.
charlie hebdo Their actual numbers do not correspond with your suggestion of an empty mainline. The 4th quarter for 2018 shows revenue up 17% over the previous year's 4th quarter. Operating income up 28% and operating ratio is 56.5%.
Those numbers can be manipulated solely by increasing rates and cutting costs.
How much have carloadings actually increased, especially in comparison to the other Class I's? And how do those carloadings break down between coal & potash (both affected by export markets and world price), grain (every crop year is different), intermodal and other general freight carloadings (more service dependent).
The economy as a whole has been doing well, so I would expect some increase in traffic over the past couple years, regardless of who has been in charge.
Carload data for CP for 2018 and 2017 is on the bottom of page 14 of 21 of the linked report:
https://s21.q4cdn.com/736796105/files/doc_financials/quarterly-report/2018/Q4/Ex-99.1-Q4-2018-Earnings-Release-r168.pdf
Carload data for CSX for 2018 and 2017 is on page 9 of the Financial Report that can be accessed at the following link:
http://phx.corporate-ir.net/phoenix.zhtml?c=92932&p=quarterlyearnings
CP carloads 2018 2,739.8 thousand 2017 2,634.2 thousand, a 4.2% increase.
CSX carloads 2018 6482 thousand; 2017 6400 thousand, a 1% increase.
SD70: kgb49 did the research for you. you can draw your own conclusions from the data. But my impression is that both roads are doing well. PSR does work and is apparently being adopted by all the rails.
Revenue up 17%, operating income up 28%, but carloadings up 4.2%, looks like someone's been raising rates!
PSR is great if you look at things solely from a distant shareholder's point of view. For customers and employees it has been the opposite.
It is a publicly traded stock. As such, the owners are the shareholders and the management has primary responsibility to them. The rates might have increased but efficiencies more so judging by the increase in profits. Others have claimed cusomers fled in droves which would result in fewer carloadings. Didn't happen.
Group, I am not expressing an opinion one way or the other. I just looked up the data because I was interested to see what it was based on the discussion.
One thing that concerns me looking at it from a financial standpoint is that it seems that under PSR the debt of the company starts growing very quickly because it seems they often tend to tout the fact that they are returning "over 100% of earnings" to shareholders. That tells me they are borrowing long term debt to fund a dividend or shareholder buyback today. If the economy slows, or carloads flatten and pricing power wanes, it sure seems that they are going to be saddled with a lot of annual interest payments.
If you look back at these companies' annual reports, you can track the increase in outstanding long term debt on a year over year basis.
It makes sense to borrow long term debt for capital projects because theoretically you invest the cash in long term assets - new rail, new sidings, new locomotives, etc. so the life of the debt somewhat matches the life of the asset acquired with it, and theoretically those things will help you maintain and grow the business and earn a return on invested capital.
But long term debt to pay for shareholder buybacks kind of seems to be like getting a mortgage to pay the monthly electric bill. Maybe I am wrong about that, but it sure seems that way.
From what I have been looking at, it seems like some - not all, but some (a pretty sizable chunk) of the increase in long term debt has not been to fund the capital plan of the railroad but instead to buy back shares.
One has to wonder where the limit is. Overloading on debt has brought down many a company. That to me seems to be a significant negative for the long term health of the company. Time will tell, I guess, as nobody has done PSR for the long term yet. Or maybe I am missing something - that is possible also.
The railroads are lucky to have so many captive customers, or those who cannot easily ship via other modes (trucks are even more expensive than the higher rates).
Imagine what would happen if BNSF suddenly told UPS they had to ship a equal number of trailers every single day, or drastically hiked their rate!
Not long after Hunter took over at CP a couple big intermodal shippers switched quite a bit of traffic to CN.
Of course, CN's congestion and CP's "excess capacity" of the past couple years have resulted in CP winning back some traffic.
kgbw49 Group, I am not expressing an opinion one way or the other. I just looked up the data because I was interested to see what it was based on the discussion. One thing that concerns me looking at it from a financial standpoint is that it seems that under PSR the debt of the company starts growing very quickly because it seems they often tend to tout the fact that they are returning "over 100% of earnings" to shareholders. That tells me they are borrowing long term debt to fund a dividend or shareholder buyback today. If the economy slows, or carloads flatten and pricing power wanes, it sure seems that they are going to be saddled with a lot of annual interest payments. If you look back at these companies' annual reports, you can track the increase in outstanding long term debt on a year over year basis. It makes sense to borrow long term debt for capital projects because theoretically you invest the cash in long term assets - new rail, new sidings, new locomotives, etc. so the life of the debt somewhat matches the life of the asset acquired with it, and theoretically those things will help you maintain and grow the business and earn a return on invested capital. But long term debt to pay for shareholder buybacks kind of seems to be like getting a mortgage to pay the monthly electric bill. Maybe I am wrong about that, but it sure seems that way. From what I have been looking at, it seems like some - not all, but some (a pretty sizable chunk) of the increase in long term debt has not been to fund the capital plan of the railroad but instead to buy back shares. One has to wonder where the limit is. Overloading on debt has brought down many a company. That to me seems to be a significant negative for the long term health of the company. Time will tell, I guess, as nobody has done PSR for the long term yet. Or maybe I am missing something - that is possible also.
Hear that, it's the sound of shareholders and hedge funds sucking money out of a company!
Nonsense..how are shareholders sucking money out of the company? Dividend yields are generally not that great for railroads... less than 1% for CP and less than 2.1% for the others..NS is the only one over 2% recently. And if I own shares in a railroad and the share price goes from 20 dollars to 70 dollars , how exactly have I "sucked money" out of the company?
Ulrich And if I own shares in a railroad and the share price goes from 20 dollars to 70 dollars , how exactly have I "sucked money" out of the company?
Two factors - why did the price of the shares rise, and you sold, right?
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
tree68 Ulrich And if I own shares in a railroad and the share price goes from 20 dollars to 70 dollars , how exactly have I "sucked money" out of the company? Two factors - why did the price of the shares rise, and you sold, right?
Share prices rise and fall for a number of reasons, some of which are tied to the value and overall performance of the company. Thus far I've never sold any shares in anything. And even if I did sell at $70 ... someone else therefore would have had to pay $70.00 for them... no? Effectively switching Ulrich the shareholder out for Jennifer the shareholder doesn't suck money out of the company.. it's simply an ownership change.. i.e. if I sell my house to you does that change the value of the house?.. Nope.
Ulrich tree68 Ulrich And if I own shares in a railroad and the share price goes from 20 dollars to 70 dollars , how exactly have I "sucked money" out of the company? Two factors - why did the price of the shares rise, and you sold, right? Share prices rise and fall for a number of reasons, some of which are tied to the value and overall performance of the company. Thus far I've never sold any shares in anything. And even if I did sell at $70 ... someone else therefore would have had to pay $70.00 for them... no? Effectively switching Ulrich the shareholder out for Jennifer the shareholder doesn't suck money out of the company.. it's simply an ownership change.. i.e. if I sell my house to you does that change the value of the house?.. Nope.
Doesn't change the value of the house - it just leaves you without a house.
But I could take money from the sale and buy another house.. or rent an apartment and sock the money from the sale away in CSX stock..
Ulrich Nonsense..how are shareholders sucking money out of the company? Dividend yields are generally not that great for railroads... less than 1% for CP and less than 2.1% for the others..NS is the only one over 2% recently. And if I own shares in a railroad and the share price goes from 20 dollars to 70 dollars , how exactly have I "sucked money" out of the company?
Ulrich Mantle Ridge likely disagrees with this assessment. They've brought about some major changes that have left CSX on a trajectory for long term growth and profitability.. my opinion supported by what the numbers show.
Mantle Ridge likely disagrees with this assessment. They've brought about some major changes that have left CSX on a trajectory for long term growth and profitability.. my opinion supported by what the numbers show.
How did they set the trajectory for long term growth? After implementing PSR, any no longer needed assets (human, infrastructure/land and rolling stock) is slated for liquidiation to return money to the stock holders. There is no room for growth when you mold the company to operate exactly to your planned level of business. Has CN has found out, needing to reinvest in certain areas for growth because of EHH's cuts. Railway Age had an article on this a few months ago. I had the impression that EHH had lost some of the shine on his "golden boy" image there.
Jeff
I don't think CSX is selling off assets to bolster shareholder return. On the whole shareholders could do alot better in terms of dividend yield than to invest in rail. Thus our overriding interest as shareholders is to see the value of the stock appreciate over time, and that can only happen if the company increases in value over the longer term.. i.e. is run efficiently and grows. They're not selling locomotives to juice up their shareholder payout. It's a work in progress.. the company is growing and revenues are up.
If Mantle Ridge is interested in long term growth, why did they sell off $305M in shares? Profit taking?
Mantle Ridge is not interested in long term return.. they're interested in "renovating" existing businesses and then selling out for a profit. But their interests dovetail nicely with long term investors' interests in that the "renovated" property is in better condition than when they found it. Its like buying a house.. sprucing it up.. and then selling it for a profit. The act of selling doesn't mean the seller thinks its a bad property.. its just the business they're in. Mantle Ridge presumably can deploy their capital more effectively in other turn around ventures rather than having it sit in CSX passively..
EHH's play book was to implement his "precision scheduled railroading" to, in his words, "Sweat the assets." Do more with less through better efficiencies. Then get rid of those now extra assets. Not hold them in reserve for fluctuations or new growth. Mold the railroad to a handle a set amount of business and mold business to that planned level. Cost control and containment are the priority. It's not a plan for a growing industry, but rather one that's stagnated if not in decline.
It reminds of a column John Knieling once wrote. His advice on how to run the conventional (non-integral trains) network until everyone saw the light on his ideas. Stop investing in the railroad, run the current assets into the ground and squeeze every penny out that you can until it's done.
It's funny how all these properties that are embracing PSR, whether by EHH or by management trying to avoid being replaced by activist investors, are talked about as if they were on the verge of bankruptcy. They were all profitable, but they weren't returning enough money to suit a few activist investors who make their money on speculation. They see (or think they see) money that could be squeezed into their pockets. It's not just railroads either. I often see on one TV business news report where so and so company is under attack by some hedge fund because the activists think the company is under performing. Like sharks smeling blood in the water.
jeffhergertAfter implementing PSR, any no longer needed assets (human, infrastructure/land and rolling stock) is slated for liquidiation to return money to the stock holders. There is no room for growth when you mold the company to operate exactly to your planned level of business. Has CN has found out, needing to reinvest in certain areas for growth because of EHH's cuts. Railway Age had an article on this a few months ago. I had the impression that EHH had lost some of the shine on his "golden boy" image there.
I have a question regarding this whole PRS fallacy: Supposedly one of the benefits of PSR is the ability to "move more tonnage with fewer locomotives". Someone please explain this to me.
Let's assume one locomotive can haul 5000 tons. If one has x tons to move, how does it make any difference whether this is moved in a train of 5000 tons and one locomotive or in a train of 20000 tons with 4 locomotives? It will still take the same amount of HP to move.
Or is it the efficiencies exactly matching a train's tonnage to it's power? And what if there are 7000 tons ready to go? Leave 2000 tons for the next train? To match exactly each time, there will be either loads left behind, or trains held for tonnage. (Too bad for the customers of those 2000 tons. If they don't like it, they can call the other railroad [a take off of the old joke about monopolies, "If you don't like the phone service, call the other phone company]).
So how, exactly, does PSR get around this slight problem of physics? Or is it all done with 'smoke and mirrors'?
More tonnage with fewer crews maybe.. not fewer locomotives. And I doubt power is fitted exactly to tonnage, and they wouldn't leave 2000 tons behind just because taking those extra tons would require one more locomotive. PR or no, it's about optimizing available resources.. whether its locomotives or crews, cars or track.
tree68 If Mantle Ridge is interested in long term growth, why did they sell off $305M in shares? Profit taking?
If Mantle Ridge was just in it for a quick buck, why didn't they sell all 40 million shares that they own, instead of just 3 million?
An "expensive model collector"
I don't know.. you'd need to ask them that. Maybe because Paul Hilal is still on the board, and their work isn't quite done yet. But I wouldn't be surprised to see them sell all of their shares over the short term.
zardoz So how, exactly, does PSR get around this slight problem of physics? Or is it all done with 'smoke and mirrors'?
It is only a "slight problem of physics" if you take the term literally. The PSR goal is to have the locomotives spending less time sitting around doing nothing, and more time pulling trains. Doing so means you need less of them overall, so less locomotives are needed to move the same amount of tonnage.
To use an example from a different industry, Southwest Airlines was famous for their 10 minute turns on aircraft. Doing so resulted in the airplane spending more time flying and less time sitting at the gate, resulting in less aircraft needed to fly their schedule than a legacy airline would need.
https://www.npr.org/2015/06/28/418147961/the-man-who-saved-southwest-airlines-with-a-10-minute-idea
https://www.cnbc.com/id/43768488
"To meet costs, one of the company’s four planes was sold. Instead of cutting service, Bill Franklin, former Vice President of Ground Operations, and other leaders, calculated three airplanes could do the work of four if the planes were in and out of the gate in 10 minutes."
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