CSX predicts 25 percent profit jump as restructuring begins

OMAHA, Neb. (AP) - CSX Corp. expects to deliver a 25 percent increase in profits this year as the railroad works to streamline operations under new CEO Hunter Harrison.

The Jacksonville, Florida-based railroad said Thursday that its earnings per share will jump about 25 percent over last year's $1.81, but that excludes restructuring costs.

Harrison said he thinks there is more opportunity for improvement for CSX than there was when he started at Canadian Pacific and Canadian National railroads.

"I think one of the things that people miss is the more complexity there is in the network the better model you can apply to it and you can take more advantage of the opportunities," Harrison said in a conference call to discuss the railroad's first-quarter results.

All the railroad mergers that went into building CSX over the past 190 years left it with way more infrastructure than it needs, especially in the Rust Belt where the steel and automotive industries once dominated, Harrison said.

So CSX is already working to streamline the railroad's organization and eliminate redundant railyards. The railroad will go from nine divisions to only a couple and its dispatching operations will be consolidated.

CSX also said it will repurchase $1 billion worth of its stock over the next year and increased its quarterly dividend to 20 cents from 18 cents.

Over the summer, CSX will start storing around 550 locomotives and roughly 25,000 freight cars that won't be needed as the railroad begins operating on a tighter schedule. That will likely allow it to eliminate locomotive purchases for some time.

Streamlining the railroad and imposing tighter schedules will allow CSX to increase the average speed of its trains and reduce the number of stops they make in terminals and railyards. Harrison said that will result in CSX being able to reliably deliver goods picked up in Chicago to Florida in two or three days.

Reducing the railroad's workforce is also part of the plan, but Harrison says that will likely be largely accomplished through attrition. The number of jobs that might be cut hasn't been decided.

CSX did eliminate about 1,000 management jobs earlier this year before Harrison was hired. That contributed to $173 million in restructuring charges in the first quarter. Without those costs, the railroad would have delivered earnings per share of 51 cents, but with those costs the railroad's profit rose only 2 percent to $362 million, or 39 cents per share.

Edward Jones analyst Dan Sherman said the initial results, combined with Harrison's outlook for the year, are impressive because they suggest the reforms will start to benefit CSX immediately.

"I thought the result was incredible," Sherman said.

Investors have welcomed Harrison's arrival, and CSX's jumped 5.6 percent, or $2.65, to $49.58 Thursday. Its shares had already risen 31 percent since the start of the year before it was first reported that Harrison might take over as CEO.

The 72-year-old Harrison was hired by CSX after pressure from the Mantle Ridge hedge fund that owns 5 percent of the railroad.

CSX shareholders will vote June 5 on whether the railroad should cover an $84 million compensation package for Harrison that would reimburse him for compensation he forfeited at Canadian Pacific when he retired early.

Harrison has said he'll resign if the compensation isn't approved.

CSX operates more than 21,000 miles of track in 23 Eastern states and two Canadian provinces.