CSX Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY2021. This is an annual filing, not a standalone fourth-quarter report. CSX provides rail freight, intermodal, trucking and related transportation services, principally in the eastern United States.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $14.853 billion | $12.522 billion | +19% |
| Operating expenses | $8.830 billion | $6.928 billion | +27% |
| Operating income | $6.023 billion | $5.594 billion | +8% |
| Operating ratio | 59.5% | 55.3% | Up 420 basis points |
| Net earnings | $4.166 billion | $3.781 billion | +10% |
| Diluted EPS | $1.95 | $1.68 | +16% |
| Cash from operations | $5.619 billion | $5.099 billion | +$520 million |
| Free cash flow before dividends (non-GAAP) | $3.732 billion | $3.833 billion | −$101 million |
Revenue growth reflected higher fuel recovery and pricing, including higher export-coal benchmark rates, and the inclusion of Quality Carriers. Expenses rose faster than revenue, notably from higher fuel prices, labor and purchased services. Locomotive fuel prices increased 66%. Operating ratio deterioration indicates lower operating efficiency year over year. Property-disposition gains fell to $238 million from $454 million, including lower gains from the completed sale of Virginia property rights.
Business and material year-over-year changes
- Merchandise revenue increased 9% to $8.239 billion; volume declined 1%. Intermodal revenue rose 13% to $2.306 billion on essentially flat units. Coal revenue increased 36% to $2.434 billion, while coal carloads declined 1%.
- Trucking revenue was $966 million versus $410 million in 2021, largely reflecting Quality Carriers, acquired July 1, 2021, and higher fuel surcharges. The comparison includes a partial year of Quality Carriers in 2021.
- CSX acquired Pan Am Systems on June 1, 2022, for $600 million, funded with $422 million of stock and $178 million of cash. The acquisition expands its Northeastern network; 2022 results include Pan Am only after closing.
- Share repurchases totaled $4.731 billion, up from $2.886 billion; dividends paid were $852 million. Diluted EPS growth also benefited from lower average shares outstanding.
- Operating service measures weakened: train velocity declined 10%, dwell increased 6%, on-time originations fell to 60% from 75%, and on-time arrivals to 52% from 66%. Carload trip-plan performance declined; intermodal trip-plan performance improved. CSX reported service improvement in the final quarter and expected the trend to continue in 2023.
Liquidity, debt and capital
- Year-end cash and cash equivalents were $1.958 billion; short-term investments were $129 million. Working capital surplus was $1.4 billion, down from $1.6 billion.
- Long-term debt, including current maturities, totaled $18.047 billion, compared with $16.366 billion in 2021. CSX issued $2.0 billion of long-term debt in 2022. Its $1.2 billion revolving facility and $1.0 billion commercial-paper program had no outstanding borrowings at year-end; the revolver expires March 2024.
- Capital expenditures were $2.133 billion. Management expected approximately $2.3 billion of capital investment in 2023, with about 75% directed to sustaining core infrastructure and operating equipment, primarily funded from operating cash flow.
- The Board authorized a 10% quarterly dividend increase to $0.11 per share effective March 2023. The July 2022 $5 billion repurchase program had $3.3 billion of authority remaining at year-end.
- Credit ratings were stable at S&P BBB+ and Moody’s Baa1, both investment grade.
Outlook, risks and unusual items
- The filing provides no specific 2023 revenue, earnings or volume guidance. Management’s stated near-term outlook includes expected continuation of late-2022 service improvement and approximately $2.3 billion in 2023 capital investment.
- Principal risks include economic and freight-demand weakness, inflation and fuel costs, competition from trucking and other modes, labor and staffing availability, service or network disruption, severe weather and climate effects, cybersecurity, regulation, and accidents involving hazardous materials.
- All 12 participating rail unions had agreements in place through December 31, 2024. The filing discusses potential labor-disruption risks generally.
- Environmental reserves were $161 million, and CSX had been identified as a potentially responsible party at approximately 240 environmentally impaired sites. Management says additional exposure at some sites cannot currently be reasonably estimated.
- Management estimated $3 million to $21 million in aggregate possible losses on certain legal proceedings in excess of recorded reserves. It said pending matters were not expected individually to have a material adverse effect, while noting an unexpected adverse resolution could be material in a particular period.
- The 2022 equipment depreciation study is expected to increase annual depreciation expense by about $80 million. The Virginia property-rights sale was completed, generating $144 million of gains and $125 million of proceeds in 2022. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether service metrics and operating efficiency improved in 2023, and whether service recovery affected costs or customer volumes.
- How much revenue and earnings growth reflects pricing and fuel recovery versus acquired businesses, and how the full-year Quality Carriers comparison changes the trend.
- Debt maturities, interest expense, refinancing needs and liquidity after the 2024 revolving-credit-facility expiration.
- Actual 2023 capital spending, returns on network investments, and execution of the announced dividend and repurchase plans.
- Developments in environmental remediation, fuel-surcharge litigation and other contingencies, including potential amounts beyond recorded reserves.