CSX Corporation — Q3 2023 Form 10-Q
Business and period: CSX provides rail freight, intermodal, trucking, and related transportation services across the eastern United States and parts of Canada. This unaudited report covers the quarter and nine months ended September 30, 2023; comparisons are with the same 2022 periods unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3,572 million | $3,895 million | $10,977 million | $11,123 million |
| Operating income | $1,295 million | $1,579 million | $4,241 million | $4,564 million |
| Operating ratio | 63.8% | 59.5% | 61.4% | 59.0% |
| Net earnings | $846 million | $1,111 million | $2,829 million | $3,148 million |
| Diluted EPS | $0.42 | $0.52 | $1.40 | $1.46 |
| Interest expense | $203 million | $193 million | $605 million | $543 million |
Cash flow and liquidity: For the first nine months, operating cash flow was $4,049 million versus $4,255 million. Capital additions were $1,590 million; company-defined free cash flow before dividends was $2,494 million versus $2,869 million. Cash and cash equivalents were $1,360 million at September 30, down from $1,958 million at year-end 2022. Working capital surplus was $425 million, compared with $1.4 billion at year-end.
Debt and capital returns: Long-term debt, including current maturities, was $18,462 million ($559 million current), versus $18,047 million at year-end 2022. CSX issued $600 million of 5.20% notes due 2033 and repaid $150 million. Its $1.2 billion revolving credit facility and $1.0 billion commercial-paper program had no outstanding borrowings. Nine-month dividends paid were $666 million and share repurchases were $2,901 million. A new incremental $5 billion repurchase authorization was approved October 17, 2023.
Material changes and management commentary
- Q3 revenue declined 8%, operating income declined 18%, and diluted EPS declined 19%. The operating ratio worsened by 430 basis points.
- Management attributed the revenue decline primarily to lower fuel recovery, reduced “other” revenue, lower export-coal pricing, lower trucking revenue, and reduced intermodal volume. Merchandise revenue was broadly resilient; automotive and coal volumes increased, while intermodal revenue fell 14% and “other” revenue fell 52%.
- Q3 expenses fell 2%: lower locomotive fuel prices and equipment rents more than offset higher purchased services, depreciation, and casualty expense. The comparison also included $42 million of prior-year out-of-period labor and benefit costs. Lower gains on property dispositions reduced the year-over-year benefit.
- Nine-month expenses increased 3%, reflecting lower property-disposition gains, inflation, and higher operating support costs, partly offset by lower fuel prices. Interest expense rose with higher average debt and interest rates.
- Operating service measures improved year over year, including velocity, dwell, and trip-plan performance. Safety measures deteriorated: the Q3 FRA train accident rate increased 19% and the personal injury frequency index increased 1%.
Outlook, risks, and contingencies
- CSX expected 2023 capital investment of approximately $2.3 billion, with about 75% directed to sustaining core infrastructure and equipment. The filing provides no specific earnings or revenue guidance.
- Management said it considers liquidity adequate and intends to maintain an investment-grade credit profile. Capital investments are expected to be funded primarily from operating cash flow.
- Key risks include changes in freight demand, competition, fuel prices and surcharges, inflation, labor and staffing, severe weather and operational disruption, safety and hazardous-material incidents, cybersecurity, capital-market access, and regulatory or legal developments.
- Recorded casualty, environmental, and other reserves totaled $435 million. CSX identified itself as a potentially responsible party at approximately 230 environmentally impaired sites; some additional exposure cannot yet be reasonably estimated. Management did not expect its estimated share of Lower Passaic River remediation costs to be material based on currently available information.
- For certain legal matters with reasonably possible losses above established reserves, the estimated aggregate range was $3 million to $16 million. Management cautioned that an unexpected adverse resolution of one or more matters could materially affect results or liquidity in a particular period. Fuel-surcharge antitrust litigation remains ongoing.
Important facts for investors to verify
- Whether revenue, intermodal trends, export-coal pricing, and other-revenue declines persist, and how they affect operating ratio and earnings.
- Whether improved service performance is sustained and safety metrics improve.
- Execution and funding of the approximately $2.3 billion 2023 capital plan, alongside significant repurchases and the new authorization.
- Debt maturities, borrowing costs, working-capital levels, and cash generation; the filing does not provide a clear value for a forward-looking earnings outlook.
- Developments in environmental proceedings and litigation, including the Lower Passaic River matter and fuel-surcharge claims.