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
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.
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.
Wall Street didn’t relish the news - CSX lost 29 cents a share today.
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.
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.
Well, it’s not supposed to be, anyhow…
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%
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.”
Hard to believe that a corporation would use “Creative Accounting”; after all, isn’t the business world known for its fair play and honesty?
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.
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.”
“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.
That can go both ways - those who believe everything is on the up and up, and those who believe there’s skullduggery afoot.
+1 [:-,]
I think it’s smartest to never under estimate anyone who might have motive.