JACKSONVILLE, Fla. — CSX Transportation’s quarterly net income soared 25 percent in the fourth quarter as cost-cutting more than offset flat revenue and slumping traffic volume, the railroad reported on Tuesday. CSX reported adjusted net…
http://trn.trains.com/news/news-wire/2018/01/17-csx-earnings-4q
CSX has always had sharp pencils in the accounting room. Guess Mantle Ridge sharpened them further by limiting investments in capital projects.
Captial expenditures are usually not reflected in quarterly operating statements. Railroad accounting may be different.
John Timm
True on capital expenditures not being in the operating ratio and quarterly net income or loss (other than depreciation expense). When a company uses cash (an asset) to invest in track, locomotives, etc. (other assets), it is merely exchanging one asset for another and then will have incremental depreciation expense on those new assets over their useful life.
It is also true that cash not used for capital investment is also available to be paid out as dividends.
In that case, operating ratio is again not impacted, nor net income, but both cash and equity - balance sheet accounts - are reduced as cash goes out to the stockholders.
Capital expenditures have to at least be pro rated over the period for which those expenditures are expected to be made. If the decision that some $100M project won’t be made this year is enacted, that $100M has to show up somewhere on the quarterly report - bump up the profit $100M.
If you can make the quarterly income go up 25% by cutting costs like crazy while you have flat revenue and slumping traffic volume, what do you do in the next quarter to make people think you’re doing magic tricks?
“Hey Rocky! Watch me pull a rabbit out of my hat!”
Exit, stage right…
Well they did sell 800 locomotives that might have been the extra income.
Balt,
The statement above is flat not correct. A decision to undertake or to cancel a capital project does NOT affect current income. Capital projects do not show on profit and loss statements. Period.
Capital projects show most clearly on statement of cash flows. Your $100 million project is an increase in the appropriate asset accounts, and a corresponding decrease in the asset account cash. As someone else noted this is simply a change in the nature of assets, which are balance sheet items.
Once the assets are in service, there will be a depreciation expense on the income statement, and an increase in accumulated deprecitation on the balance sheet, for some number of years until the asset has been expensed. Depreciation does not consume cash like other expenses, so depreciation is also shown on the cash flow statement as a positive cash flow, that is, as generating cash.
Mac
Seems for now, hiring the late hhh has paid off. My guess is next rabbit out of the hat will be building traffic and revenues to grow earnings.
But - if we have more “cash,” we can pay a bigger dividend, right?
Yes, you can pay a bigger dividend.
With EHH gone, who knows. But his strategy seemed to me to be to run off certain lines of business and shrink the railroad to meet the reduced business.
To paraphrase a famous movie line, “Growth? We don’t need no stickin’ growth.”
Jeff
PS reminds me of a JGK column about a strategy to stop investing in the business, run the equipment and physical assets into the ground and get out all the money you could.
seem exactly what the bod of csx and it’s shareholders paid for and bought. Hhh certainly didn’t come to CSX easily or cheaply. But increasing earnings is what wanted and paid for. That’s what they got. They took his deal with thier eyes wide open.
Their eyes may have been wide open - even the blind have eyes that open and close. They are target fixated and like may pilots that have become target fixated they will soon be in more trouble than they ever thought possible - including crashing into the ground. Am I smelling the start of another Penn Central?
This is why serious financial analysts don’t get too excited about quarterly results. They look at them from a longer perspective - one to five years. They note them but usually don’t draw an hard and fast conclusions from them.
What the company has done over the last year to five years is what is important. It shows the trends and, equally important, provides the date for projective trends.
comparsion to the Penn Central, come on. Both the nyc and the prr we’re sick before the merger, then the forced marriage with the new Haven. Huge passenger and commuter operations. Operating in a very regulated environment. CSX may have done some questionable cutting, but nothing like the PC melt down.
Vampire management can drain a company quickly!
I look at the activist investers at CSX and then think about 2 carriers in recent memory in the OTR industry. One was Arrow out of OKC the other is Celadon out of Indianopolis. Arrow had a family that was cooking the books big time and literally went broke overnight stranding drivers all over the USA to the point drivers had their trucks repossesed while they were on the road from them with no way home. Celadon was taken over by a hedge fund a couple years ago and well let’s just say the fireworks hit last year to the point it is in question if they are going to survive so far they are thanks to the BOD throwing out the Hedge fund and them retrenching. If they had failed they would have been the Largest trucking carrier bankrupcy ever bigger than Consolidated freightways failure. So far they have righted their ship due to their employees sticking with them and busting their butts on the service side.
thank goodness one of the trucking companies survived. And I’m not saying what CSX is doing is right. Just that it’s being it’s entirely self inflicted.
It’s not a take over by a hedge fund, but a change in direction by the shareholders that voted the previous management team out, and the likes hhh in, based on this previous results. Only time will tell.