By Laura Stevens
The plunging price of oil won't affect CSX Corp.'s crude-by-rail
business in 2015, executives said on Wednesday.
Oil could fall as low as $35 per barrel in price before it might
affect the amount of oil flowing out of the Bakken Shale to the
East Coast, executives said during a fourth-quarter earnings
call.
Currently, crude-by-rail represents less than 2% of CSX's total
business, but the about 3.5 trains dispatched for the transport of
crude oil a day should stay steady "and maybe even grow a bit"
through 2015, Chief Executive Michael Ward said. The company's
business transporting fracking sand to natural gas drilling areas
is also expected to be unaffected.
Lower oil prices should fuel growth. "It's a positive experience
for the American taxpayer, for the American economy," said Clarence
Gooden, chief commercial officer. "So I think lower crude oil
prices is very positive for our economy and very positive for
CSX."
The company said it expects double-digit growth in earnings per
share for 2015, as merchandise and intermodal volumes grow at a
faster pace than the economy and as the railroad increases prices
for its services.
CSX should also generate as much as $200 million in productivity
savings, higher than in recent years. About 15% of the savings will
be generated by better weather, and $50 million are linked to a
workforce reduction program.
The company also plans to invest $2.5 billion in its business
this year, up from a planned $2.3 billion in 2014. It plans to
spend about 17% of revenue on such items as new locomotives and
infrastructure.
Despite diesel prices falling, which has made road-transport
pricing more competitive with rail, CSX expects this year it will
again gain market share from its highway-bound competition,
executives said. Although analysts have said some shippers could
opt for trucking, especially in the first quarter, CSX executives
said their customers hadn't expressed any interest in
switching.
A Wolfe Research fourth-quarter survey found that in the
previous six months, shippers were switching to truck transport at
a higher rate than to rail for the first time since 2010.
The biggest issue preventing any broad switch back to trucking
by shippers is a severe shortage of drivers, which has tightened
capacity in that industry, the CSX executives said. "Most people
that I'm aware of don't want their sons to grow up to be truck
drivers," Mr. Gooden said. It can be an unattractive job because
drivers are away from home for long periods, among other things.
"It's more than just having the capacity itself. It's all the
issues that surround it," Mr. Gooden added.
CSX experienced a "supercharged" boost from fuel surcharges the
company bills its customers, as the wholesale price of fuel it paid
decreased more quickly than the highway diesel-fuel price index
used for most of the company's surcharge calculations, according to
Sanford C. Bernstein & Co. analysts, a net benefit of
approximately $39 million.
While it was a boost in the fourth quarter, the surcharge factor
will detract from earnings once fuel prices start increasing again,
CSX executives said, as there is a two-month lag in calculating
surcharges.
"Overall, the fuel surcharge is working well," said CFO Fredrik
Eliasson. "And we think that we are neutral to any sort of price
volatility, with the exception of the lag effect."
Lower fuel surcharges should also help the company to push
through price increases, executives said.
CSX on Tuesday reported a 15% increase in profits to $491
million, while revenue increased 5.3% to $3.19 billion.
Write to Laura Stevens at laura.stevens@wsj.com
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