Trade Mag. finally gets it right; CSX is on the road to recovery after years of poor management

Implications: Trade magazines are usually constrained to write only positive comments about the companies in the industries they cover, since subscriptions and ad revenues are more dependent on goodwill rather than good investigative reporting. In the article reviewed below however, the writer/editor finally fesses up, CSX was poorly managed in the past, and much of the blame belongs to the ex-Chairman/CEO, John Snow. The article goes on to heap the usual praise on the new management team assembled a few years ago by Michael Ward, probably trying to aide in their defense against the corporate raid being staged by the TCI fund.

Analysis: Ward and team have a new operating plan and it hopefully will be successful; results to date are inconclusive. While train speeds and terminal dwell times have dramatically improved, so have those on the other rail lines and CSX had more room for improvement than others. Also, traffic volumes are well below levels of a few years ago and one would expect the rail system to be more fluid. More telling of better operating management are the reductions in personal injuries and derailments; either transportation officers are more focused on their work or maintenance practices have been improved or both.   Most of the improvements to the bottom line have been achieved by raising prices, a nice strategy that has worked for the past few years and may still work for a few more quarters, but one which eventually must end. Hopefully, the extra money will allow good maintenance practices to be continued and good investments to be made to reduce costs and increase volumes in the future. Only time will tell on the latter, but better maintenance is already evident in their operating results.   The problems that resulted from the mergers that created CSX should not be so quickly dismissed. The string of poorly handled mergers that led to CSX points to an executive team that was more at home in dealing with regulators than at managing a railroad operation. The spider web of rail lines that is CSX is one of the most difficult systems to manage and one that would challenge even the best management team. Which leads one to question why a group of investors (TCI), who have no railroad management experience, could do any better than the current team of managers at CSX.   What TCI is offering investors sounds pretty similar to what past managements told the Interstate Commerce Commission and Surface Transportation Board they could achieve with one of the old CSX mergers. Great plans have a way of faltering on the rocks of reality, and unless you have a good skipper to handle the crisis, the wreck will be nasty. Ward may be overpaid, but he has shown himself, so far, to be a good skipper and should be entrusted to keep guiding the company.