CSX - Example of Premier Operating Managers

Gudovac would like to devote one article highlighting the premier operating managers at CSX.  Premier operating managers are able to pro-actively change their business ahead of external traumas.  CSX's latest quarterly results were good. Gudovac reviewed these results from a financial perspective a few days ago. 

This article will show how pro-active managers can protect their Owners. Sell side blather about strategy, global trends, and cool-neat-stuff  adds zero value if managers can't execute. 

CSX managers can execute.  

The information we'll use to illustrate the subject are slides from CSX's 3Q presentation.  We'll first start with the context and then move to the specific actions managers pro-actively undertook.

The economic environment for CSX is terrible. Volume is down 15% overall. It is down in every market.   The Coal market is one example. 

Coal shipments are approximately 20% of CSX's business by revenue.  Management tracks Coal stockpiles (aka inventory) at Utilties closely.  Coal inventory is at near record highs. Management doesn't sugarcoat this bad news.  Utilities are not going to increase demand their for Coal.  

The quarterly conference call made it clear that Utilities were shipping the absolute minimum required under their long term purchase agreements. 

Management sums up the prognosis for 4Q in the slide shown on the right.  We might think of this slide as the brown shoots slide. Management considers the outlook 60%  unfavourable and 30% favourable.   Management presented this harsh verdict clearly.

So, management recognizes the external economic environment is bad and not going to get better. What have they done about it ? The next series of slides describe that actions CSX management have implemented to protect Owners. 

First, management slashed capacity by slightly more than the 15% decline in volume.   Capacity has been slashed by 13% of employees 'furloughed', 17% of locomotives stored, and a  mind boggling 32% of freight cars stored.

These managers don't sit around  creating fantasies of how things-are-going-to-get-better-real-soon. They aren't grasping at feel good stories coming from corrupt Political Appointees. These managers slash capacity and costs by staggering amounts at the first hint of trouble.  

The results of their actions are shown in the Cost Cutting chart on the left.  Every single Manager on Earth should have their cost structure broken down into the same components as CSX shows: Short-Term Variable Costs, Long-Term Variable Costs, and Fixed/Indirect Costs.   

CSX managers have slashed short term variable costs by 40% which is to be expected. However, they also slashed LT variable costs and Fxd/Indirect by 16% ! Fixed Costs are the most difficult to cut. CSX cut fixed costs by more than the decline in volume. 

The results from the cost cutting are shown in the Productivity Metrics chart.  Productivity remains high in the face of reduced volume. This productivity growth indicates that Managers have been able to slash costs without too much disruption.  

Operating Managers know how difficult it is to cut costs without disrupting the workforce. CSX managers have executed well in this respect. 

The net result of  Management's efforts is increased margins.  

Repeat - increased margins in the face of 15% decline in volume.  

'nuff said. 

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