10-QPeriod: Q1 FY2007

CSX CORP Quarterly Report for Q1 Ended Mar 30, 2007

Filed April 18, 2007For Securities:CSX

Summary

CSX Corporation reported net earnings of $240 million for the first quarter of 2007, a slight decrease from $245 million in the same period of 2006. This decrease was primarily attributed to higher operating expenses, including derailment-related costs and general inflation, which offset revenue growth driven by pricing initiatives. Revenue for the quarter rose to $2.42 billion, up from $2.33 billion in the prior year, reflecting strong yield management. However, operating income saw a marginal decline to $488 million from $496 million, impacted by increased expenses. The company also announced a significant share repurchase program and a 20% increase in its quarterly dividend, signaling confidence in its future performance and commitment to returning capital to shareholders. Looking ahead, CSX anticipates continued financial performance consistent with its long-term targets for operating income, earnings per share, and free cash flow.

Key Highlights

  • 1Net earnings for Q1 2007 were $240 million, a 2% decrease compared to $245 million in Q1 2006.
  • 2Operating revenue increased by 4% to $2.42 billion in Q1 2007, driven by strong pricing initiatives, while operating income slightly decreased by 2% to $488 million.
  • 3The company announced a $2.0 billion share repurchase program and increased its quarterly dividend by 20% to $0.12 per share.
  • 4Surface Transportation revenue grew 4% due to yield management, offsetting a 4% decline in volumes.
  • 5Operating expenses increased by 5% to $1.93 billion, impacted by derailment-related costs and inflation.
  • 6CSX's cash and cash equivalents increased to $512 million at March 30, 2007, from $461 million at December 29, 2006.
  • 7The company expects its 2007 financial performance to align with its long-term targets for double-digit compounded annual growth rates for Surface Transportation operating income, consolidated earnings per share, and free cash flow.

Frequently Asked Questions

The primary drivers for the decrease in net earnings were increased operating expenses, including derailment-related costs and general inflation, which offset the revenue growth achieved through pricing initiatives. These factors led to a slight decline in operating income despite revenue growth.

CSX expects its financial performance in 2007 to be consistent with its long-term financial targets. This includes aiming for double-digit compounded annual growth rates for Surface Transportation operating income, consolidated earnings per share, and free cash flow through 2010, driven by anticipated strong revenue growth from continued pricing and modest volume increases.

CSX is actively returning capital to shareholders through its significant share repurchase program and dividend increases. In February 2007, the company announced a $2.0 billion share repurchase program and increased its quarterly dividend by 20% to $0.12 per share. During the first quarter of 2007, CSX repurchased approximately 4.9 million shares under this program.

In the first quarter of 2007, CSX recognized $18 million in gains on insurance recoveries related to Hurricane Katrina. These gains were attributed to recovering amounts in excess of the net book value of damaged fixed assets and recording recoveries for lost profits. While operations had returned to pre-hurricane conditions by the end of Q1 2006, insurance proceeds related to the damage were still being recognized.