Summary
CSX Corporation (CSX) filed an 8-K on September 6, 2007, detailing strategic initiatives and financial outlook presented at an investor and analyst conference. The company announced a significant locomotive modernization program, retiring 150 leased units and replacing them with 100 new, more fuel-efficient locomotives. This move represents an additional $200 million capital outlay in 2007, bringing the total for the year to $1.7 billion, and is projected to yield a strong 17% return on capital. Furthermore, CSX reaffirmed its commitment to aggressive financial targets through 2010, including annual operating income growth of 10%-12% and earnings per share (EPS) growth of 15%-17%. The company also aims for an improved operating ratio in the mid- to low-70s by 2010. Projections indicate free cash flow increasing from approximately $100 million in 2007 to between $800 million and $1 billion in 2010, before dividend payments, assuming sustained economic growth.
Key Highlights
- 1CSX is retiring 150 leased locomotives and acquiring 100 new, fuel-efficient units.
- 2This locomotive upgrade will require an additional $200 million capital expenditure in 2007, increasing total CAPEX to $1.7 billion for the year.
- 3The locomotive replacement project is expected to generate a 17% return on capital, significantly exceeding the company's cost of capital.
- 4CSX reaffirmed financial targets through 2010: 10%-12% annual operating income growth and 15%-17% annual EPS growth.
- 5The company aims to achieve an operating ratio in the mid- to low-70s by 2010.
- 6Projected free cash flow is expected to increase from approximately $100 million in 2007 to $800 million - $1 billion in 2010 (pre-dividend).
- 7These financial projections are contingent upon sustained economic growth through 2010.