CSX Sees Costs Down, Prices Rising

NEW YORK -- Railway giant CSX Corp. said on Wednesday its second-quarter results will show a "striking improvement" in costs, helping offset the high price of fuel and declining demand growth in the slowing U.S. economy, a wire service reports.

"The earning power of CSX will increasingly be revealed," said Chief Executive John Snow, during a speech at the Merrill Lynch Global Transportation Leaders Conference here. "Our service is of more value than we are getting paid for it. We see a world where rates will have to go up."

CSX and Norfolk Southern Corp. (NYSE:NSC - news) jointly bought portions of Conrail several years ago and had suffered service problems as the two rails tried to integrate Conrail lines into their existing lines.

During the first quarter, CSX raised prices selectively on certain rail lines, said Dan Murphy, spokesman. As a result, revenues remained flat in the quarter compared with a year earlier despite a decline in rail car volumes, reflecting the ''strength in our pricing program,'' he said.

Snow would not release any specific numbers on how much prices might rise or give a specific earnings forecast. He did, however, say CSX has made significant cost improvements, particularly how it uses its equipment and its locomotive costs during the quarter.

Those cost cuts should help to offset continued high diesel fuel costs, which rose by nearly $20 million in the first quarter compared with the year-ago period on comparable usage, Murphy said. Another problem plaguing CSX's second-quarter results is continued weak demand in the slowing U.S. economy, Snow said.

"We see very weak demand across virtually all our lines of business," Snow said. "The only bright spot that we have, and it is a gloriously bright spot right now, is coal."

Snow said coal represents about 30 percent of CSX's total revenues and coal volume was up 10 percent in the first-quarter compared with a year earlier as many utility companies turned to coal as an energy source rather than the more expensive natural gas.

Shares of CSX fell 0.61 percent, or 23 cents, to $37.30 during afternoon trading on the New York Stock Exchange, just off its 52-week high of $40.20.

Snow called the overall picture for the railroad industry a ''good one'' citing cost cuts, pricing power and increased alliances with other railroads, as the reasons for service improvements, increased cash flow and improved future earnings.