- The Washington Times - Monday, July 16, 2001

CSX Corp., the nation's third-largest railroad, is back on track.

The company said last week its second quarter profits rose 125 percent to about $108 million a year before, beating analysts' expectations.

Shares of the Richmond freight transportation company closed at $38.21 Friday on the New York Stock Exchange, having traded close to that price since last Wednesday, when the shares jumped nearly $2.

"We're doing extremely well despite the economy, and that's what our earnings reflect," says Dan Murphy, CSX spokesman. "We consider this to be our breakout quarter, an indication that we've clearly turned the corner on service and profitability."

The railroad, which operates mostly in eastern states, suffered from snarls in operations after it bought the East Coast operations of Conrail in June 1999.

In an effort to fix the problems, CSX in early 2000 had a management shakeup. CSX President Ronald Conway was replaced by John Snow, and several former Conrail executives also were replaced.

The process was not only messy but costly, analysts say, so this quarter's high performance is seen as the light at the end of the tunnel for CSX.

"That's [why] you're seeing 125 percent increase in earnings not because the quarter was so spectacular, but because the second quarter of 2000 expenses were much higher and more difficult," says Kevin Tynan, an analyst with Argus Research. "It's costly to run the railroad, and [with Conrail, CSX] took on more than they could handle."

Because railroads are not a fast-growth industry, mergers are the main way for operators to grow earnings. Last month, however, the Surface Transportation Board issued new regulations making it more difficult for railroads to combine.

CSX, which provides rail, intermodal, domestic container-shipping, barging, and contract logistics services, said last week it will make about 51 cents per share, or 15 cents higher than analysts surveyed by First Call/Thomson Financial expected.

Another reason why the company's shares have been doing well is because CSX is benefiting from a backlash against technology stocks in the market.

"For whatever reason, whether investors are running back towards old-economy stocks as the market was struggling earlier in this year, it sort of pushed the prices of railroads up," says Mr. Tynan, who rates the stock as a hold saying that it's overvalued at current prices. "Railroad shares are trading at prices that are too high by historic standards."

CSX's stock reached its 52-week high of $40.20 in May 18, and a low of $20.06 seven months earlier.

But not all analysts feel CSX's stock is overvalued. Gary Yablon and Christopher Robertson of Credit Suisse First Boston Corp., gave the stock a buy rating in their most recent report on CSX.

The report says CSX traffic volume fell 4 percent in fiscal year 2000, compared to the year before, while intermodal volume grew. The largest declines were in auto and parts traffic, as well as in minerals, forest products, fertilizers, and chemicals. Food and consumer traffic grew 5 percent year over year.

CSX's income, about 81 percent or $7.2 billion last year, came from the railroad and intermodal business.

Another $666 million came from its container shipping line, CSX Lines; The rest stems from CSX's port business in Asia, Europe, Russia and the Dominican Republic and from its resort, the Greenbrier, in West Virginia.

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