Q2 2012 Earnings Call
July 18, 2012 8:30 am ET
David Baggs - Vice President of Capital Markets and Investor Relations
Michael Jon Ward - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chief Executive Officer of Csx Transportation Inc and resident of Csx Transportation Inc
Clarence W. Gooden - Chief Commercial Officer, Executive Vice President of Sales and Marketing, Chief Commercial Officer of Csx Transportation Inc and Executive Vice President of Csx Transportation Inc
Oscar Munoz - Chief Operating Officer and Executive Vice President
Fredrik J. Eliasson - Chief Financial Officer and Executive Vice President
William J. Greene - Morgan Stanley, Research Division
Kevin Crissey - UBS Investment Bank, Research Division
Ken Hoexter - BofA Merrill Lynch, Research Division
Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division
Brandon R. Oglenski - Barclays Capital, Research Division
Christian Wetherbee - Citigroup Inc, Research Division
Christopher J. Ceraso - Crédit Suisse AG, Research Division
Justin B. Yagerman - Deutsche Bank AG, Research Division
Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division
Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division
David Vernon - Sanford C. Bernstein & Co., LLC., Research Division
John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division
Cherilyn Radbourne - TD Securities Equity Research
Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division
H. Peter Nesvold - Jefferies & Company, Inc., Research Division
Walter Spracklin - RBC Capital Markets, LLC, Research Division
Jeffrey A. Kauffman - Sterne Agee & Leach Inc., Research Division
Mark A. Levin - BB&T Capital Markets, Research Division
Scott H. Group - Wolfe Trahan & Co.
Good morning, ladies and gentlemen, and welcome to the CSX Corporation Second Quarter 2012 Earnings Call. As a reminder, today's call is being recorded. [Operator Instructions] For opening remarks and introduction, I would like to turn the call over to Mr. David Baggs, Vice President of Capital Markets and Investor Relations for CSX Corporation. Sir, you may begin.
Thank you, Lori, and good morning, again, and welcome to CSX Corporation's Second Quarter 2012 Earnings Presentation. The presentation material that we'll be reviewing this morning, along with our quarterly financial report and our safety and service measurements are available on our website at csx.com under the Investors section. In addition, following the presentation, a webcast and podcast replay will be available on the website. Here representing CSX this morning are Michael Ward, the company's Chairman, President and Chief Executive Officer; Clarence Gooden, Chief Sales and Marketing officer; Oscar Munoz, Chief Operating Officer; and Fredrik Eliasson, Chief Financial Officer.
Now before we begin the formal part of our program, let me remind everyone that the presentation and other statements made by the company contain forward-looking statements. You are encouraged to review the company's disclosure in the accompanying presentation on Slide 2. This disclosure identifies forward-looking statements and risks and uncertainties that could cause actual performance to differ materially from the results anticipated by these statements.
In addition, let me also remind everyone that at the end of the presentation, we will conduct a question-and-answer session with the research analysts. With nearly 30 analysts covering CSX today, I would ask, as a courtesy, for everyone to please limit your inquiries to one primary and one follow-up question.
And with that, let me turn the presentation over to CSX Corporation's Chairman, President and Chief Executive Officer, Michael Ward. Michael?
Michael Jon Ward
Well, thank you, David, and good morning, everyone. Last night, CSX was pleased to report its 10th consecutive quarter of year-over-year earnings growth with earnings per share of $0.49, up 7% from the same period last year. We continued to be encouraged by how the business performs even in tough conditions. In this case, a very significant headwind in our utility coal business. In spite of that decline, volume and revenue essentially held flat, thanks in part to increases at Export Coal, Intermodal and Automotive. More importantly, our employees achieved at or near record performance in key measures of safety and service, continued to adjust resource levels in response to the utility coal decline and delivered significant productivity to both existing and new initiatives. As a result, we increased our operating income to $943 million and achieved a 60 basis point improvement in the operating ratio to 68.7%.
And now we'll provide a more in-depth review of our results starting with Clarence, who will discuss what we are seeing in the marketplace. Clarence?
Clarence W. Gooden
Thank you, Michael, and good morning, everyone. Total second quarter revenue of just over $3 billion was essentially flat compared to 2011 reflecting a more moderate economic environment. Starting at the left of the chart, fuel recovery increased $17 million in the quarter. Moving to the right, volume-related revenue had an unfavorable impact of $8 million in the quarter, as volumes growth in Export Coal, Intermodal and merchandise was more than offset by the significant decline in utility coal. Continuing to the right, the combined effect of rate and mix was $16 million unfavorable in the second quarter. The benefit of core pricing gains was more than offset by unfavorable mix associated with higher Intermodal growth and declining coal volume.
Now let's take a look at each of the major markets in more detail starting with merchandise. Overall, merchandise revenue increased 6% driven by a 1% growth in volume and a 6% increase in revenue per unit, reflecting rate increases across all markets due to higher yields and fuel recovery. Automotive was a key driver in the industrial sector, growing 27% as North American light vehicle production increased 25% in the quarter. The chemicals market grew 1% with the frac sand and petroleum products being the primary drivers.
In the construction sector, growth in building products was offset by a decline in aggregate shipments due to the completion of several stimulus projects.
In the agricultural sector, volume declined across all major commodities. Corn shipments to the Southeast for animal feed were lower as a strong local wheat crop displaced Midwestern corn. Phosphate shipments declined as buyers delayed purchases in the expectation of moderating commodity prices. Finally, ethanol shipments softened as a result of lower gasoline demand. Looking forward, the Automotive market will continue to drive growth in the industrial sector. In addition, we continue to see growth opportunities in chemicals and Metals, particularly in commodities that support the oil and gas industry. In the construction sector, aggregate shipments will remain challenged, while recovering housing starts will drive continued growth in building products. Finally, we expect the agricultural sector to be stable with an increase of phosphate shipments being offset by a lower ethanol demand.
Turning to the next slide, let's look at the Intermodal markets. Intermodal revenue increased 10% to $408 million driven by an 8% increase in volume. Domestic volume was up 7%, setting a second quarter record. Growth was driven by highway to rail intermodal conversions, the continued success of our UMAX interline container program and new markets and lanes generating growth with existing business partners. International volume grew 9% driven by the successful onboarding of the new Maersk business.
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