OMAHA, Neb. – CSX railroad’s top executive said Wednesday regulators are likely to be reluctant about consolidation among the major industry players because they remain concerned about service.
The idea of railroad mergers is on investors’ minds this week because of several reports that CSX rejected a merger offer from Canadian Pacific railroad last week. Both railroads have declined to comment on those reports.
CSX CEO Michael Ward said Wednesday the Surface Transportation Board would likely take a cautious approach to any railroad consolidation deals because there are only six Class I railroads in the U.S. and Canada.
“The STB is very concerned about the service levels being produced by the industry with this surge of business. And it even asked for new reports on a weekly basis to monitor that,” Ward said. “So I might speculate they would be very cautious about this.”
Delays in rail shipments, particularly grain in the northern Great Plains, have been common over the past year as the industry struggled to deal with a bitterly cold winter and keep up with booming demand for oil shipments and a record harvest.
Besides CSX, the other large railroads are Norfolk Southern, Union Pacific, BNSF, Canadian Pacific and Canadian National.
The last time a major rail merger was proposed between BNSF and Canadian National in 1999, the deal fell apart after regulators imposed a 15-month moratorium and other restrictions on rail mergers.
Ward said CSX remains focused on improving its operations and delivering solid results for its shareholders.
The Jacksonville, Florida-based company said Tuesday its third-quarter profit grew 12 per cent to $509 million, or 51 cents per share. That’s up from $455 million, or 45 cents per share, last year.
CSX officials told investors they’re confident in their railroad’s prospects, and they expect to deliver double-digit growth in earnings per share next year.
But S&P Capital IQ analyst Jim Corridore downgraded CSX’s stock to “Hold” from “Buy” on Wednesday because he doesn’t think the stock will meaningfully outperform the S&P 500 index over the next year.
CSX’s stock fell 92 cents, or nearly 3 per cent, to $31.69 in afternoon trading.
CSX Corp. operates more than 21,000 miles of track in 23 Eastern states and two Canadian provinces. It is the first major U.S. freight railroad to report quarterly results.
Norfolk Southern Corp. will release its earnings next Wednesday. Union Pacific Corp. will follow with its third-quarter report a day later. BNSF railroad’s results will be reported later as part of Berkshire Hathaway Inc.’s quarterly report.
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