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CSX Sticks With Harrison's Plan To Cut Jobs, Reduce Trains

Mar. 05, 2018 2:11 PM ETCSX Corporation (CSX)CP, CP:CA27 Comments
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  • CSX's new CEO will stick with Hunter Harrison's plan to cut jobs and reduce trains.
  • Amid management's rightsizing, CSX has experience train derailments and service problems.
  • I also believe the upside from efficiency gains could be priced into the stock already.
  • Avoid CSX.

CSX (NASDAQ:CSX) recently affirmed it would stick with former CEO Hunter Harrison's plan to cut jobs and rail cars, and slash capital spending:

U.S. railroad operator CSX Corp said on Thursday it would stick with a plan started by former Chief Executive Hunter Harrison, who died in December, to boost profit through cutting jobs and rail cars, and would also slash capital spending.

CSX shares, which ended the trading day up about 1 percent, have surged about 50 percent since January 2017 and about 12 percent since March 2017, when Harrison took over as CEO following a push by activist investor Paul Hilal of investment fund Mantle Ridge LP.

Harrison died in December at the age of 73. Jim Foote took over as acting CEO. Harrison was known as a turnaround artist. He turned Canadian National Railway (CNI) into one of the most-efficient railroads in the world. Harrison brought his pixie dust to Canadian Pacific (CP), rightsizing the organization and creating efficiency gains only rivaled by Canadian National. Harrison and Canadian Pacific attempted high-profile hostile takeover attempts of CSX and Norfolk Southern (NSC) but were rebuffed.

Harrison attempted to apply his turnaround skills to CSX. A major question was whether new CEO Jim Foote would continue his cost-cutting strategy. That question has just been answered.

Will Efficiency Gains Come At The Expense Of Service?

Key to Harrison's strategy was cutting cost, reducing downtime, and getting higher utilization from CSX's existing railroad fleet. Harrison lengthened trains, closed rail yards, mothballed certain trains that were considered underutilized and cut overtime pay for hundreds of workers. Last summer, critics suggested the rapid changes came at the expense of safety measures:

A signal maintainer spoke of a dangerous change in hump yard operations at Avon Yard, in Indianapolis, Indiana, "One of the big problems is that

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The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

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