(Reuters circulated the following story by Nick Carey on April 15, 2009.)
CHICAGO If GM or Chrysler is forced into bankruptcy, CSX Corp (CSX.N) hopes for special status that would guarantee the railroad gets paid for services provided to the automakers, CSX's chief executive said on Wednesday.
"If any of the automakers go bankrupt, then we are hopeful that we'll get critical vendor status," CEO Michael Ward told Reuters in a telephone interview.
Ward added that CSX, the No. 3 U.S. railroad, had already been granted this status in a number of other bankruptcy cases. He said he could not disclose any company names as this would violate its agreements with customers.
Chrysler LLC, controlled by private-equity firm Cerberus Capital Management LP CBS.UL, has until the end of April to forge an alliance with Italian car maker Fiat SpA (FIA.MI) in order to qualify for more U.S. government aid.
General Motors Corp (GM.N) has been given 60 days of funding from the end of March to cut deeper and faster in order to receive additional government support.
U.S. auto sales have fallen to their lowest level in decades.
Ward said CSX is still on track to raise its prices by 5 percent to 6 percent this year, with 85 percent of its business already repriced.
"We have a pretty good line of sight on the rest of that business, so we're fairly confident" of meeting that target, he said.
The company plans 2009 capital expenditures of $1.6 billion, down from $1.7 billion in 2008, and expects freight volume declines in the second quarter "of a similar magnitude" to those of the first quarter, he said.
Ward spoke to Reuters the day after CSX posted a first-quarter profit that came in above market expectations, despite a 17 percent decline in freight volumes and a 23 percent drop in net income.
UBS analyst Rick Paterson wrote in a note to clients, "The key takeaway from CSX's result for us is this: (it) could well be the single worst quarter in terms of year-on-year growth this cycle. Yet the railroad does a quarter of a billion in net income and earnings are down a paltry 23 (percent) year-on-year."
"Is this as bad as it gets?" Paterson added. "If so, we'll happily take it."
Morgan Stanley analyst William Greene wrote in a note to clients that "we view CSX's results as indicative of further positive reports from peers in the coming weeks, rather than the beginning of a phase of outperformance for the stock vis-a-vis peers."
He added, "As impressive as CSX's cost performance was, we think the company's operating metrics and productivity lagged peers in the quarter."
The other major railroads -- No. 1 Union Pacific Corp (UNP.N), No. 2 Burlington Northern Santa Fe Corp (BNI.N) and Norfolk Southern Corp (NSC.N) -- are due to report results next week.
Ward said CSX currently has 2,400 employees on furlough, and 500 locomotives and 31,000 railcars parked, to cut costs amid the recession.
"We think we have the business sized for the level of demand out there right now," he said.
CSX shares were up almost 10 percent at $31.13 near midday on the New York Stock Exchange. Union Pacific was up more than 3 percent at $47.58, BNSF was up more than 2 percent at $67.97, and Norfolk Southern was up more than 3 percent at $37.74.
