March 1, 2018 / 1:16 PM / 10 months ago

UPDATE 7-CSX sticks with plan to cut jobs, reduce trains

(Adds investor comment)

By Eric M. Johnson

March 1 (Reuters) - 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.

Harrison, an investor favorite for leading turnarounds of Canada's two major railroads, died just eight months into a dramatic restructuring campaign that included slashing jobs, shutting multiple rail yards, mothballing locomotives and rail cars and running fewer - but longer - trains on strict schedules rather than based on customer needs.

"We are picking up right where Hunter left off, and we are going to deliver, just as he envisioned," Jim Foote, who was appointed to succeed Harrison in December, told Reuters in an interview after outlining details of CSX's three-year plan at an investor meeting in New York.

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.

While shippers have said service levels have steadily improved since a nadir last summer, CSX's overhaul has triggered complaints over service delays, crew and rail car shortages and higher freight costs as recently as last month, and drawn scrutiny from federal regulators.

Foote and his revamped management team told investors the railroad's plan would drive efficiency, improve service and reduce costs.

CSX reaffirmed it would lower its operating ratio - a closely tracked measure of operating expenses as a percentage of revenue – to 60 percent by 2020 from 67.9 percent at year-end 2017.

It is also reducing average yearly capital spending through 2020 to roughly $1.6 billion, down from about $2.7 billion in 2017. Chief Financial Officer Frank Lonegro told investors that CSX would be replacing tracks but not buying new locomotives or rail cars.

SUPPORT FOR NEW CEO

Shareholders have rallied around the new CEO and applauded recent hires including Ed Harris, who managed operations and worked with Harrison at Canadian National Railway Co.

"The management team has been immersed in Hunter Harrison’s philosophy and is genuinely excited about the opportunity ahead of them," said Taylor Glasebrook, associate portfolio manager at Neuberger Berman, an investment firm that owns CSX shares.

The Jacksonville, Florida-based railroad, the third-largest in the United States, said it would reduce its workforce by an estimated 2,200 jobs by the end of 2018 and a further 4,000 in 2020 through cuts and attrition.

It plans to cut the number of locomotives by up to 20 percent by 2020, while also reducing the number of rail cars it uses by more than 20 percent.

CSX said it expected 4 percent average annual revenue growth in 2019 and 2020, driven by rising freight volumes and higher pricing.

It added it could raise $800 million from selling off rail lines and real estate. (Reporting by Eric M. Johnson in Seattle; Additional reporting by Svea Herbst-Bayliss in Boston and Arunima Banerjee in Bengaluru; Editing by Tom Brown and Peter Cooney)

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