CSX thinks demand has hit its worst point

NEW YORK - Railroad operator CSX Corp. said Tuesday that demand might have reached its worst point, signaling possible but still far-off signs of an economic recovery.

Shares leaped on the news, a day after the company reported second-quarter earnings that fell 20 percent, but topped Wall Street expectations. The stock jumped $2.26, or 7 percent, to close at $34.80 Tuesday. The stock has ranged between $20.70 and $69.50 in the past year.

Jacksonville, Fla.-based CSX expects shipping demand to sink by double digits again this quarter, but not as drastically as in the second-quarter. Shipping volume fell 21 percent in the April-June period, compared with 22 percent industrywide. Business on the tracks is viewed as a key economic indicator because so many consumer and manufactured goods move on railroads.

CSX, the nation's third-largest railroad, is the first of the major rails to report earnings.

In a conference call with analysts and investors, the railroad said it is prepared to bring back furloughed employees and restart idled rail cars when the economy begins to pick up, but it is still not sure when that will happen. It is possible, the company noted, that the economy will remain at low levels for some time.

Citi Investment Research Matthew Troy said in a note to clients Tuesday that he thinks investors are underestimating the potential for a "long, drawn-out recovery." He applauded CSX's performance in the quarter, but suggested investors hold their money.

As of the end of the second quarter, the railroad had 29,878 employees, compared with 33,082 a year earlier. The number of active train and engine workers was down 17 percent, and the number of its signature yellow and blue locomotives dropped by the same amount. CEO Michael Ward said the company brought back "a couple hundred" employees during the second quarter to cover active employees' summer vacations and retirements.

The company didn't offer an earnings outlook, but said it now expects to get more money from raising prices this year among its existing customers — about 75 percent of its annual business. It predicts it will now be able to increase prices by 6.6 percent this year, compared with a previous estimate of 5 to 6 percent.

Ward said that cost cuts should continue to buoy sinking demand this quarter. In the second quarter, the company slashed expenses by 27 percent from a year earlier — mostly through labor reductions.

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