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CSX 'had some embarrassing situations' this year, CEO tells investors

  • CSX reported third-quarter earnings in-line with expectations.
  • Train accidents and multiple service delays have offset a company-wide overhaul begun in March.
  • Several CSX customers confronted CEO Hunter Harrison during a regulatory hearing last week.
A CSX train at the Norfolk Southern Bellevue Terminal in Bellevue, Ohio.
Justin Solomon | CNBC
A CSX train at the Norfolk Southern Bellevue Terminal in Bellevue, Ohio.

The aggressive overhaul of CSX by CEO Hunter Harrison faced a number of setbacks last quarter, company executives said on a conference call with investors Tuesday.

CSX reported third-quarter earnings largely in-line with expectations, according to FactSet. Shares of the third-largest railroad in the U.S. rose around 1 percent in midday trading.

Harrison, who arrived in March, faced train accidents and multiple service delays as he works to implement a strategy he calls "precision scheduled railroading." He said it has not been an easy process.

"We had some embarrassing situations that we had to deal with, and we dealt with them," Harrison told to investors on the conference call. "At one of our major gateways, we had a case where some people falsified records of car movement so they would not be criticized about cars being delayed."

In June, the company dismissed nine employees due to the incident Harrison referenced, a CSX representative told CNBC.

After eight months as chief executive, Harrison said the network improvements he is aiming for are not complete. He told investors CSX is "much further along than where I thought we would be," an optimistic view he and other company leaders repeated throughout the call.

Several CSX customers confronted Harrison during a hearing before federal regulators last week.

Agribusiness giant Cargill had two recent plant shutdowns it pinned on CSX, during a hearing before the Surface Transportation Board on Oct. 11. The first plant stopped operations for a morning when crew wasn't available to take railcars, and the second closed for two days, when Cargill said CSX failed to send empty cars for loading.

J.M. Smucker, Chemours, Cristal and Kellogg issued similar complaints. The companies allege CSX scheduling failures have cost millions of dollars in added shipping expenses, according to statements at the hearing and from the Georgia Agribusiness Council. A distribution manager at Cristal said the company has only gotten worse in the past two months, telling the Wall Street Journal that it's been "a very miserable time trying to deal" with CSX.

CSX executives said "we probably left some demand on the ground" during the last three months.

"We got, maybe, a little ahead of ourselves," Harrison added. "Maybe I was pushing too hard."

The railroad's leaders also emphasized that a myriad of issues came with the past hurricane season, saying CSX removed 8,000 trees from "operating properties following Hurricane Irma."

Shares of CSX are up more than 11 percent since the company appointed Harrison to CEO, in a controversial move by activist investor Mantle Ridge. This year CSX stock has risen by more than 48 percent as of Monday's close.