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CSX CEO explains how a new business model brought efficiency to the railroad company

Key Points
  • "The end result of that is that we provide a much, much more reliable product, but we're also able to pivot much better, too," CSX CEO Jim Foote tells CNBC about the impact of precision scheduled railroading on business.
  • "The railroad business ... changes all the time," Foote says in a "Mad Money" interview. "We're able to move in any direction we need to in any given time much better."
  • "By running the railroad the way we run the railroad today, not only do we create great efficiency, but we create a much more reliable product that the customers want to use," he says.
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CSX CEO explains how a new business model brought efficiency to the rail company

CSX Corp. has labored over more than two years to transform its operations and the changes are starting to show in its results, CEO Jim Foote told CNBC on Wednesday.

The railroad company installed a precision scheduled railroading strategy in its supply chains to create more efficiency, he said in a sitdown with "Mad Money" host Jim Cramer.

The updated system eliminated unnecessary logistics, such as switching boxcars at inopportune times, he added.

"The end result of that is that we provide a much, much more reliable product, but we're also able to pivot much better, too," Foote explained. "The railroad business is the railroad business, [and it] changes all the time. ... We're able to move in any direction we need to in any given time much better."

The transition to the new business model, which was initiated by the late former CEO Hunter Harrison in early 2017, intended to run a leaner operation with longer trains on tighter schedules. The changes were put in motion after Mantle Ridge, the activist hedge fund led by Paul Hilal, started a position in the company that year.

Foote carried on Harrison's work when he took over as CEO in December 2017. He told Cramer the scheduled railroading transformation was modeled after Canadian National Railway's operations.

CSX topped profit expectations in its third quarter ended September. Cost cuts helped the hauler offset lower coal and intermodal shipment volumes.

Quarterly revenue came in at $2.98 billion, down nearly 5% from the year prior, but expenses also fell 8%, Foote noted.

The roughly 10% drop in CSX's intermodal unit, where the company moves cargo using multiple modes of transportation, during the quarter can be attributed to the U.S.-China trade war's impact on rail freight volumes.

Foote suggested to Cramer, however, that efficient operations and better service can help mitigate those challenges.

"By running the railroad the way we run the railroad today, not only do we create great efficiency, but we create a much more reliable product that the customers want to use," he said. "They pay the premium to buy the reliability."

Earlier this week, Mantle Ridge sold off much of its $1 billion stake in CSX. Shares of CSX are up more than 100% since January 2017, the same month the firm started a position in the rail company.

The stock has gained more than 16% year to date, compared with the S&P 500's more than 21%, according to FactSet.

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CSX CEO explains how a new business model brought efficiency to the rail company

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