The Basch Report: Lower costs help CSX Corp. beat estimates
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CSX Corp. on Tuesday reported better-than-expected first-quarter earnings, as the Jacksonville-based railroad company continues to reduce staff and other operating costs.
Earnings of $1.02 a share were 24 cents higher than the first quarter of 2018 and 11 cents higher than the average forecast of analysts, according to Zacks Investment Research.
The company’s operating ratio (expenses divided by revenue) was 59.5%, the third time in the last four quarters the key target for CSX was below 60%.
“Despite the challenging (winter weather) conditions, CSX set new records in Q1 for just about every service metric,” CEO James Foote said in a conference call with analysts.
CSX’s total employment in its operations throughout the eastern U.S. fell by about 500 to 22,001 during the quarter.
“CSX operated significantly fewer active trains at higher-performance levels leading to reduced road crew starts and savings in ancillary crew costs, such as crew balancing expense,” Chief Financial Officer Frank Lonegro said.
The company is cutting staff mainly through attrition, he said.
“As discussed on our fourth quarter call, we expect to absorb normal levels of attrition this year and our first-quarter results indicate we are on track to meet that goal,” Lonegro said.
The company employed about 26,000 people two years ago when the company brought in a new management team led by late CEO Hunter Harrison.
Revenue in the first quarter rose 5% to $3.01 billion. Foote said CSX continues to expect revenue to rise by a low single-digit percentage for the full year.
“We expect growth to come from merchandise, the core of our franchise,” he said.
“The top line outlook, of course, remains dependent on underlying economic conditions. We are diligently monitoring our markets and are in constant dialogue with our customers but generally, end market demand remains stable.”
$4.9B Advanced Disposal deal faces antitrust review
It looks like it will take nearly a year for Waste Management Inc. to complete its acquisition of Ponte Vedra-based Advanced Disposal Services Inc.
After announcing the $4.9 billion merger agreement Monday, the companies said they are hoping to close the deal in the first quarter of 2020.
Deutsche Bank analyst Debbie Jones said in a research note the long time frame will be needed for a government antitrust review of the merger.
“While we have always viewed Advanced Disposal as a potential takeover target for one of the larger solid waste players, we believed that there would be some antitrust challenges in regards to an acquisition by Waste Management,” she said.
“That said, antitrust is always difficult to estimate. The timing of the expected deal completion being almost a full year away seems to suggest that there may be some risk.”
Waste Management is the largest U.S. solid waste disposal company with a market share of 28%, while Advanced Disposal is fourth with about 3% of the market, Jones said.
There are a large number of small players in the market, she said.
Jones said the most significant overlap of the two companies that may face regulatory scrutiny are in the Atlanta and Milwaukee/Chicago markets.
HealthAxis acquires Analytics Partners
HealthAxis Group last week announced it acquired Analytics Partners, a Jacksonville-based company that develops data warehouse and business intelligence solutions.
Terms of the deal were not announced.
Tampa-based HealthAxis supplies health care benefit platform systems. The company said the acquisition of Analytics Partners moves it closer to its goal of providing a complete system for the health care industry.
Activist investors target J. Alexander’s
Two activist investors are pushing for a sale of J. Alexander’s Holdings Inc., the restaurant operator formerly controlled by Jacksonville-based Fidelity National Financial Inc.
In letters to the board of directors last week, the investors said J. Alexander’s would be better off as a private company and that the company has been hurt by its continued ties to Fidelity, which spun it off as a separate public company in 2015.
Ancora Advisors LLC, which owns 8.6% of J. Alexander’s stock, offered to buy the company for $11.75 a share.
In his letter to the board, Ancora CEO Fred DiSanto said the price is 24% higher than the stock’s market price when Ancora first indicated interest in the company in March.
“In our view, J. Alexander’s will continue to be undervalued as a public company given its lack of scale, growth and liquidity,” he said.
“With a restaurant base of 48 units, J. Alexander’s is simply too small to effectively leverage its corporate overhead and public company costs.”
The J. Alexander’s board rejected the offer, saying in a letter the price is too low and “simply too unattractive to entertain.”
However, another activist investor, Mario Cibelli, wrote a letter to the board supporting Ancora’s push to sell the company. Cibelli’s firm, Marathon Partners Equity Management LLC, controls 6.6% of J. Alexander’s stock.
Cibelli’s letter complained about the company’s underperformance and said “the entire Board is comprised of individuals that are or were associated with entities controlled by (Fidelity Chairman) William P. Foley II, and the Company has made no effort to seek new Board representatives who might offer fresh perspectives to the management team.”
He called for the board to “initiate a fair and open auction process, and sell J. Alexander’s to the highest bidder.”
Besides J. Alexander’s, the Nashville-based company also operates the Redlands Grill and Stoney River Steakhouse and Grill.
J. Alexander’s reported revenue of $242.3 million and earnings of $4 million, or 27 cents a share, in 2018.
The company’s stock has risen from about $9.50 to about $11 in the past month amid the battle with Ancora.
Duos Technologies triples its revenue
Duos Technologies Group Inc. last week reported revenue tripled in 2018 to $12 million.
The Jacksonville-based company, which provides intelligent security analytical technology solutions, had a net loss for the year of $1.6 million, or 8 cents a share.
“Our growth was driven mainly by the increased adoption of our rail inspection portal technology, which we successfully deployed for several blue-chip organizations during the year,” CEO Gianni Arcaini said in a news release.
Duos Technologies projects revenue of $14 million to $15 million this year, based on its backlog of contracts. The company said it expects to secure additional contracts in 2019.
Northrop gets $3.2B Hawkeye contract
The U.S. Department of Defense last week announced a $3.2 billion contract to buy 24 E-2D Advanced Hawkeye aircraft from Northrop Grumman Corp., with some of the production done at the company’s St. Augustine facility.
The DOD said work will be done at 17 Northrop Grumman locations, with 19% produced in St. Augustine.
Northrop Grumman began building the E-2D in 2003 and the first flight of the tactical early warning aircraft took off from St. Augustine in 2007.
Northrop Grumman is St. Johns County’s largest corporate employer with 1,100 workers, according to the county’s Office of Economic Development.
Work on the latest contract is expected to run through August 2026.
BAE wins $8.1M ship repair contract
The Department of Defense last week also announced an $8.123 million contract for BAE Systems Ship Repair for work on the USS Wichita.
The work for the U.S. Naval Sea Systems Command will be done at BAE’s facilities in Jacksonville.
By: Mark Basch