CSX Stock Stabilizes Days After Death of CEO
CSX’s stock rose slightly Dec. 18 despite the death of the man who had been hired to bring the railroad new profitability. Though the stock fell Dec. 15 with news of his illness, it closed at $53.70, $2 more than it opened on Dec. 18.
But Hunter Harrison’s death Dec. 16 sent shockwaves through the railroad and financial worlds. It was just seven months after he was hired to turn around the nation’s third-largest railroad.
RELATED: CSX caught mid-revolution by death of rail-legend Harrison
“CSX Corp. shareholders paid $84 million to get Hunter Harrison,” began a story by Bloomberg News. “They’re now getting James Foote.”
Included in his contract was $84 million that CSX paid Harrison to replace what he forfeited leaving Canadian Pacific. Foote, who joined the Jacksonville-based railroad in October as chief operating officer, was named acting CEO when the railroad announced Dec. 14 that Harrison was going on medical leave.
But analysts had differing reactions to the impact.
“It was a classic triumph of short-term thinking over long-term sustainability,” said Renny Ponvert, CEO of Management CV Inc., which analyzes top hires for money managers, told The Wall Street Journal.
The board, he said, “took a high-beta risk that appeared to pay off for the first six months. Now, they’re stuck with a consequence that could expose long-term shareholders.”
“Harrison’s legendary ability to redesign a rail network with his Precision Scheduled Railroading model created the two most efficient operations in North America and we believe his legacy will continue at CSX,” J.P. Morgan analyst Brian Ossenbeck wrote on Dec. 17, according to CNBC.
When those transformational changes stressed the CSX network to a near meltdown in August, service issues that would have crippled the old system for over a year only lasted a few months. This experience built immediate trust in Harrison and faith in the PSR model, which continues to operate more efficiently than U.S. peers.”
Meanwhile, the federal agency that oversees the nation’s railroads said it is still getting complaints from CSX’s customers.
Last week, Surface Transportation Board sent a letter to Harrison and CSX requesting an update on the railroad’s progress in implementing its new operating plan. Since Harrison brought in his new plan, reducing the number of employees, locomotives and railcars, customers have complained about service.
“The board continues to hear concerns related to CSX service challenges or inadequate service,” said the STB letter, “particularly about unsatisfactory ‘last mile’ perform and lack of communication regarding changes to service before they occur.”
The letter went on to say that several performance measures have improved in recent weeks, others still lag behind 2016 or the first quarter of 2017 before Harrison took over.
The board asked the railroad to provide updates on five area including communication and delivering the number of cars that customers order. It also asked that it be informed of any significant changes that could impact shippers or other railroads in 2018.
