What’s behind Hunter Harrison’s precision railroading model he’s bringing to CSX?
Monday, March 13, 10:54 AM EDT
By Mark Basch, Contributing Writer
As Hunter Harrison settles in as chief executive of CSX Corp., you’re going to be hearing a lot about “precision scheduled railroading.”
What exactly is that? Well, it’s Harrison’s mantra of how to run a railroad, and he credits it for improving operations at his previous stops in the industry.
“Quite simply, it is a philosophy of constant monitoring and optimization of every asset throughout the entire organization,” Harrison’s former company, Canadian Pacific Railway Ltd., said in a white paper last year.
“Hunter Harrison developed the concept of precision railroading more than 20 years ago, departing from the practice of holding trains until they were completely full,” it said.
“The old model, thought to be beneficial to railway efficiency, could often delay customer shipments. By contrast, precision railroading prioritizes delivery of a customer’s shipment from origin to destination as quickly as possible. It is similar to the airline industry where a plane will leave at its scheduled departure time regardless of whether all seats are filled.”
Harrison wasted no time bringing up the philosophy when he was installed as CSX’s new CEO last week.
“Together, we will implement precision scheduled railroading — a model proven to improve safety, create better service for customers, produce a proud and winning culture for employees, and generate exceptional, lasting value for shareholders,” Harrison said in the news release announcing his appointment.
According to the white paper, Harrison’s precision railroading improved Canadian Pacific’s operating ratio — operating expenses divided by revenue — from 81 percent in 2011 to 61 percent in 2015.
CSX’s operating ratio was 69.4 percent last year. Harrison and his associates have been telling analysts he will get it below 60 percent.
Harrison’s philosophy includes several initiatives to cut costs.
“The prevailing view in the rail industry is that more locomotives, more cars and more crews allow for the movement of more volume. Precision railroading challenges this view,” the white paper said.
“Because track and yard capacity is finite, adding more equipment creates congestion and slows down the system. While it may sound counterintuitive, reducing fleet size actually enables a railroad to move more volume. By running fewer and heavier trains, faster and on schedule, assets can be utilized far more productively and can yield significant savings,” the white paper said.
And as we wait to find out Harrison’s plans for CSX’s Jacksonville headquarters, here’s another interesting tidbit from the white paper:
“Relocating CP’s head office in 2014 from costly, leased downtown office space to owned rail yards within the city has saved approximately $20 million annually, and has the added benefit of moving employees to the field environment where they are closer to the day-to-day business of operating the railway.”
It should be noted that CSX owns its Downtown Jacksonville headquarters property at 500 Water St.
However, until Harrison outlines specific plans, a lot of people in Jacksonville will be on pins and needles.
Stein Mart looks to 2018
Stein Mart Inc. last week reported a fourth-quarter loss, as expected, of $4.9 million, or 11 cents a share, after disappointing holiday sales.
The Jacksonville-based fashion retailer’s total sales in the quarter ended Jan. 28 fell 2.2 percent to $385.5 million and comparable-store sales (sales at stores open for more than one year) dropped 5.5 percent.
CEO Hunt Hawkins said “2016 was truly disappointing” during the company’s quarterly conference call.
“We started the year excited about new strategies that were expected to increase traffic by engaging our core customers and adding new customers,” he said. “The execution of our initiatives in the second half and to some extent the initiatives themselves were flawed, which contributed to our sales and earnings decline.”
Hawkins’ predecessor, Dawn Robertson, resigned in September after just six months of the job.
At the end of the fiscal year, Stein Mart hired MaryAnne Morin as president, with responsibilities for merchandising and marketing.
Morin did not participate in the conference call but Hawkins said she is working on new merchandising plans. However, it will take time to see the results, he said.
“While we expect to see substantial impact of her influence this fall, it will be next spring before her full impact is felt,” Hawkins said.
“Our expectation is that a year from now, when reflecting back on 2017, we will be able to say that sales trends improved throughout the year as a result of better marketing that engaged our core customer, a merchandise assortment that resounded with the customer and strong inventory management,” he said.
For all of fiscal 2016, Stein Mart recorded net income of just 1 cent a share, down from 51 cents in 2015. Total sales were basically flat at $1.36 billion, while comparable-store sales dropped 3.8 percent.
Stein Mart operated 290 stores at the end of 2016, up from 278 the previous year. The company plans to open 11 stores and close five this year.
Johnson Rice analyst David Mann said in a research note he expects 2017 to be a “transition year” for Stein Mart, and he is maintaining a “hold” rating on the stock.
“The company is at a critical crossroads and needs to pivot quickly as it is losing market share (and time) amidst an intensely competitive environment,” Mann said.
St. Joe Co. records fourth-quarter profit
The St. Joe Co. reported fourth-quarter earnings of $2.7 million, or 4 cents a share, reversing a loss in the fourth quarter of 2015.
Revenue for the real estate developer fell 11 percent to $18.7 million, but the company said its bottom line was helped by lower operating expenses and an increase in investment income.
St. Joe, formerly headquartered in Jacksonville, now operates in the Panhandle in the region between Tallahassee and Destin.
“With a strong balance sheet, our plan for 2017 is to increase capital expenditures particularly on projects that we believe will provide recurring revenue and asset value while being selective about one-off sales of our land holdings,” CEO Jorge Gonzalez said in a news release.
Indian company buying HCI in Jacksonville
An Indian company called Tech Mahindra Ltd. last week agreed to acquire Jacksonville-based CJS Solutions Group, a health care information technology company that does business under the name HCI Group.
HCI will continue to operate as an independent subsidiary of Mumbai-based Tech Mahindra. It had revenue of $114 million in the 12 months ended Sept. 30.
Tech Mahindra is paying $89.5 million for an 84.7 percent stake in HCI and will acquire the remaining 15.3 percent over a three-year period.
“Health care is one of the few sectors globally that is driving adoption of digital technologies,” Tech Mahindra CEO C.P. Gurnani said in a news release, adding the acquisition of HCI will make his company “a significant player in the health care provider space.”
Tech Mahindra, which describes itself as “a specialist in digital transformation, consulting and business reengineering,” reported revenue of $3.2 billion in the nine months ended Dec. 31.
It’s a public company that trades on the National Stock Exchange of India in Mumbai.
Gazit-Globe has 11.5% of Regency
Israel-based shopping center developer Gazit-Globe Ltd. became the largest shareholder of Jacksonville-based Regency Centers Corp. after Regency’s acquisition of Equity One Inc., but Gazit-Globe sold off part of its stake after the merger was completed.
Gazit-Globe owned 34 percent of Equity One’s stock and once the Regency-Equity One merger was completed March 1, Gazit-Globe ended up with 13.2 percent of Regency.
However, two days after that deal was completed, Gazit-Globe sold 2.8 million shares for $192 million.
That still leaves the Israeli company with 19.5 million shares of Regency, or about 11.5 percent of its outstanding shares.
In addition to becoming the largest shareholder, Gazit-Globe Chairman Chaim Katzman became vice chairman of Regency after the merger.
Michaels beats forecasts
The Michaels Cos., which was trading near 52-week lows, bumped up last week after reporting better-than-expected earnings for the fourth quarter ended Jan. 28.
The Texas-based arts and crafts retailer, which has a distribution center in Jacksonville, reported adjusted earnings of 96 cents a share, 9 cents higher than the previous year and a penny higher than the average analyst’s forecast, according to Zacks Investment Research.
Michaels also forecast fiscal 2017 earnings of $2.05 to $2.17 a share, above the average forecast of $2.02.
Michaels’ stock rose $1.55 over two days to $22.08 Wednesday after the earnings report.
The company operates 1,367 stores across the country under the brands Michaels, Aaron Brothers and Pat Catan’s.