The right track: Investors hope CSX's new CEO can create efficiencies

When word leaked in January that Hunter Harrison was seeking the CEO position at CSX, the railroad company’s market value jumped by $8 billion.

Why such high expectations? Harrison, who got the job in March, had developed a reputation for an efficiency-oriented concept called “precision scheduled railroading” that he implemented as CEO at three other railroad companies.

The concept involves coordinating the schedules of rail yards where freight trains are assembled and using longer trains to move freight as quickly as possible, on time and on regular schedules. The approach reduces the need for staff and equipment and lowers other costs.

Harrison succeeded at improving profits at all the other railroads, which all had reputations for hidebound operations. At his most recent job, at Canadian Pacific, he improved the carrier’s operating ratio — operating expenses divided by revenue — from 81% in 2011 to less than 65% in 2015. He’s been telling analysts he can get CSX’s ratio from 69.4% last year down to 58% in the next three years.

“There’s nobody on this planet who knows more about operating a railroad than Hunter Harrison,” says Deutsche Bank analyst Amit Mehrotra.

Harrison has written a book outlining his approach, but few have attempted to copy his plan. “This strategy has been hiding in plain sight for some time,” says Stifel analyst John Larkin.

Larkin suggests the industry’s failure to adopt Harrison’s approach more broadly doesn’t mean that it’s particularly complex. “The challenge has been to actually implement the plan in railroad cultures where complacency and a lack of bias for action have taken place,” he says.

Mehrotra says railroading “is almost a 200-year-old industry. It’s hard to affect change. Sometimes it takes some sharp elbows. I’m very confident he can do it because he’s done it a couple of times before.”

Since Harrison — who partnered with hedge fund investor Paul Hilal to pursue the CSX job — took over, CSX’s stock price has risen from about $37 a share to around $50.

Innovation → Social Presence

As a home-schooled student growing up in Ocala, Alex Moy discovered a passion: He began making films — and at 18 started his own social media branding company, Moy Media, last fall.

“We help local businesses get an online presence,” he says. Moy Media now has 12 employees, and Moy says revenue will be in the seven figures this year. He believes his concept of serving businesses in smaller cities can be expanded into other markets.

Freight Line Sale

Grupo Mexico is buying the Florida East Coast Railway for $2.1 billion. Grupo Mexico is buying the railroad from Fortress Investment Group, which acquired it 10 years ago. The sale includes only the 351-mile Miami-to-Jacksonville freight railroad and doesn’t include Florida East Coast Industries’ other subsidiaries, including real estate operations and the Brightline passenger service set to begin operations later this year.

Business Briefs

ALACHUA — RTI Surgical settled a proxy fight with Krensavage Partners by adding a Krensavage nominee to its board of directors. Krensavage, which controls 7% of the surgical implant company’s stock, agreed to vote for all of the company’s nine other board nominees at RTI’s annual meeting.

GAINESVILLE — Gainesville Regional Utilities is buying the Gainesville Renewable Energy Center, a biomass power plant, for $750 million. The city utility says buying the plant will save $650 million over the remaining 27 years of its contract with GREC and reduce customers’ electric rates by 8% to 10%.

JACKSONVILLE — Jax- Port CEO Brian Taylor resigned abruptly. Taylor had been running Jax- Port since 2013. Eric Green, JaxPort’s senior director of government affairs, was named acting CEO. Meanwhile, JaxPort saw 19% growth in its container trade with Asia in 2016 and is offering expanded service to Korea and China. » Mayo Clinic is planning a $70.5-million expansion of two buildings on its Jacksonville campus. » Amazon plans to build a warehouse on Jacksonville’s Westside, its fourth facility under construction or development since mid-2016. When completed, the four Jacksonville facilities will create at least 2,900 jobs. » City officials chose a company controlled by Jacksonville Jaguars owner Shad Khan over two Texas-based firms to redevelop the Jacksonville Shipyards property. The riverfront property near the Jaguars’ stadium has been dormant for more than 25 years, with several aborted plans for development. » Jacksonville Electric Authority and Florida Power & Light are shutting the St. Johns River Power Park, a 30-year-old coal-fired plant. Closing the plant reduces JEA’s carbon footprint by 30%. The plant employs 204 people. » Source One Direct is closing a credit and debit card facility, affecting 170 jobs. » Jollibee opened its first Florida restaurant in Jacksonville. The Philippines- based chain, with a menu featuring fried chicken, spaghetti and hamburgers, has more than 1,000 restaurants worldwide but just 35 in the U.S. » Tech Mahindra is buying HCI Group for $110 million. HCI, which provides health care information technology, will operate as an independent business unit of India-based Tech Mahindra. » Espero Pharmaceuticals is merging with Armetheon, another company developing drugs for cardiovascular disease. The merged company will be named Espero BioPharma and continue to be headquartered in Jacksonville.

ST. JOHNS COUNTY —

Crystal Lagoons is building a 14-acre lagoon as the centerpiece of its mixed-use Beachwalk community in northern St. Johns County. Executives say the 3,000-home project will increase county tax revenue by 7.3% a year.

Players

» John Baker, executive chairman of commercial real estate developer FRP Properties, was named CEO of the company.

» Robert Sandlin, vice president of Patriot Transportation, was promoted to CEO.

» Lawton Bassett was promoted to president of Ameris Bank and group president of parent company Ameris Bancorp. He succeeds Andy Cheney, who is taking an oversight and advisory role with the company.

» Paul Markowski will become CEO of the American Association of Clinical Endocrinologists. He succeeds retiring Donald Jones at the Jacksonville- based organization.

Tags: Northeast, Manufacturing/Distribution, Transportation