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CSX CEO says U.S. economy seems to be bottoming out
CHICAGO (Reuters) - The worst of the U.S. recession appears to be over but it is uncertain how long it will take the economy to recover, the head of the No. 3 U.S. railroad said on Tuesday.
"We think the economy is bottoming out," CSX Corp (CSX.N) Chief Executive Michael Ward told Reuters in a telephone interview. "The worst of the declines appear to be over."
"The question now is how long we'll stay at the bottom and how long it will take to recover," he added.
Ward added that the Jacksonville, Florida-based railroad's third-quarter freight volumes will fall by double digits, but the pace of decline will be lower than in the second quarter.
The CEO spoke to Reuters the day after the company posted a better-than-expected second-quarter net profit as cost-cutting offset a 21 percent drop in freight volumes.
"We expect CSX to remain on a path of aggressive cost reduction which should provide support for (second-half) EPS performance," JP Morgan analyst Thomas Wadewitz wrote in a note for clients. "We continue to believe that a modest improvement in rail volumes and constructive macro data points are factors that could drive upside for CSX over the next several quarters."
In a note for clients Morgan Stanley analyst William Greene also wrote that "we remain upbeat about (second-half) prospects and CSX is the cheapest stock in our universe."
"Recent cost cuts and pricing power offer substantial upside in any volume recovery," he added. "We believe volumes are close to a trough."
Ward said that the railroad is "not seeing any indication" of a peak retail shipping season this year.
"Consumers are still pretty jumpy out there," he said.
Ward said the company still expects to be able to raise its prices for 2010 above the rate of inflation. "The only question is how much above inflation," he said.
Like the other major U.S. railroads, CSX has managed to post robust profits in recent quarters, with strong discipline on pricing offsetting weak freight volumes. Analysts have warned that a prolonged recession could lead to rail customers pushing back on pricing.
CSX shares were up $1.97 or 6.05 percent at $34.51 late on Tuesday morning on the New York Stock Exchange.
(Reporting by Nick Carey, editing by Matthew Lewis)
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