1. CSX stock stabilizes after CEO Jim Foote’s death; investors seek turnaround clarity

CSX stock stabilizes after CEO Jim Foote’s death; investors seek turnaround clarity

CSX Corp's stock stabilized on Monday in a sign of confidence that acting Chief Executive Officer Jim Foote can steer the No. 3 U.S. railroad in the short term, but analysts said longer term a more experienced executive will be needed to implement the complex turnaround plan begun by deceased CEO Hunter Harrison.

By: | Published: December 19, 2017 4:26 AM

 

csx, us railroad, csx stock, turnaround clarity, Jim Foote dead, Jim Foote no more, Jim Foote death CSX Corp’s stock stabilized on Monday in a sign of confidence that acting Chief Executive Officer Jim Foote can steer the No. 3 U.S. railroad in the short term. (Image: Reuters)

CSX Corp’s stock stabilized on Monday in a sign of confidence that acting Chief Executive Officer Jim Foote can steer the No. 3 U.S. railroad in the short term, but analysts said longer term a more experienced executive will be needed to implement the complex turnaround plan begun by deceased CEO Hunter Harrison. Harrison’s death, announced on Saturday, came just eight months into his dramatic restructuring campaign designed to boost profits and streamline operations through cost cuts and operational changes. These changes also triggered service disruptions, customer complaints and federal scrutiny. CSX shares have risen about 48 percent this year and about 6 percent since March after Harrison, who led turnarounds of two Canadian railroads, was hired as CEO in a high-stakes push by activist investor Paul Hilal of investment fund Mantle Ridge LP. CSX Chairman Edward Kelly said Harrison’s death was due to unexpectedly severe complications from a recent illness, calling it a major loss to the company. The railroad company brushed off questions about whether the board had been slow to disclose Harrison’s health problems. Harrison used an oxygen tank when he met investors last month and also at a regulatory hearing in October. The company announced on Thursday he would be taking medical leave, sending its shares down about 10 percent on Friday.

“I do expect Jim to be named CEO, although I also think the board will proactively study (and look to fill) any gaps in the team,” said Taylor Glasebrook, associate portfolio manager at Neuberger Berman, the No. 8 shareholder in CSX with 10.5 million shares. “The next opportunity for management to calm investors is in January when they report the year-end results,” Glasebrook said. “It will be an important call for them to update the market on current operating trends and to provide 2018 guidance.” In November, Harrison stopped short of laying out a succession plan for the company but said he was “trying to stay back a little bit” to give his management team space to steer through a major operations overhaul.

Acting CEO Foote has been with the company for about two months but is familiar with Harrison’s working style from a previous job, even though he has never headed a major railroad.”We believe that Mr. Foote’s presence in the senior leadership team provides an important source of continuity,” said TD Securities Inc analyst Cherilyn Radbourne. “Our biggest concern is that Mr. Foote’s primary area of expertise is sales and marketing versus operations, and the senior management team now lacks a member with an operating background.” Foote’s hiring was announced in late October following the resignations of Chief Operating Officer Cindy Sanborn and Chief Marketing Officer Fredrik Eliasson.

Foote told investors on Friday he believes the “real heavy lifting has been done” and there will be “modifications and changes that we will make.””Even though Jim Foote is a capable leader we do not see him as the long-term solution as the CEO given his strength is marketing and the company is embarking on an operations-focused turnaround,” Cowen and Co. analyst Jason Seidl said in a note.The Cowen analyst believes CSX’s board will consider hiring current industry executives, especially those with a background in Harrison’s “precision scheduled railroading” method to improve railroad efficiencies.The company’s shares were up 2 cents at $52.95 in early afternoon trading.

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