According to reports CSX CEO Hunter Harrison has died at age 73:
CSX CEO Hunter Harrison has passed away at age 73, the rail company confirmed in a statement Saturday.
“It is with great sadness that we announce that E. Hunter Harrison, President and Chief Executive Officer of CSX, died today in Wellington, Fla., due to unexpectedly severe complications from a recent illness,” the company said.
Harrison had taken medical leave on Thursday, sending shares of the third largest U.S. rail company tumbling in pre-market trading. Jim Foote was named acting CEO.
Harrison had been suffering from an undisclosed medical condition that forced him to work from home some days and use an oxygen machine at times, according to the Wall Street Journal.
“With the passing of Hunter Harrison, CSX has suffered a major loss,” board chairman Edward Kelly said.
“Notwithstanding that loss, the board is confident that Jim Foote, as acting ehief executive officer, and the rest of the CSX team will capitalize on the changes that Hunter has made.”
CSX is in the midst of a controversial turnaround program that has drawn customer and regulatory scrutiny.
“The board will continue to consider in a deliberative way how best to maximize CSX’s performance over the long term,” Kelly said.
Shares in CSX tumbled Friday after the company announced Harrison was taking a leave of absence due to complications from an unspecified illness. Harrison was known to work from home and occasionally needed oxygen to address his unspecified illness. Jim Foote took over as acting CEO. Apparently, he succumbed to his illness. Who will take the helm permanently remains a mystery.
Harrison is known as a turnaround artist. He turned Canadian National Railway into one of the most-efficient railroads in the world. Harrison brought his pixie dust to Canadian Pacific, rightsizing the organization and creating efficiency gains only rivaled by Canadian National. Harrison and Canadian Pacific attempted high-profile hostile takeover attempts of CSX and Norfolk Southern, but were rebuffed.
Bloodletting At CSX
When Harrison took over the helm at CSX in March he was awarded options to purchase 9 million shares of CSX. The rest of his four-year pay package was undisclosed. The only thing left on the table was an $84 million payment to Harrison representing the income Harrison will forfeit as a result of his leaving Canadian Pacific. The Shock Exchange immediately speculated that bloodletting at CSX would ensue:
Harrison burnished his reputation as a cost-cutter by rationalizing the cost structure of Canadian Pacific. He cut its operating ratio from 80% to under 60% in mid-2012. CSX almost appears resigned to the fact that there will be bloodletting under Harrison. Last month sources revealed CSX notified employees it would cut 1,000 of about 2,500 managerial positions in Jacksonville. If the play book is to reduce CSX’s 67% to match Canadian Pacific’s ratio of about 58% then more bloodletting is ahead.
The biggest difference between the differential between the two companies is that CSX’s labor ratio of 28% is 9 points higher than Canadian Pacfic’s. Harrison would have to cut quarterly labor costs by $577 million to get there. With and enterprise value of $55 billion CSX trades at 11.7x trailing EBITDA. If the labor ratio had been at 19% over the past 12 months it would have increased EBITDA by about $1.1B. The company’s EBITDA multiple would be about 9.6x EBITDA — still outside my 8.0x range for railroads.
In managing CSX for short-term gains Harrison was able to spike the stock. The questions remains, “At what cost?” CSX recently suffered from a deterioration in operating efficiencies and customer service. Certain large customers complained about the decline in service. Whether the interim CEO will end its cost cutting measures to shore up its operations and repair service issues remain to be seen.
All eyes will be on CSX Monday. How far or fast the stock drops could impact broader financial markets. For now, CSX could be the canary in the coal mine for financial markets on a sugar high from Fed-induced buying and promised tax cuts from President Trump.
On Trump And The Global Economy
The second installment of Trump And The Global Economy Town Hall took place October 24th in Fort Greene. It Featured Professor Lance Brofman, Coconut Rob (Coconut Rob Smoothies), Wuyi Jacobs (AfroBeats Radio) and Ralph Baker, author of Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead.
The event was well-received by the community. We parsed through President Trump’s proposed tax plan and [i] how it was pure economic folly and [ii] high net worth individuals could potentially game the system by shifting income around. Apparently, Kansas Coach Bill Self did this when the state of Kansas cut taxes in the past. We discussed the pros and cons of technology on workers and the economy. How will the economy and country prosper under Trump’s leadership vis-a-vis Obama? What’s behind the verbal sparring with black athletes, ESPN’s Jemele Hill and North Korea’s Kim Jong Un?