What Does CSX Do Now?

Hunter Harrison’s death is a blow to CSX Corporation CSX.

Management knows it. 

"With the passing of Hunter Harrison, CSX has suffered a major loss,” Chairman Edward Kelly III said in a press release.

Shareholders know it.

News of his then-illness prompted their 8-percent pullback last week.

Even competitors know it.

“Professionally, Hunter was unmatched in this industry,” Canadian Pacific Railway Limited (USA) CP president and CEO Keith Creel said in a press release. “He will go down as the best railroader ever, plain and simple. What he has done at multiple railroads and for our industry the last 50-plus years is incredible, which includes bringing CP back to its rightful place among leaders in the Class 1 space in what some have called the greatest corporate turnaround in history.”

What CSX Can Do

But CSX, which was undergoing a similar Harrison-led turnaround, is by no means doomed to derail, according to Bank of America Merrill Lynch.

“We remain confident that CSX will continue its operational turnaround, as Harrison set the foundation for the full conversion to a precision rail model over the past 10 months,” analyst Ken Hoexter said in a Monday note that reiterated a Buy rating on the stock. 

BofA's optimism is justified by CSX’s largely Harrison-trained management team, the analyst said. By Hoexter's count, nearly 20 of Harrison's fellow Canadian National Railway (USA) CNI veterans, including the acting CEO, are now at CSX in positions at least as high as the vice president level, and about one-third of employees have been indoctrinated into the culture through “Hunter Camps.”

Despite these stabilizing factors, Harrison’s death is a potential overhang to the stock, whose run he seemed to singlehandedly catalyze.

Changing Tracks

Harrison leaves behind an acting CEO, COO Jim Foote, with only two months of experience at the company after an eight-year absence from the rail industry.

Still, management anticipates forward movement on the tracks Harrison laid.

“Notwithstanding that loss, the board is confident that Jim Foote, as acting chief executive officer, and the rest of the CSX team will capitalize on the changes that Hunter has made,” Kelly said in the company statement. “The board will continue to consider in a deliberative way how best to maximize CSX's performance over the long term."

Foote served as Harrison’s chief sales and marketing officer at Canadian National from 2000 to 2009. He maintains an understanding of Harrison’s strategy and professed a commitment to honor it. Foote confirmed Thursday that CSX would not change the scale or pace of change Harrison had set in motion. 

Related Links:

CSX Enters The Hunter Harrison Era

Deutsche Bank Upgrades CSX To Buy; Says ‘In Hunter We Trust’

Photo courtesy of CSX.