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Railroad CSX Taps a Former Auto Exec as Its Next CEO. Why Investors Are Nervous.Railroad CSX Taps a Former Auto Exec as Its Next CEO. Why Investors Are Nervous. Barron's (Online); New York Railroad operator CSX went to another transportation industry—cars—to find its next boss. For investors, that's an unnerving surprise. On Thursday, CSX (ticker: CSX) tapped Joseph Hinrichs, a former executive at Ford (F), as its next chief executive. He succeeds James Foote, who is retiring this month. Foote has been in railroads since the 1990s and has led CSX since late 2017. Under Foote, the stock has returned roughly 12% a year on average. The S&P 500 has had an annual return of a little less than 11% over the same span. Hinrichs has worked for both General Motors (GM) or Ford. He stepped down as Ford president in 2020. Cars and trains both roll, but they are very different businesses. Railroads are a low-cost way to ship commodities and consumer and industrial products. The auto industry is a manufacturing operation—and cars, most often, are discretionary purchases. The auto industry has thinner, more volatile profit margins. Ford's operating profit margin has ranged from -3% to 4% over the past few years. CSX has had vastly different numbers from 41% to 45%. Despite industry differences, CSX believes that Hinrichs' operating experience will give the railroad an edge. "Joe's great strength is operational excellence. He enabled Ford to execute world-class manufacturing on a global scale, including prioritizing exceptional customer service," said the outgoing Foote in a statement. "In addition to leading complex businesses over his 30-year career, he has proven that he understands how to prioritize safety and efficiency in an industry with dynamics that are similar to those we are navigating today in rail." Investors are less sure. CSX stock was down 2.2% in midday trading. The S&P 500 and Dow Jones Industrial Average were off 0.1% and 0.8%, respectively. Most other railroad stocks gained after the industry avoided a labor strike. Union Pacific (UNP) shares were up 2%. Wall Street was caught flat-footed by the timing of the appointment. "While we knew Foote was closing in on retirement we weren't expecting an announcement this soon," wrote Citi analyst Christian Wetherbee in a research report. "Our checks suggest Hinrichs was a well-respected executive while at Ford and given the younger bench of talent at CSX, he could provide good leadership for the team. That said, Transport investors do not know Hinrichs and typically are skeptical (at least initially) of executives from outside the industry." Wetherbee believes CSX stock might underperform for a few days as investors do their background work on the new CEO. How the stock does in the long run, of course, depends on many thing, including how Hinrichs adapts to the rails. |
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