With the coal strike ended, Chessie System, Inc., the nation's largest coal carrying railroad, will earn greater profits in the last nine months of 1978 than it earned in 1977, stockholders were assured yesterday.
But after Chessie's $66.9 million loss in te first quarter of 1978, the best that can be expected for the rest of the year is "a reasonably good year," said Hayes T. Watkins, chairman and president.
At Chessie's annual meeting at the railroad's Greenbrier Hotel here, Watkins predicted Chessie's earnings for the next nine months will exceed the $94 million earned during the last three quarters of 1978.
Forecasting a strong second quarter, Watkins said the lag in resumption of coal shipments after the strike is ending. Chessie's railroads have hauled five million tons of coal in the last three weeks, he said.
"We expect the extremely heavy volume of coal shipments to persist through the seconnd quarter," Watkins said, "and our coal traffic will be strong in the second half as well. Providing, of course, that the economy stays on an even keel, electric utilities and industry generally will be consuming steam coal on a very large scale for power production. Movements of metallurgical coal for steel making should also see a upswing."
Coal brought in 40 percent of the Chessie System's revenues last year and almost half its freight tonnage. That portion is increasing, the chief executive said. Ironically, the railroad once tried to deemphasize coal, seeking a broader base of revenues. Watkins said however, he does not expect Chessie to return to the days when it earned half its income from coal.
Chessie's first-quarter losses brought no complaints from the severalhundred shareowners who came to the Greenbrier for the annual meeting.
Chessie's 1978 annual meeting marked the retirement of Cyrus Eaton, the 94-year-old Cleveland industralist who has been on the railroad's board for 35 years. The former Chessie chairman did not seek reelection to the board but was named an honorary director and chairmanemeritus.
Stockholders overwhelmingly approved a plan to authorize issuance of 4 million shares of preferred stock, the first preferred issue of the parent company.
Watkins said the preferred shares would be "one additional part of the overall financing arrangement" of the company but disclosed no details of when or how the issue might be floated.
One possibility is a liquidating preferred issue, said Robert Hintz, vice president for finance and chief fiscal officer.
Hintz said the ability of railroads to fully utilize investment tax credits makes the preferred stock issue attractive to the Chessie. But if interest cost on a preferred stock are not lower than the cost of corporate debt financing the preferred will not be issued, he said. Investment bankers have reinforced Chessie management's inclination to test the waters with the preferred issue, he said.
The preferred issue was opposed by stockholder activist Richard Eckenroth of Swarthmore, Pa., who appeared on behalf of himself and Lewis and John Gilbert, two other perennial management critics. Eckenroth objected that the preferred stock would not give preference to common shareholders, but Watkins said the preference issue "will not have a detrimental effect on common shareowners."
A proposal by the Gilberts and Eckenroth to require the railroad to appoint a separate chairman and president was defeated, but received about 5 percent of the voted of shareholders. Shareholders also rejected a proposal by Evelyn Y. Davis of Washington to issue a report ongovernment service by officers and directors of the company.