(Adds CEO comments, background, stock move)
By Nick Carey
CHICAGO, July 14 (Reuters) - U.S. railroad CSX Corp said on Thursday declining demand for coal will hurt profits for the rest of 2016, and its top executive expressed concerns that the strengthening U.S. dollar could further harm the country's lackluster industrial economy.
CSX Chief Executive Officer Michael Ward said that although his railroad does little business with the United Kingdom, he worried the country's vote last month to leave the European Union and uncertainties about the global economy could see more investors seeking a safe haven in the dollar.
"The strong dollar is a lot of what's causing a decline in industrial production already," Ward told Reuters. "So I'm worried that we just keep getting stronger and stronger against other world currencies."
Coal has traditionally been a high-margin business for U.S. railroads. But low fuel prices have prompted utilities to switch to cheaper natural gas, while coal exports have been hurt by the strong U.S. dollar.
Ward spoke to Reuters the day after CSX reported a 34 percent decline in coal volumes versus the previous year, though CSX reported a better-than-expected third-quarter profit.
The drop was partially offset by solid price increases at CSX in the quarter. Excluding coal, the railroad raised prices 4 percent. Including coal, prices were up 2.9 percent.
The Jacksonville, Florida-based company said it expects freight volumes for the third quarter to be down in the "mid- to high single digits" driven by weak coal demand. It expects full-year 2016 coal tonnage to decline 25 percent, adding its ongoing cost-cutting drive should lead to productivity gains of $350 million. Cost cutting helped the company beat estimates for its second-quarter profit.
"We're pretty good at facing reality, we face all these macroeconomic forces and there's not a damn thing we can do about it," Ward said. "So we're focusing on what we can control."
Amid what many in the industry have termed a "freight recession," CSX has around 4,500 workers on furlough, around 14 percent of its total workforce.
Ward said CSX does not expect the outlook for coal to improve until mid-2017. He said that rather than look at coal as being in a cyclical decline, the company is focusing on growing other businesses including intermodal - which moves consumer goods in containers.
"I think it's proving to be energizing because we've finally acknowledged that coal is in a secular decline," he said, "rather than hoping and praying that it won't be." (Reporting By Nick Carey; Editing by Diane Craft)