NASDAQ:CSX CSX Q4 2024 Earnings Report $27.84 -0.30 (-1.07%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$27.92 +0.09 (+0.31%) As of 04/25/2025 07:58 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast CSX EPS ResultsActual EPS$0.42Consensus EPS $0.44Beat/MissMissed by -$0.02One Year Ago EPSN/ACSX Revenue ResultsActual RevenueN/AExpected Revenue$3.57 billionBeat/MissN/AYoY Revenue GrowthN/ACSX Announcement DetailsQuarterQ4 2024Date1/23/2025TimeAfter Market ClosesConference Call DateThursday, January 23, 2025Conference Call Time4:30PM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by CSX Q4 2024 Earnings Call TranscriptProvided by QuartrJanuary 23, 2025 ShareLink copied to clipboard.PresentationSkip to Participants Operator00:00:00Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the CSX 4th Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question and answer session. Operator00:00:33Thank you. And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. You may begin. Matthew KornHead Of Investor Relations at CSX00:00:42Thank you, Abby. Hello, everyone, and good afternoon. Welcome to our Q4 earnings call. Joining me on the call today are Joe Hinrichs, President and Chief Executive Officer Mike Corey, Executive Vice President and Chief Operating Officer Kevin Boone, Executive Vice President and Chief Commercial Officer and Sean Pelkey, Executive Vice President and Chief Financial Officer. The presentation accompanying this call, which is available on our website, you will find slides with our forward looking disclosures and our non GAAP disclosures for your review. Matthew KornHead Of Investor Relations at CSX00:01:12With that, it is now my pleasure to introduce Mr. Joe Hinrichs. Joe HinrichsPresident, CEO & Director at CSX00:01:16All right. Thank you, Matthew, and hello, everyone. Thank you for joining our Q4 call. As we look back and review 2024, we see that our railroad faced a significant number of challenges during the year, including weaker commodity prices, a bridge collapse and multiple hurricanes. We had another year where U. Joe HinrichsPresident, CEO & Director at CSX00:01:34S. Industrial production was effectively flat, reflecting mixed end markets across our customer base. There were also some labor disruptions across North American supply chain, which added economic uncertainty. But it's so impressive that through all of this, our One CSX team continued working together to improve our overall business. We have been resilient, adapting to changing markets and operating conditions, while remaining focused on our commitment to customer service. Joe HinrichsPresident, CEO & Director at CSX00:01:59Last year was different than we planned, but we are proud of what we achieved and how we achieved it. We are confident because we know that our momentum continues to build and we are ready for the important year ahead of us in 2025. Now as shown on the first slide, we achieved a lot over 2024. CSX achieved 2% volume growth for the year, outpacing the industrial economy yet again. We accomplished this even with a number of constraints on our coal franchise, including the collapse of the Francis Scott Key Bridge in Baltimore. Joe HinrichsPresident, CEO & Director at CSX00:02:29Our leading merchandise business delivered 3% revenue growth even after absorbing the effects of much lower fuel surcharge, soft metals market and the hurricane disruptions. We delivered strong, consistent customer service and our customers have responded. You heard this for yourselves at our recent Investor Day and you can see it in our financial results as we are able to price according to the value we are delivering. Operationally, we worked across our network to reduce waste, unlock capacity and improve responsiveness. We took more steps in building a successful culture that can deliver more sustainable, efficient performance and drive more positive momentum for the business. Joe HinrichsPresident, CEO & Director at CSX00:03:08We also led the rail industry in reaching early agreements with our labor unions on our 5 year contracts, working together to value our employees, avoid the prolonged labor battles of the past and provide certainty for our customers. Now we can review some of the results of the Q4. Slide 2 highlights key metrics for our Q4 compared to last year. As we expected, our underlying operations performed well, but we did see the impact of substantially lower coal and diesel prices. Hurricane effects also weighed on revenues and expenses for the quarter as we noted in our October call. Joe HinrichsPresident, CEO & Director at CSX00:03:44Total volume grew by 1% versus last year in the quarter. The largest contributor was growth in intermodal volume, which gained 4%. Quarterly revenue declined by 4%, largely due to lower global coal prices and a decline in fuel surcharge. Earnings per share declined 7% on an adjusted basis, excluding the effects of the goodwill impairment this quarter. Overall, we executed well through a difficult period. Joe HinrichsPresident, CEO & Director at CSX00:04:11However, we are not satisfied with these results. We have a clear vision of what we want to achieve at CSX, as we shared with you at our recent Investor Day, and we are committed to delivering on that vision for the benefit of our customers, our employees and our shareholders. Now, I'll turn the call over to Mike to discuss our operational performance. Mike CoryEVP & COO at CSX00:04:32Thank you, Joe and I really appreciate you all taking the time today to participate. So first, I want to thank our team for the tremendous efforts through the quarter the year. And I'm really truly proud of this team. From weather to structural challenges like the Blue Ridge or Howard Street Tunnel, they worked together to minimize the impact on our customers. And they did all of this while controlling costs and building a safer work environment for our employees and the communities they operate in. Mike CoryEVP & COO at CSX00:04:57Let's go to the first slide. The 4th quarter saw a sequential decline in FRA injuries, which reflects our continuing initiatives around transforming our safety culture. However, the full year rate remained elevated compared to last year. A positive result of our efforts has been a significant reduction in our employees' lost time associated with injuries. We finished 2024 with the lowest total workdays lost in the calendar year in company history. Mike CoryEVP & COO at CSX00:05:23For FRA accidents, we saw a quarterly year over year increase, but finished largely flat on an annual basis. We strongly believe that our work in the field on hazard identification and exposure controls combined with our focus on newly hired and trained employees will continue to reduce significant injuries and accidents. And to improve the efficiency in our capital work, we continue to harden our main lines and infrastructure more effectively. We clearly see how our Safe CSX initiative is creating positive fundamental changes in both our safety leadership and the workplace environment our employees are in. Over to the next slide. Mike CoryEVP & COO at CSX00:06:00On this slide, you can see the impact of the strong hurricanes that passed through much of our service areas at the beginning of the quarter and flowed through to our customer service metrics. Much of the impact to our trip plan compliance came directly from our inability to deliver cars to customers due to the effects of the storm. Our customer switch data shows that we maintained a relatively good first and last mile switching considering the challenges. However, it remains our focus for improvement. I'm confident that our team will deliver in these metrics as we progress through the year. Mike CoryEVP & COO at CSX00:06:30I'm also very pleased with the progress that we've made in developing our field employees to be more responsive to customer needs. As this development takes hold, we have a much better understanding at the local level on how to manage costs through proper service process. Over to the next slide. As I stated earlier, 2024 brought various weather related challenges over the last two quarters that have affected our overall operating metrics. We entered Q4 still dealing with the residual effects of the previous storm such as the Blue Ridge reroutes. Mike CoryEVP & COO at CSX00:07:01Hurricane Melton in particular caused long periods of recovery for the various commodities to move into and out of Florida. This resulted in increased well for our traffic in our largest volume state. It also affected other parts of the network as we were unable to run our regular cadence on some flows throughout the storms up to recovery. On the velocity side, we were able to maintain excuse me, we were able to continue increasing our capacity and maintain our speed through very close management of our train starts. This also benefit our locomotive utilization and overall transportation, engineering and mechanical costs. Mike CoryEVP & COO at CSX00:07:35As we worked hard in adverse conditions to maintain our network fluidity, we also drove strong improvements in efficiency. The top right of the slide shows the gains we've made in fuel efficiency, which has resulted in 1,000,000 of dollars in savings this last year. The chart on the bottom reflects how we're using less power per tonne of freight moved, another indicator of better operating efficiency. Further, over 2024, our engineering, transportation and network teams work together to improve our work block performance. This resulted in substantial improvements in the amount of rail ties and ballast replaced per man hour compared to the previous year. Mike CoryEVP & COO at CSX00:08:10And we're seeing great productivity gains here, but there's still much more improvement that we expect to get going forward. For the Howard Street Tunnel, we've commenced rerouting traffic and our start date of February 1 is on target. This project was initially planned to take 3 years and create extensive daily track outages over one of our key corridors. We're extremely proud of the team for being able to turn this around from a 3 year project to one that will take 6 to 8 months for the tunnel to be operational. We'll benefit from this improvement forever and far faster than originally planned. Mike CoryEVP & COO at CSX00:08:41At the Investor Day, I spoke about the opportunities at Cumberland. The team is 90% complete with the site's reconfiguration and the results have been great. Already, we've doubled the number of cars processed per day, meeting our initial target. And with completion still to come, we are focusing on much more in terms of improvements. Overall, I'm extremely pleased with our progress on many of the fronts. Mike CoryEVP & COO at CSX00:09:04All our initiatives discussed at Investor Day are proceeding, and while 2024 had numerous challenges, we made fundamental improvements in many areas that will benefit us over the long run. We've increased transparency in the relationship between cost and service for our operating managers. As a result, our service continues to improve while our costs stay in line with expectations. Our Safe CSX program is well underway and the team is defining and implementing key process changes with our operating employees, bringing benefits to employee retention as well as improving reliability and resiliency across our network. Considering the various challenges that came about last year, I'm very pleased and confident in the operating team's response and the collective work in both restoration and tackling our initiatives going forward. Mike CoryEVP & COO at CSX00:09:46So looking forward, I believe we're well positioned to deliver our objectives in 2025 and beyond, and we're all looking forward to capitalizing on the opportunities as they present themselves. With that, over to you, Kevin. Kevin BooneEVP & CCO at CSX00:09:58All right. Thank you, Mike. First off, I do want to thank this entire sales organization for all their hard work throughout 2024. As Joe and Mike have described, we faced numerous challenges across our network this past year, and our team responded with a steady commitment to serving our customers, highlighted by our Q4 Voice of the Customer survey where we saw the Net Promoter Score reaching an all time high. We continue to see mixed conditions across the markets we serve. Kevin BooneEVP & CCO at CSX00:10:24Industrial output remains muted, Interest rates are still high, and the truck cycle has yet to inflect. With that said, we hear optimism from our customers as they consider the potential for its support of domestic economic policies, and we continue to see strong activity into 2025 with new project inquiries into our industrial development group. Our focus remains to drive outgrowth in the markets we serve, continuing our track record of exceeding industrial production. Let's review merchandise business as shown on Slide 8. For the Q4, revenue and volume were flat compared to last year. Kevin BooneEVP & CCO at CSX00:11:02But on a full year basis, revenue was 3% higher with a 1% increase in volume. Looking across the end markets, chemicals remained strong in the 4th quarter, consistent with the full year performance, with volume increasing 6%. Robust demand for plastics and LPGs has driven much of the growth throughout 2024. Minerals volume was supported by positive demand for cement and aggregates, and forest products volume was up 3% as CSX capitalized on continued demand in paper markets and pulp board. On the other side of the markets, volume for fertilizers business was impacted this quarter as supply chains here in Florida felt the lingering effects of hurricanes. Kevin BooneEVP & CCO at CSX00:11:46Performance within metals remained sluggish as it has been all year, largely due to continued soft demand for steel. Volume for our automotive business declined 2% for the quarter as higher dealer inventories have led to lower build rates. Looking ahead to 2025, we're seeing strong demand signals in our Ag and Fertilizer segments, along with continued strength in minerals and chemicals. Interest rate sensitive markets, including automotive, metals and housing continue to remain challenged. While we anticipate a slower start in the Q1, we do expect moderate merchandise carload growth for the full year, supported by steady service driven conversions and new industrial development projects that should accelerate as we exit 2025. Kevin BooneEVP & CCO at CSX00:12:35Now, let's turn to slide 9 to review the coal business. Coal revenue declined 20% for the quarter on 7% lower volume as we've navigated the effects of reduced global benchmark pricing and production issues. All in coal RPU declined 14% year over year and 4% sequentially, in line with previous guidance. Export volume fell modestly, largely due to lower supply availability of certain coal mines with temporary geological issues limited production. That said, for all of 2024, export coal volume grew by 9%, even considering the impacts of the Key Bridge and a ship loader outage at Curtis Bay. Kevin BooneEVP & CCO at CSX00:13:18Exports represented more than half of our coal carloads for the full year, a first for CSX. Domestic shipments were pressured during the quarter, driven by lower natural gas prices and ample utility stockpiles. More recently, we have seen colder winter weather that has begun to reduce utility stockpiles, providing incremental opportunities as we move into the summer months. As we look into 2025, we anticipate a decline in coal volume with the weakest year over year performance in the Q1. This includes temporary production outages at a couple of its CSX served mines that will mainly impact the first half of twenty twenty five from a year over year volume perspective. Kevin BooneEVP & CCO at CSX00:14:05Based on current global benchmark prices, we expect all in coal RPU to be down roughly 3% sequentially in the Q1. As we have highlighted previously, we also see a couple of plant closures at domestic utilities that are scheduled for later this year. Despite these challenges, our utility customers are facing accelerating growth in power demand across areas of our service network where data center build outs are in progress. Lower utilization rates at existing CSX serve utilities does provide opportunities to work with customers to meet increased demand. Turning to Slide 10 to review the intermodal business, 4th quarter revenue declined 5% on a 4% increase in volume, with lower diesel prices year over year significantly impacting revenue per unit by 7%. Kevin BooneEVP & CCO at CSX00:14:54Our domestic intermodal business performed well for the quarter, converting traffic from over the road even in this challenging truck market. We have been we have many initiatives underway, including continued growth in our direct business, new volume related to our Myrtlewood interchange, future improvements in double stacking capabilities into the Mid Atlantic, and many others that make us optimistic about our growth ahead. Within international, quarterly performance remained robust, allowing us to deliver strong growth for the full year as we gain from alignment with our key customers. Overall, we continue to compete and win intermodal business. Our inland port initiatives remain on track and we're excited about the prospects of closer alignment with our channel partners. Kevin BooneEVP & CCO at CSX00:15:42As the political and trade landscape shifts, we will remain in close contact with our customers, ensuring that we will be able to adapt to their needs. As we look ahead to 2025 and beyond, there's a lot to be excited about. With that, let me turn it over to Sean. Sean PelkeyEVP & CFO at CSX00:16:00Thanks, Kevin, and good afternoon. Reported operating income and earnings per share both fell by 16% in the 4th quarter, impacted by a $108,000,000 or $0.04 impairment of goodwill related to quality carriers. I'll now speak to the Q4 income statement on an adjusted basis excluding the goodwill impairment charge. Revenue was lower by about $140,000,000 or 4%. Declines in fuel and export coal benchmark prices as well as business interruption from the hurricanes, drove a combined impact of around $200,000,000 Despite these challenges, the team delivered an 8th consecutive quarter of 3 plus percent growth in combined merchandise and intermodal revenue, excluding fuel. Sean PelkeyEVP & CFO at CSX00:16:43We remain focused on operating efficiently and delivered an adjusted expense reduction of 2% with more details on the next slide. Interest and other expense was stable compared to the prior year. Adjusted income tax expense decreased $33,000,000 The effective tax rate of 22% included a $26,000,000 benefit, largely driven by the revaluation of the state deferred tax liability. Our expected tax rate going forward continues to be 24.5%. As a result, adjusted earnings per share fell $0.03 including a $0.06 combined impact from hurricanes, net fuel price, and lower export coal benchmarks. Sean PelkeyEVP & CFO at CSX00:17:25Let's now turn to the next slide for a closer look at expenses. 4th quarter adjusted expenses decreased $40,000,000 Turning to the individual line items, labor and fringe was $26,000,000 lower, driven by lower incentive compensation expense and other items, partly offset by inflation. As expected, headcount increased slightly from the Q3, attributed to the timing of train and engine employee hiring, aiming to qualify the new employees ahead of the 2025 summer vacation season. We expect to absorb volume growth in 2025 with average headcount remaining stable versus current levels, while cost per employee will be higher year over year in line with labor inflation. Purchase services and other expense increased $43,000,000 The variance includes approximately $25,000,000 of smaller impairment charges, which were largely offset by a favorable legal settlement. Sean PelkeyEVP & CFO at CSX00:18:21Additional variances were driven by inflation, expenses related to the timing of locomotive modernizations, and storm recovery costs. Depreciation was up $17,000,000 on a higher asset base, in line with the rate of quarter over quarter increase we expect in 2025. Fuel cost was down $86,000,000 driven by a lower gallon price and a 4th consecutive quarter of year over year efficiency savings. Finally, equipment and other rents increased by $7,000,000 while property gains were $5,000,000 unfavorable in the quarter. Now turning to the discussion of full year adjusted results on Slide 14, revenue finished 1% lower for the year on 2% volume growth, while adjusted operating income was 3% lower and adjusted earnings per share increased by $0.01 This includes over $400,000,000 of operating income headwinds from the discrete items we have discussed throughout the year. Sean PelkeyEVP & CFO at CSX00:19:17As a result of our increasingly collaborative approach with customers, consistent operational execution, and cultural improvements flowing to our frontline employees delivering the service product, our customers are rewarding us with steady and profitable volume growth. In fact, volume increased in all four quarters for the first time in 10 years, while full year merchandise and intermodal pricing gains were once again above cost inflation. At the same time, we remain highly focused on controlling costs, eliminating waste and improving efficiency. Mike and the operating team made impressive strides in fuel efficiency during 2024, resulting in approximately $45,000,000 of savings. PS and O cost increased by just $50,000,000 versus 2023, inclusive of headwinds from prior year insurance recoveries as well as storm related costs in 2024. Sean PelkeyEVP & CFO at CSX00:20:10Core PS and O expense was stable in the face of inflation and 2% higher volume, benefiting from numerous initiatives across operating and G and A functions. PS and O will be pressured in 2025 by the Howard Street Tunnel Project, as well as ongoing locomotive modernizations and cloud computing expense, but we are committed to unlocking further savings. Our headcount stabilized during 2024 with volume gains outpacing employee growth over the second half of the year and we expect to continue delivering labor productivity gains going forward. Turning our attention to 2025, this company is headed in the right direction. We're building a strong culture, serving our customers at high levels, pairing new business wins and industrial development opportunities with ongoing efficiency to deliver strong bottom line performance and investing for the future. Sean PelkeyEVP & CFO at CSX00:21:04That said, the 3 considerations listed on this slide could drive significant net unfavorable impacts this year. As we enter the year, export coal benchmarks and fuel prices are working against us. And if they remain stable, would result in a combined $300,000,000 impact versus 2024, with nearly half of that in Q1 alone. On the flip side, we expect a roughly $50,000,000 net operating income benefit from cycling unique events, including hurricanes and the Key Bridge collapse, net of anticipated higher incentive comp in 2025. Finally, as we've outlined before, major construction projects on the Howard Street Tunnel and hurricane impacted Blue Ridge Subdivision will drive an incremental $10,000,000 per month net impact into Q4. Sean PelkeyEVP & CFO at CSX00:21:50Q1 operating income will be our trough off, well below prior year. Results will improve from there and we expect to return to year over year growth in the second half. At our Investor Day in November, we presented a theme of proven model with powerful momentum and profitable growth. Despite the discrete pressures, the One CSX team remains confident in our long term guidance. Let's now discuss cash flows and distributions on Slide 16. Sean PelkeyEVP & CFO at CSX00:22:18Investing in the safety and reliability of our infrastructure is our highest priority use of cash. Additionally, 2024 capital spending included increased allocations towards rolling stock and other return generating investments that support a pipeline of future growth and efficiency opportunities. The 2024 infrastructure figure also includes around $50,000,000 of initial spend on our Blue Ridge subdivision following the devastation caused by Hurricane Helene. We now expect total cost to exceed $400,000,000 before insurance recoveries as we work diligently to reopen this important route that will serve our customers for generations to come. Strong cash flow also supported close to $3,200,000,000 in shareholder returns for the year, including over $2,200,000,000 in share repurchases and $900,000,000 of dividends. Sean PelkeyEVP & CFO at CSX00:23:08The share repurchase program once again outperformed, with CSX purchasing shares at a 2% discount to the market price in Q4, delivering value to ongoing owners. While economic profit finished lower for the year, largely due to the discrete items mentioned on the prior slide, our goal is to increase economic profit over time, which has been shown to strongly correlate with outsized shareholder returns. With that, let me turn it back to Joe for his closing remarks. Joe HinrichsPresident, CEO & Director at CSX00:23:35All right. Thank you, Sean. We will finish up our prepared remarks by discussing our expectations for 2025. As you heard from Kevin, many markets remain uncertain as we look ahead at the full year. Operationally, we are undertaking substantial projects to rebuild the Blue Ridge Subdivision after Hurricane and Lean and expand the Howard Street Tunnel in Baltimore. Joe HinrichsPresident, CEO & Director at CSX00:23:54That said, the momentum we have built with our leading customer service gives us confidence that we can deliver volume growth in the low to mid single digit range, driven by our merchandise and intermodal business. We expect volumes in the Q1 to show the effects of weather and a slow start for the auto industry and then build over the course of the year. Given scheduled coal plant closures and a number of mine production issues, we do anticipate coal volumes to be lower year over year in 2025. Next, consistent with our commentary over the last few months, we expect full year revenue to be impacted by lower global benchmark pricing for coal and reduced fuel surcharge, particularly in the first half of twenty twenty five. Mix will also be a factor as the intermodal business has the lowest RPU, but is likely to show the fastest growth this year. Joe HinrichsPresident, CEO & Director at CSX00:24:43Our efforts to drive efficiency improvements and manage controllable costs will continue. As Sean discussed, the Blue Ridge rebuild and the Howard Street tunnel project will add expense over the year, but our team is working hard to deliver productivity gains. Given our current outlook, we expect to hold our headcount effectively flat for the year. We plan on CapEx being roughly flat year over year excluding spend on the hurricane recovery, which we report out throughout the year. And finally, our capital allocation priorities remain unchanged. Joe HinrichsPresident, CEO & Director at CSX00:25:15We will continue to invest in the safety and fluidity of our network, execute on high return growth projects and opportunistically distribute excess capital to our shareholders. To sum up, I am proud of how the OneCSX team responded to the challenges that we encountered over 2024. There are great opportunities ahead in 2025 and the longer term. We will execute and deliver on them on behalf of our customers and our shareholders. I have no doubt that CSX will continue to move forward and we look forward to keeping you updated on our progress. Joe HinrichsPresident, CEO & Director at CSX00:25:45Now I'll be happy to answer your questions. Matthew, let's begin the Q and A process. Matthew KornHead Of Investor Relations at CSX00:25:49Thank you, Joe. We will now proceed to our question and answer session. Now to make sure that everyone has the opportunity to take part in the time that we have, we ask you to please limit yourselves to one and only one question. Operator, we're ready to start the process. Operator00:26:05Thank And your first question comes from the line of Tom Wadewitz with UBS. Your line is open. Tom WadewitzSenior Equity Research Analyst at UBS Securities LLC00:26:38Yes. Good afternoon. Wanted to see if you were pretty clear on some of the headwinds and it sounds like a lot of those are in 1Q and first half. How you think about full year margin performance And if you kind of come out with some strengthening in volume in second half, can you see it potentially improve or is that tough to do given how meaningful some of the headwinds are? Sean PelkeyEVP & CFO at CSX00:27:09Hey, Tom, it's Sean. Sean PelkeyEVP & CFO at CSX00:27:11So, yes, I mean, I think clearly the headwinds are going to be concentrated here in the first half of the year, worse in Q1 than Q2. So first half of the year, I think margin improvement is sort of out of the question unless something changes with commodity prices or what have you. As we get to the second half, yes, I mean, I think it's quite possible we see not only growth in operating income, but margins as well in the second half, assuming that the environment that we're operating in remains stable. The core fundamentals remain in place. We're going to grow volumes low to mid single digits, and that will be very supportive to operating income and margin growth over time, particularly as some of these headwinds ease given the capacity that we have on the network to absorb that growth. Operator00:28:00And your next question comes from the line of Scott Group with Wolfe Research. Your line is open. Scott GroupManaging Director at Wolfe Research00:28:07Hey, thanks. So similar question, but not about margin, just about like operating income dollars. Do you think we grow operating income this year? Or is that I guess down a lot in the Q1, sounds like up in the back half. When you add it all up, do you think we grow operating income this year? Sean PelkeyEVP & CFO at CSX00:28:31Hey, Scott. So obviously, we didn't give specific guidance on what that's going to look like over the course of the year. What I would say is, if those headwinds that we outlined of $350,000,000 weren't there, we would deliver pretty solid growth in operating income this year. You know, low to mid single digit volume growth at 50% to 70% incremental margins that we talked about at the Investor Day is a good setup. You know, we do have some other challenges this year in terms of some of the utility coal headwinds that Kevin outlined, the mine issues that we've got right now, as well as, you know, the some of the closures later on in the year. Sean PelkeyEVP & CFO at CSX00:29:08So that makes this year a little bit worse, but going forward, we feel pretty good about being able to hold those coal volumes relatively stable with some opportunity in exports. So on an adjusted basis, what I would say is, if you were kind of looking at our Investor Day guidance of mid to high single digit operating income growth, this year, we'd be towards the lower end of that, if you adjust for the discrete headwinds. And then in the following years, we'll see a bit of a rebound, particularly as we cycle some of the issues around or some of the costs related to the construction projects we've got going on this year. Operator00:29:45And your next question comes from the line of Stephanie Moore with Jefferies. Your line is open. Joseph HaflingVP - Equity Research at Jefferies Financial Group00:29:51Great. This is Joe Halfung on for Stephanie Moore. Thanks for taking our questions. Maybe stepping away from the guidance for a second, relative to when we last spoke on your Investor Day, I was wondering if you could highlight any incremental conversations you guys have had with customers related to the industrial development pipeline, if there's any tangible things you can point to, just relative conversation with customers you've been having over the last couple Joseph HaflingVP - Equity Research at Jefferies Financial Group00:30:20of months post election? Thanks. Kevin BooneEVP & CCO at CSX00:30:25Yes. I think, when we're coming into this year, obviously, given the political landscape changing pretty rapidly here, we thought there might be a pause in activity and new projects going out for bid. We've actually seen quite the opposite. We've seen that really stay healthy and, we're, we're a number of new new projects have come our way that we're working on, and the group is very, very busy. So I think, that's a big positive for us. Kevin BooneEVP & CCO at CSX00:30:51Obviously, there's a long tail to those projects. You have to get them permitted and then get them underway. But we see that strength that we noted at the Investor Day, really continuing in the Q1 here and hopefully accelerating with some of the, obviously, policy that may take place here in the next few months. Operator00:31:12And your next question comes from the line of Chris Wetherbee with Wells Fargo. Your line is open. Chris WetherbeeSenior Analyst at Wells Fargo00:31:19Hey, thanks. Good afternoon. Just wanted to pick up on the comment that you mentioned. I think you said that ex some Chris WetherbeeSenior Analyst at Wells Fargo00:31:24of the cost items, you'd be in the sort of Chris WetherbeeSenior Analyst at Wells Fargo00:31:26the mid single digit or the lower end of sort of the EBIT range. I guess I want to make sure I understand that dynamic in the context of low to mid single digit volume growth. So I guess when we think about some of the other puts and takes that would drop from revenue down to or volume down to profit, can you talk maybe a little bit about the pricing outlook that you think about 2025, how that compares to 2024? Sean PelkeyEVP & CFO at CSX00:31:53Chris, I'll start and then maybe kick it over to Kevin on the pricing side. So essentially what I was saying there is if you take those $350,000,000 of headwinds, assuming commodity prices on the coal and fuel side remain flat, you've got the network disruption as well as some of the things recycling from last year and adjust for that, we'd be you know, roughly in the, in the kind of lower end of the mid to high single digit range, plus or minus a little bit, depending on what happens over the course of the year with the economic environment. But we feel good, very good about pricing. And I'll give Kevin an opportunity to speak to that. Kevin BooneEVP & CCO at CSX00:32:28Yeah. I think, on the merchandise side, you know, nothing really changing there. We continue to compete in the market and really leverage the service products that we have. You know, the biggest difference versus last year, obviously, as you've seen on the commodity price for coal, so that's met coal prices have come down. As you know, our contracts reflect, move with those prices. Kevin BooneEVP & CCO at CSX00:32:49And so we've seen that, hopefully we'll see some strength, pick up. But that's, you know, that market is very, very dynamic. And I will say on the intermodal side, it's encouraging to see at least some stabilization and maybe some contractual rates starting to move up slightly. So I'm not here to call a cycle. I think others are better prepared to do that. Kevin BooneEVP & CCO at CSX00:33:10But as we see hopefully through the year and into the back half, we might see a little bit more support than what we certainly saw last year in 2024. Operator00:33:22And your next question comes from the line of Ari Rosa with Citigroup. Your line is open. Ari RosaSenior Analyst at Citigroup00:33:30Great. Good afternoon. So I just actually wanted to stay on that line of questioning. Maybe you could talk about the impact of tightening truck capacity and what's usually the lag in terms of where we would expect to see that reflected in results? And specifically, I assume it would be reflected primarily in intermodal. Ari RosaSenior Analyst at Citigroup00:33:47But if you could talk about kind of other areas where we might see that impact kind of flow through results would be appreciated. Thanks. Kevin BooneEVP & CCO at CSX00:33:57Yes. The most obvious one is intermodal, but there is a lot of work that the team is doing on the merchandise side from a truck conversion point of view. And when you think about an environment where in the do nothing scenario, a customer can get savings by staying with truck, even though the value proposition might be greater with rail, you know, that there's not a lot of, you know, momentum to do that. Going into this year, I think, you know, some of our discussions are on the merchandise side and really accelerate as, as customers are looking for additional cost savings and we can really lean into that. So I'm, I'm optimistic that's going to be the case and that's the market that we can have a little bit of a supportive market, which we've been fighting the last couple of years here, will be very beneficial to us. Kevin BooneEVP & CCO at CSX00:34:42In remodel, when we look at our pricing, it does lag the market a bit here. So contracts, even the shorter duration ones can be a year and a lot of that takes place in the 1st part of the year. And so if we start to see some momentum, the bigger impact probably starts next year, but we could see some benefit as we exit this year. Operator00:35:05And your next question comes from the line of Brandon Oglenski with Barclays. Your line is open. Brandon OglenskiDirector & Senior Equity Analyst at Barclays00:35:13Hey, good afternoon, everyone. Thanks for taking the question. Joe, I'm sure investors are excited here at the opportunity long term for growth, but obviously, some of the earnings headwinds when GDP is up, that might be a little frustrating in the near term. But maybe can you talk to what this tunnel project will ultimately yield getting beyond some of the hurricane damage in the Blue Ridge region? And should we be thinking that 2026 could actually be that much better when you think about margin opportunity, incremental margins, pricing, volumes, etcetera? Joe HinrichsPresident, CEO & Director at CSX00:35:49Thanks, Brandon. Yes, I mean, I think what you've heard from including other transports include is that while the GDP has been growing, the industrial side of the economy has been flat or down over the last couple of years, which more closely aligns with certainly in the merchandise side of our business. So the interest rate sensitive parts, automotive, is still well below pre pandemic levels, housing market and steel, other things like that. So we're obviously looking forward to hopefully, whether it be interest rates coming down or other policy changes that will help the industrial side of the economy and maybe we'll see a little bit of growth this year for the first time in a couple of years. So certainly that will impact us. Joe HinrichsPresident, CEO & Director at CSX00:36:32I think at a higher level, the Howard Street Tunnel project is one of the most important projects in this company. And as Mike highlighted in his commentary, we've been waiting for a long time to do this and we had a plan that was going to be a 3 year plan that we've now accelerated into 1 year, which is going to be done in the 2025 calendar year. That, of course, means 2025 will have a lot more expenses tied to it for the rerouting costs and taking care of our customers while we do that. But we get the benefits much sooner than originally planned, which helps in 2026 and 2027. And those benefits include the ability for us to run double stack, all the way up and down the East Coast including, you know, places from Chicago. Joe HinrichsPresident, CEO & Director at CSX00:37:14There are trains we can't take right now from Chicago double stack to the East Coast because we can't get through the Howard Street Tunnel and some bridges around that area. So you can go all the way out to our interchange with our Western rails and talk about the advantages that will help us. It's one of the probably if not the largest competitive advantage we have right now on our intermodal business has been the inability to double stack and be able to reach the high population density sectors on the East Coast because of that. So this is a big deal. I mean, actually, if you step back, between the MMBR interchange that's now open, which was one of the other competitive advantages we had on intermodal and other parts of our franchise. Joe HinrichsPresident, CEO & Director at CSX00:37:55And now the Howard Street Tunnel, we're going to take care of probably the 2 biggest competitive advantages we had in our network by the end of 2025. So we're really excited about that. And that's a big deal because right now we have to double stack, we have to route basically up through upstate New York and down. So you can imagine all the weather in the winter doing that. But also it's the outer route miles are tremendous. Joe HinrichsPresident, CEO & Director at CSX00:38:19And so and frankly, we can't run up and down that I-ninety five corridor with Double Stack right now. So a big deal to us. We're looking forward to those benefits. And so yes, that will contribute to more meaningful you know, ability to grow profits in 2026 and 2027 along with other things that are going on, including industrial development, including the efficiency actions we're taking across the network and including all the work that we're doing with our customers. So, we continue to be very excited about the potential of this business and support the targets and the stuff that we outlined at our Investor Day in November. Joe HinrichsPresident, CEO & Director at CSX00:38:54And those that if you can do the math now and say, okay, as Sean highlighted, 25% is going to be lower end of that, that means we're still very strongly believe in our plan that 26% and 27% will be more supportive of making that happen. Thanks. Operator00:39:11And our next question comes from the line of Brian Ossenbeck with JPMorgan. Your line is open. Brian OssenbeckMD - Senior Analyst, Transportation at JP Morgan00:39:19Hey, afternoon. Thanks for taking the question. So, I guess maybe one for Mike. Should we expect as this tunnel project gets underway, there are going to be some meaningful deterioration or adjustments that we're going to see in some of the service metrics? Just trying to figure out how that would play out considering it is such a big undertaking in a compressed period of time? Brian OssenbeckMD - Senior Analyst, Transportation at JP Morgan00:39:40And then maybe just also get your thoughts on just the general health of the network having absorbed a couple of hurricanes, a couple port strikes or one near miss. And just your thoughts on staffing levels because it sounds like you're already pretty well staffed up into next year. So getting through all this in the near term, how do you feel like the network is positioned to hit that growth when it does come back perhaps in the back half of the year? Mike CoryEVP & COO at CSX00:40:05Thanks. Thanks for the question, Brian. I'm not going to get you to repeat the first part, but I can barely remember. No, I'm just kidding. In terms of the tunnel, Brian, we have already taken steps in the Q4 to start to move traffic and reroute it off the tunnel. Mike CoryEVP & COO at CSX00:40:20And so we're prepared. The cost Sean is talking about really is reflective of what we have to do to maintain some of our customer commitments and detour somewhere else that we're paying a haulage for. But effectively, I don't think the metrics are going to be affected, that dramatically. We've pretty much moved everything off. So, what you see is what you have now. Mike CoryEVP & COO at CSX00:40:42In terms of the network, yes, look, it was an interesting year. We started off in the Q2, really trying to focus on crew starts and looking at how our capacity was, our trains, how they were operating. And our focus was to basically take crew starts down in line with the service offering we had to make. And we started to do that and right up until and then we saw again, as you reduce the crew starts or the train starts, your dwell goes up. So we made adjustments. Mike CoryEVP & COO at CSX00:41:13And if you look in the middle of the year going into that Q3, the first set of hurricanes, we were running very well. And, on and those so those fundamental principles are still there. You keep if you look, there's pockets weeks where we didn't have the disruption from the hurricanes that we're I'm very, very happy with the performance of the railroad overall outside of those things. Going forward, yes, our headcount is stable. We have we do have more productivity improvements, right in front of us once we get in the look. Mike CoryEVP & COO at CSX00:41:45We just had 3 days of snow 2 days of snow and record and all that. Once we get through this, we're back on track because going into the Christmas shutdown, we're in very good shape and we really, really took action working with our customers as they reduced their needs to really, really reduce more starts. And that's our focus is, 1st of all, to run a safe railroad that employees know and come prepared for work and are able to do it. Number 2, service those customers, but productivity is extremely important for us because, we've made some great steps. We fought off the battles that we've had with these storms and the team is very entrenched in the principles that got us to where we were before the storm started. Mike CoryEVP & COO at CSX00:42:27So I'm very happy with the network. We've got work to do with all the different stuff going on right now like we always will. But overall fundamentally, we're on the right track. Operator00:42:39And your next question comes from the line of Jon Chappell with Evercore ISI. Your line is open. Jonathan ChappellSenior Managing Director at Evercore ISI00:42:46Thank you. Good afternoon. Sean, Jonathan ChappellSenior Managing Director at Evercore ISI00:42:49hate to Jonathan ChappellSenior Managing Director at Evercore ISI00:42:49get into minutiae on certain model line items. You said cost per employee will be up aligned with labor inflation. So I assume you mean like 4 ish percent. That said, you have a really tough comp in 1Q 'twenty four where it was up 7% and then a super easy comp in 4Q 'twenty four where it was down 4% because of the incentive comp. So do we think about it as 4% on average, but try to get the quarterly cadence more aligned with typically kind of lower cost per employee in the Q1 and peaking in the Q4, due to annual bonuses incentive comp? Sean PelkeyEVP & CFO at CSX00:43:26Yes, John. So here's how I think about it. I would take the Q4 number. I would add back the incentive comp adjustment. So that's about $1500 an employee. Sean PelkeyEVP & CFO at CSX00:43:37And that's a pretty good run rate for the first half of the year. We may actually come in a little bit better than that in the first half of the year, due to two reasons. 1, looking very closely at overtime, trying to reduce that and other unproductive costs. But also, it looks like likely lower health and welfare costs that kick in here this year. Then as we get to the second half, take that first half run rate, add 4.25 percent to that, which is what I would expect, for second half wage inflation. Sean PelkeyEVP & CFO at CSX00:44:09That should give you a good way to model it for the full year. Operator00:44:15And your next question comes from the line of Ken Hoexter with Bank of America. Your line is open. Ken HoexterManaging Director at Bank of America00:44:21Hey, great. Good afternoon. Two quick ones to clarify and then my question. I guess, clarifying, Kevin, did you say met coal at these levels, the 191, is that down 3% sequentially? Is that based on these levels? Ken HoexterManaging Director at Bank of America00:44:33Or does it go lower if rates hold at these low levels? And then, you mentioned some outages, some mine outages. Does that include the recent fire at one of your mines? I presume that's what you meant when you said some mine outages. And then I guess, Sean, my big question is, you kind of talked mid single digit growth. Ken HoexterManaging Director at Bank of America00:44:52I guess that would have been about $260,000,000 add to EBIT, offset by about $300,000,000 discrete items. So I just want to understand, are you sending the I just want to understand your messaging, is it that the base case EBIT is down $50,000,000 from the $5,350,000,000 that you've got for the target? I'm just trying to put together all the numbers you're throwing out there. Thanks. Kevin BooneEVP & CCO at CSX00:45:13All right. Well, that was a lot. Kevin BooneEVP & CCO at CSX00:45:16So let's start with Kevin BooneEVP & CCO at CSX00:45:17the coal question. Yes, at current levels, that's where we see that was the guidance at current levels, what we see here. Hopefully, we'll see some as we get in the second, third quarter, more reflective of kind of the cost curves of our producers and global producers. Quite frankly, we think it's probably under market right now, and that should hopefully balance out above $200,000,000 as we get in the back half of the year. We'll see if that happens. Kevin BooneEVP & CCO at CSX00:45:40And then, the other question was the outage that you mentioned. Yes, that's related to the recent one. We expect that to come back online in the second half of this year. I will say that, the team is doing a great job of looking for other sources and we do expect some of that to be made up at other mine locations to basically backfill the demand that still remains out there. So we don't expect that to be a full loss. Kevin BooneEVP & CCO at CSX00:46:08We'll find other opportunities to offset hopefully, a lot of that and more than half of that, headwind that we'll see. Over to Sean. Sean PelkeyEVP & CFO at CSX00:46:16Yes, Ken. So, I mean, your math is awfully precise. You know, it's too early in the year to kind of give you that close of a range. But I think generally speaking, kind of the way you're looking at it, if you take the, you know, adjusted number for 2024, the non GAAP adjusted number, you know, you subtract the $350,000,000 and then look at sort of mid single digit ish growth. And I would say there's some things this year that could make it a little bit worse than that. Sean PelkeyEVP & CFO at CSX00:46:46And that's really the coal challenges as well as the incentive comp piece that probably adds another $30,000,000 to $40,000,000 of expense this year versus 2024. But there's a lot of other variables in there as well. We're very, very focused on the cost side to try to make sure we can manage through the first half of this year as we've got some big headwinds, to manage with. And so, you know, there's levers that we can pull, but there there's obviously, things that we're watching in the economy as well. So there's a range of, outcomes that we could could model from here. Sean PelkeyEVP & CFO at CSX00:47:16And as we go through the year, we'll get, you know, much more, line of sight into exactly where that lands and can give you a little bit more color there. Operator00:47:27And your next question comes from the line of David Vernon with Bernstein. Your line is open. David VernonMD & Senior Analyst at Bernstein00:47:34Hey, thanks guys for taking the question. So, we've probably kicked this a couple of times, but Kevin, is there any way you can help us understand the 300, how much of that is volume, how much of that is price, kind of what you're making in there roughly, slices of pizza and an 8 slice pie kind of thing? And then if you think about the outlook as we look into merchandise intermodal, it feels like the Q4 numbers ended a little bit below the full year numbers. I'm just wondering if you're also seeing some volume pressure because some of the Blue Ridge outage and maybe even some volume because of the service issues might be happening with the Howard Street tunnels. Should we be thinking that there's some additional sort of volume headwinds building into 2025 here with related to this stuff? David VernonMD & Senior Analyst at Bernstein00:48:17Or is it purely just operating cost? Thank you. Kevin BooneEVP & CCO at CSX00:48:22Let me handle the first part. That was quite a bit again. The $300,000,000 that Sean highlighted in his opening comments was related to the met coal price. And then obviously the fuel surcharge was, so those two items, not a volume comment in that market. And then I'll hand it over to Sean. Sean PelkeyEVP & CFO at CSX00:48:43Yeah, and I think, David, what you're pointing to in terms of the momentum there in Q4, you got to remember the hurricanes were a pretty big impact. You know, we talked about a $50,000,000 impact with, you know, roughly $30,000,000 of that, being revenue. The revenue number was probably even a little bit higher than that when all was said and done. So, you know, that that that was a big piece of it. I don't, I mean, Mike and Kevin, you correct me if I'm wrong, but I I don't think we're anticipating any volume disruption from, the shutdown of the the Howard Street Tunnel. Sean PelkeyEVP & CFO at CSX00:49:12In fact, the work that we're doing and the costs that we're adding are to preserve that volume and allow us as we clear up that pinch point in our network to actually be able to identify and pursue some growth opportunities that Kevin and the team are looking at. Kevin BooneEVP & CCO at CSX00:49:27Yeah. I think with the blue ridge, there's small but immaterial, maybe some volume that would move off temporarily, just given the additional length of haul, but the majority of it, given the great work by the team and Mike's team and Kerry and others to come up with a solution, really preserve that largely for us. Operator00:49:46And your next question comes from the line of Bascome Majors with Susquehanna. Your line is open. Bascome MajorsSenior Equity Research Analyst at Susquehanna00:49:53Thanks for taking my questions. Can you talk a little bit about the regulatory opportunity under the new regime, either at the IFRA and the STB? And anything that has been held up or slow play that could generate needle moving productivity for CSX in 2025 or 2026? Thank you. Joe HinrichsPresident, CEO & Director at CSX00:50:15Yes, Bascome, this is Joe. I'll take that one. I think, first of all, you already saw some activity on the waivers that have been longstanding. That's important. We Joe HinrichsPresident, CEO & Director at CSX00:50:24need to Joe HinrichsPresident, CEO & Director at CSX00:50:25get more technology on the inspection side into this industry and we need to work with our union partners to make that happen, but there's a lot we can do at advanced efficiency and safety while still having plenty of work for our teams to do. That's a big one. I think if you look at, obviously Patrick Fuchs being named STB Chair, we know Patrick well, you know, very much, involved and engaged in our industry along with the other Board members. So, looking forward to that, working with the STB that's really focused on the data and what we can do to grow this business in a positive way. The FRA, I mean, David Fink, he was running Pan Am when CSX purchased it before my time, but so obviously knows the business and some of the stress points that the railroads faced in technology and also investment in capital and that kind of thing. Joe HinrichsPresident, CEO & Director at CSX00:51:16So we're feeling really good about a supportive environment for the industry when it comes to safety and technology and working together to advance. I mean, I think everyone is aligned that the best thing we can do is work together collectively to get more volume on the railroads. It's better for safety, better for efficiency of our economy. It takes trucks off the road. It reduces taxpayer funding for the roads in a little bit, and it also is more efficient and better for the environment. Joe HinrichsPresident, CEO & Director at CSX00:51:44So, I think the people that we're working with now understand all that. And so, I would say that the for the next several years look very supportive for us working together to make more advancements than we made in the last 4. Operator00:51:58And your next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open. Ravi ShankerManaging Director at Morgan Stanley00:52:05Great. Good afternoon, everyone. So it's a couple of years of a meaningful amount of discrete items now and I recognize that a lot of these things are either issues outside of your control or investments in the future. But what are your conversations with customers like on some of these bottlenecks? And are they understanding? Ravi ShankerManaging Director at Morgan Stanley00:52:25Is there a risk of share shift as a result of this? Or how do you think this plays out in the coming years? Kevin BooneEVP & CCO at CSX00:52:33Yes. I think from our customer discussions, there's a lot of excitement. You heard the service is not really going to be impacted. There's additional costs we have to absorb to maintain the service and maintain the level of service that we have provided. But these are significant investments that are going to allow them to reach new markets that they haven't had the opportunity to move on, on the CSX network. Kevin BooneEVP & CCO at CSX00:52:55So I think there's a lot of excitement, you know, for our customers to see that we're willing to invest in our network, quite frankly, and that always hasn't been the case. So, we continue to invest in the core infrastructure and invest there, but we're actually extending our network and creating single line service that we haven't had the opportunity to deliver in the, in the past. So there's a lot of excitement and I know our teams are excited to kind of deliver on that growth. Joe HinrichsPresident, CEO & Director at CSX00:53:20Yes, this is Joe. Joe HinrichsPresident, CEO & Director at CSX00:53:21Let me add real quickly to that. I mean, I'm really proud of the team, how both our operating and marketing sales teams have worked together. I mean, if you look at the 3rd and 4th quarters, we had 2 pretty impactful hurricanes and some other things. But if you look at the data from our customers, actually our net promoter scores in Q3 and Q4 were the it's consecutively the best we've ever had. And that, even though we had some disruptions and we had issues and you see it in some of the data, the work we're doing to put the customer first along with safety, of course, and to really work on finding solutions even if we have issues, it goes a long way to them seeing the commitment we have and that's really important for long term growth that the customers see that we're committed to when we have disruptions or have issues that we're proactively communicating with them, we're working to find solutions and that makes them feel a lot better about investing back into rail and looking for longer term growth and we're seeing that play out. Joe HinrichsPresident, CEO & Director at CSX00:54:12So, yes, we've had a lot of 3 items as you mentioned. I mean, for a couple of years now, we're looking forward to stop talking about fuel surcharge and coal prices year over year or quarter over quarter, But we're continuing to see volume growth and that's consistent exactly with what we're hearing from our customers. Our service levels are leading to volume growth. That volume growth has strong pricing with it and we're continuing to get efficiency gains. We get some of this noise out of the system. Joe HinrichsPresident, CEO & Director at CSX00:54:39I think you'll see the power of this network. Operator00:54:44And your next question comes from the line of Jordan Alliger with Goldman Sachs. Your line is open. Jordan AlligerVP & Equity Research Analyst at Goldman Sachs00:54:51Yes. Hi. Sorry, I just wanted to come back to the EBIT growth question again. Where you had suggested taking that $350,000,000 net headwind off of the adjusted 2024 and then growing by mid single digit, which sort of is the low end of the mid to high single digit that you talked about at your Investor Day. But off that base, like I'm just curious, like what gets it to the upper end of that mid to high single digit? Jordan AlligerVP & Equity Research Analyst at Goldman Sachs00:55:19Is it more of a volume issue? Is it a productivity issue? Like just sort of curious how you think about framing the range? Sean PelkeyEVP & CFO at CSX00:55:28Yes. Thanks for the question, Jordan. I think assuming commodity prices are not the driver, good or bad versus where they are right now, What makes the year a little bit better? I think it's us continuing to push to drive even more efficiency across all of the groups between operations and G and A. You know, we were able to hold purchase services and other costs essentially flat on a core basis last year. Sean PelkeyEVP & CFO at CSX00:55:55That takes a lot of work when you've got volume growth and you've got inflation up against you. So keeping a very, very close eye on those things. We've got initiatives built into the plan, but we're sitting down every day, looking at ways that we can continue to sort of, find opportunity, negotiate new agreements that help us on the purchase service side to reduce costs. So that's one. And then the other I would say is, on the volume side, certainly looking at the economy, but also the momentum on the trucking side, as Kevin talked about, do we start to see that turn? Sean PelkeyEVP & CFO at CSX00:56:32And these industrial development opportunities are coming online and the ramp in those volumes, the customer wins that we've got, we've got a number of those in the pipeline for this year. If our hit rate is higher, that obviously, helps us, grow operating income as well. Operator00:56:51And your next question comes from the line of Walter Spracklin with RBC Capital Markets. Your line is open. Walter SpracklinEquity Research Managment & Co-Head of Global Industrials Research at RBC Capital Markets00:56:59Yes. Thanks very much, operator. Good afternoon, everyone. So I just want to come back to the Investor Day 3 year forward compound annual growth rate targets that you gave, particularly on earnings per share. So you gave us high single digit to low double digit. Walter SpracklinEquity Research Managment & Co-Head of Global Industrials Research at RBC Capital Markets00:57:11If we look at that and just take the midpoint at 10% off 2024, it gets us to 2.43% for 2027, which is where consensus was. My question, I guess, is with the dip down now in 2025, it would imply you're going to have to run at a low teen for 2026 and 2027 to get back to that 2.43. And my question is, is that is the Investor Day target of 2.43 still relevant, given where we are in 2020 where we're kind of stepping down in 2025 and therefore have that low teen growth rate in 2026 and 2027? Or do we say, no, the world's changed a little bit since Investor Day and we should really model off a lower growth rate than that? Sean PelkeyEVP & CFO at CSX00:58:00Yes, Walter, I appreciate the question. But, as I said in the script, no, not we're sticking with the guidance. And so the numbers that you walked through, those are reasonable, high single digit to low double digit EPS growth. A couple of things I would just clarify. One is the $10,000,000 a month of network disruption costs that we have this year. Sean PelkeyEVP & CFO at CSX00:58:22You know, that's a headwind to this year, but that completely reverses in 2026 and turns into a net benefit for us as we grow volume and drive efficiency when all the construction is done. And then just the other sort of modeling point I would put out there is that the 3 year guidance assumes that over that 3 year period, we have stable commodity prices, both export coal and fuel. So we're at a lower point today on both of those than we were on average in 2024. Our hypothesis, our modeling framework is that by 2027, we're kind of back to where we were on average in 2024. Obviously, if that doesn't happen and met coal stays below 200, it's going to be tough to hit the numbers. Sean PelkeyEVP & CFO at CSX00:59:04But adjusting for that, we still feel very good about our 3 year guidance. Operator00:59:11And your next question comes from the line of Daniel Imbro with Stephens. Your line is open. Daniel ImbroManaging Director at Stephens Inc00:59:18Yes. Hey, good evening guys. Thanks for taking the questions. Kevin, maybe one more on the volume outlook. I guess there's a lot of headwinds out of your control, but I was going to ask one on the auto side. Daniel ImbroManaging Director at Stephens Inc00:59:26We've navigated elevated inventories for a few quarters here and it's weighing on autos and metals. I guess any updates on when your customers are expecting that production to actually return to growth this year? Inventory is rationing down out there in the field. Just what are you hearing or seeing from your field as you think about that segment hopefully returning to growth at some point in 2025? Kevin BooneEVP & CCO at CSX00:59:47Maybe I'll take it and give Joe he's obviously an expert in it as well. Look, we have seen a slower start to the year. That's shown up in everybody's carloads. It's out there. Certainly the weather and loading autos and this kind of weather is a challenge as well. Kevin BooneEVP & CCO at CSX01:00:03So that hasn't helped the volumes that we've seen here. We do expect them to improve from where we are at the levels that we've seen here over the last few weeks. But it is a you know, I think it's an open question of where rates go and portability and, and those things. I don't, I wouldn't, I don't sit here and say there's a lot of optimism here. I don't think there's, a lot of pessimism that is going to get significantly worse, as well. Kevin BooneEVP & CCO at CSX01:00:26So it's it feels like more of the same basically, but we'll see how it plays out for the rest of the year. Joe HinrichsPresident, CEO & Director at CSX01:00:33Yes, thanks Kevin. And well said. I mean, you think about it right now, I think the estimates are for sales this year to be in the low $16,000,000 range and the production to be in the mid-15s. So that maybe adjusts some inventory or just takes into account everything that happens with imports and everything. But before the pandemic, those sales SARs were $17,000,000 plus for a number of years in a row and production was pretty close to that. Joe HinrichsPresident, CEO & Director at CSX01:00:59And so there's a lot of potential there. We just have to see it realized and that means interest rates have got to come down and it has to be a balance between all those things. So we have an administration now that is very focused on autos and U. S. Manufacturing and interest rates. Joe HinrichsPresident, CEO & Director at CSX01:01:16So let's see how that plays out. Probably isn't a big is a big an issue for 2025, but what could it look like for 2026 and 2027 is a big opportunity. Thanks. Operator01:01:28And your final question comes from the line of Jeff Kauffman with Vertical Research Partners. Your line is open. Jeffrey KauffmanPartner & Transportation and Logistics Equity Research at Vertical Research Partners01:01:35Okay. Thank you. And thank you for squeezing me in. I'm going to go back and beat the dead horse a little bit here, but from a slightly different angle. You've talked a lot about the costs associated with Howard Street and Blue Ridge weighing on this year. Jeffrey KauffmanPartner & Transportation and Logistics Equity Research at Vertical Research Partners01:01:50And that cost is coming in a bunch of different areas, the outer route miles and the fuel burn, the extra crew, the asset related costs, extra locomotive, extra cars. Can we talk about, I guess, kind of the same way, once Blue Ridge is fixed, once, Howard Street is done, can we try and quantify the savings on the other side? So for instance, you're going to have double stack where you didn't before. You should be able to drive more cars through there with fewer trains, fewer assets. You should get to go out there and play for business that you weren't really eligible to do before. Jeffrey KauffmanPartner & Transportation and Logistics Equity Research at Vertical Research Partners01:02:30As I look at the net unwind of these projects and the opportunity for 2026, can you do anything to quantify that benefit the same way you quantified the cost of 25? Sean PelkeyEVP & CFO at CSX01:02:43Yes, Jeff, I appreciate the question. And you're right, obviously, as we get past this, it's going to turn into a very nice positive for us. If we sort of look at the cost savings opportunity and then combine that with the growth opportunity that's out there, taking a kind of a midpoint of what we think that revenue opportunity is, I would say within a couple of years, we will have fully recovered that $100,000,000 of, you know, call it roughly $100,000,000 of operating expense that we're going to take on this year. So and, you know, that's just that's just the initial growth opportunity. There's obviously more capacity that we're adding beyond that. Sean PelkeyEVP & CFO at CSX01:03:21So, to my earlier point, it does turn into a nice positive for us over the 3 year period. Operator01:03:30And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.Read moreParticipantsExecutivesMatthew KornHead Of Investor RelationsJoe HinrichsPresident, CEO & DirectorMike CoryEVP & COOKevin BooneEVP & CCOSean PelkeyEVP & CFOAnalystsTom WadewitzSenior Equity Research Analyst at UBS Securities LLCScott GroupManaging Director at Wolfe ResearchJoseph HaflingVP - Equity Research at Jefferies Financial GroupChris WetherbeeSenior Analyst at Wells FargoAri RosaSenior Analyst at CitigroupBrandon OglenskiDirector & Senior Equity Analyst at BarclaysBrian OssenbeckMD - Senior Analyst, Transportation at JP MorganJonathan ChappellSenior Managing Director at Evercore ISIKen HoexterManaging Director at Bank of AmericaDavid VernonMD & Senior Analyst at BernsteinBascome MajorsSenior Equity Research Analyst at SusquehannaRavi ShankerManaging Director at Morgan StanleyJordan AlligerVP & Equity Research Analyst at Goldman SachsWalter SpracklinEquity Research Managment & Co-Head of Global Industrials Research at RBC Capital MarketsDaniel ImbroManaging Director at Stephens IncJeffrey KauffmanPartner & Transportation and Logistics Equity Research at Vertical Research PartnersPowered by Conference Call Audio Live Call not available Earnings Conference CallCSX Q4 202400:00 / 00:00Speed:1x1.25x1.5x2xTranscript SectionsPresentationParticipants Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) CSX Earnings HeadlinesIMPD investigating two train, car collisions less than 24 hours apartApril 27 at 6:13 PM | msn.comCSX Corporation (CSX): Among The Best Railroad Stocks To Buy According To Billionaires (ready for edit 2)April 27 at 6:13 PM | msn.comTrump’s Secret WeaponHave you looked at the stock market recently? Millions of investors are scrambling trying to figure out what's coming next. But here's the truth… This is just the beginning. Trump has made it clear his tariffs are coming, and that the market will get worse before it gets better. Luckily, our FREE Presidential Transition Guide details exactly what will happen in the next 100 days, and how to protect your hard-earned savings during these times. Don't wait for the next crash to wipe you out. Act now.April 27, 2025 | American Alternative (Ad)CSX Corporation (CSX): Among The Best Railroad Stocks To Buy According To BillionairesApril 27 at 6:55 AM | insidermonkey.comAt least 1 injured after Jeep, train collide on Indy's east sideApril 26 at 7:37 PM | msn.comCSX CEO: We're seeing a significant increase in steel productionApril 26 at 9:34 AM | msn.comSee More CSX Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like CSX? Sign up for Earnings360's daily newsletter to receive timely earnings updates on CSX and other key companies, straight to your email. Email Address About CSXCSX (NASDAQ:CSX), together with its subsidiaries, provides rail-based freight transportation services. The company offers rail services; and transportation of intermodal containers and trailers, as well as other transportation services, such as rail-to-truck transfers and bulk commodity operations. It also transports chemicals, agricultural and food products, minerals, automotive, forest products, fertilizers, and metals and equipment; and coal, coke, and iron ore to electricity-generating power plants, steel manufacturers, and industrial plants, as well as exports coal to deep-water port facilities. In addition, the company provides intermodal services through a network of approximately 30 terminals transporting manufactured consumer goods in containers; and drayage services, including the pickup and delivery of intermodal shipments. It serves the automotive industry with distribution centers and storage locations, as well as connects non-rail served customers through transferring products, such as plastics and ethanol from rail to trucks. The company operates approximately 20,000 route mile rail network, which serves various population centers in 26 states east of the Mississippi River, the District of Columbia, and the Canadian provinces of Ontario and Quebec, as well as owns and leases approximately 3,500 locomotives. It serves production and distribution facilities through track connections. 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PresentationSkip to Participants Operator00:00:00Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the CSX 4th Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question and answer session. Operator00:00:33Thank you. And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. You may begin. Matthew KornHead Of Investor Relations at CSX00:00:42Thank you, Abby. Hello, everyone, and good afternoon. Welcome to our Q4 earnings call. Joining me on the call today are Joe Hinrichs, President and Chief Executive Officer Mike Corey, Executive Vice President and Chief Operating Officer Kevin Boone, Executive Vice President and Chief Commercial Officer and Sean Pelkey, Executive Vice President and Chief Financial Officer. The presentation accompanying this call, which is available on our website, you will find slides with our forward looking disclosures and our non GAAP disclosures for your review. Matthew KornHead Of Investor Relations at CSX00:01:12With that, it is now my pleasure to introduce Mr. Joe Hinrichs. Joe HinrichsPresident, CEO & Director at CSX00:01:16All right. Thank you, Matthew, and hello, everyone. Thank you for joining our Q4 call. As we look back and review 2024, we see that our railroad faced a significant number of challenges during the year, including weaker commodity prices, a bridge collapse and multiple hurricanes. We had another year where U. Joe HinrichsPresident, CEO & Director at CSX00:01:34S. Industrial production was effectively flat, reflecting mixed end markets across our customer base. There were also some labor disruptions across North American supply chain, which added economic uncertainty. But it's so impressive that through all of this, our One CSX team continued working together to improve our overall business. We have been resilient, adapting to changing markets and operating conditions, while remaining focused on our commitment to customer service. Joe HinrichsPresident, CEO & Director at CSX00:01:59Last year was different than we planned, but we are proud of what we achieved and how we achieved it. We are confident because we know that our momentum continues to build and we are ready for the important year ahead of us in 2025. Now as shown on the first slide, we achieved a lot over 2024. CSX achieved 2% volume growth for the year, outpacing the industrial economy yet again. We accomplished this even with a number of constraints on our coal franchise, including the collapse of the Francis Scott Key Bridge in Baltimore. Joe HinrichsPresident, CEO & Director at CSX00:02:29Our leading merchandise business delivered 3% revenue growth even after absorbing the effects of much lower fuel surcharge, soft metals market and the hurricane disruptions. We delivered strong, consistent customer service and our customers have responded. You heard this for yourselves at our recent Investor Day and you can see it in our financial results as we are able to price according to the value we are delivering. Operationally, we worked across our network to reduce waste, unlock capacity and improve responsiveness. We took more steps in building a successful culture that can deliver more sustainable, efficient performance and drive more positive momentum for the business. Joe HinrichsPresident, CEO & Director at CSX00:03:08We also led the rail industry in reaching early agreements with our labor unions on our 5 year contracts, working together to value our employees, avoid the prolonged labor battles of the past and provide certainty for our customers. Now we can review some of the results of the Q4. Slide 2 highlights key metrics for our Q4 compared to last year. As we expected, our underlying operations performed well, but we did see the impact of substantially lower coal and diesel prices. Hurricane effects also weighed on revenues and expenses for the quarter as we noted in our October call. Joe HinrichsPresident, CEO & Director at CSX00:03:44Total volume grew by 1% versus last year in the quarter. The largest contributor was growth in intermodal volume, which gained 4%. Quarterly revenue declined by 4%, largely due to lower global coal prices and a decline in fuel surcharge. Earnings per share declined 7% on an adjusted basis, excluding the effects of the goodwill impairment this quarter. Overall, we executed well through a difficult period. Joe HinrichsPresident, CEO & Director at CSX00:04:11However, we are not satisfied with these results. We have a clear vision of what we want to achieve at CSX, as we shared with you at our recent Investor Day, and we are committed to delivering on that vision for the benefit of our customers, our employees and our shareholders. Now, I'll turn the call over to Mike to discuss our operational performance. Mike CoryEVP & COO at CSX00:04:32Thank you, Joe and I really appreciate you all taking the time today to participate. So first, I want to thank our team for the tremendous efforts through the quarter the year. And I'm really truly proud of this team. From weather to structural challenges like the Blue Ridge or Howard Street Tunnel, they worked together to minimize the impact on our customers. And they did all of this while controlling costs and building a safer work environment for our employees and the communities they operate in. Mike CoryEVP & COO at CSX00:04:57Let's go to the first slide. The 4th quarter saw a sequential decline in FRA injuries, which reflects our continuing initiatives around transforming our safety culture. However, the full year rate remained elevated compared to last year. A positive result of our efforts has been a significant reduction in our employees' lost time associated with injuries. We finished 2024 with the lowest total workdays lost in the calendar year in company history. Mike CoryEVP & COO at CSX00:05:23For FRA accidents, we saw a quarterly year over year increase, but finished largely flat on an annual basis. We strongly believe that our work in the field on hazard identification and exposure controls combined with our focus on newly hired and trained employees will continue to reduce significant injuries and accidents. And to improve the efficiency in our capital work, we continue to harden our main lines and infrastructure more effectively. We clearly see how our Safe CSX initiative is creating positive fundamental changes in both our safety leadership and the workplace environment our employees are in. Over to the next slide. Mike CoryEVP & COO at CSX00:06:00On this slide, you can see the impact of the strong hurricanes that passed through much of our service areas at the beginning of the quarter and flowed through to our customer service metrics. Much of the impact to our trip plan compliance came directly from our inability to deliver cars to customers due to the effects of the storm. Our customer switch data shows that we maintained a relatively good first and last mile switching considering the challenges. However, it remains our focus for improvement. I'm confident that our team will deliver in these metrics as we progress through the year. Mike CoryEVP & COO at CSX00:06:30I'm also very pleased with the progress that we've made in developing our field employees to be more responsive to customer needs. As this development takes hold, we have a much better understanding at the local level on how to manage costs through proper service process. Over to the next slide. As I stated earlier, 2024 brought various weather related challenges over the last two quarters that have affected our overall operating metrics. We entered Q4 still dealing with the residual effects of the previous storm such as the Blue Ridge reroutes. Mike CoryEVP & COO at CSX00:07:01Hurricane Melton in particular caused long periods of recovery for the various commodities to move into and out of Florida. This resulted in increased well for our traffic in our largest volume state. It also affected other parts of the network as we were unable to run our regular cadence on some flows throughout the storms up to recovery. On the velocity side, we were able to maintain excuse me, we were able to continue increasing our capacity and maintain our speed through very close management of our train starts. This also benefit our locomotive utilization and overall transportation, engineering and mechanical costs. Mike CoryEVP & COO at CSX00:07:35As we worked hard in adverse conditions to maintain our network fluidity, we also drove strong improvements in efficiency. The top right of the slide shows the gains we've made in fuel efficiency, which has resulted in 1,000,000 of dollars in savings this last year. The chart on the bottom reflects how we're using less power per tonne of freight moved, another indicator of better operating efficiency. Further, over 2024, our engineering, transportation and network teams work together to improve our work block performance. This resulted in substantial improvements in the amount of rail ties and ballast replaced per man hour compared to the previous year. Mike CoryEVP & COO at CSX00:08:10And we're seeing great productivity gains here, but there's still much more improvement that we expect to get going forward. For the Howard Street Tunnel, we've commenced rerouting traffic and our start date of February 1 is on target. This project was initially planned to take 3 years and create extensive daily track outages over one of our key corridors. We're extremely proud of the team for being able to turn this around from a 3 year project to one that will take 6 to 8 months for the tunnel to be operational. We'll benefit from this improvement forever and far faster than originally planned. Mike CoryEVP & COO at CSX00:08:41At the Investor Day, I spoke about the opportunities at Cumberland. The team is 90% complete with the site's reconfiguration and the results have been great. Already, we've doubled the number of cars processed per day, meeting our initial target. And with completion still to come, we are focusing on much more in terms of improvements. Overall, I'm extremely pleased with our progress on many of the fronts. Mike CoryEVP & COO at CSX00:09:04All our initiatives discussed at Investor Day are proceeding, and while 2024 had numerous challenges, we made fundamental improvements in many areas that will benefit us over the long run. We've increased transparency in the relationship between cost and service for our operating managers. As a result, our service continues to improve while our costs stay in line with expectations. Our Safe CSX program is well underway and the team is defining and implementing key process changes with our operating employees, bringing benefits to employee retention as well as improving reliability and resiliency across our network. Considering the various challenges that came about last year, I'm very pleased and confident in the operating team's response and the collective work in both restoration and tackling our initiatives going forward. Mike CoryEVP & COO at CSX00:09:46So looking forward, I believe we're well positioned to deliver our objectives in 2025 and beyond, and we're all looking forward to capitalizing on the opportunities as they present themselves. With that, over to you, Kevin. Kevin BooneEVP & CCO at CSX00:09:58All right. Thank you, Mike. First off, I do want to thank this entire sales organization for all their hard work throughout 2024. As Joe and Mike have described, we faced numerous challenges across our network this past year, and our team responded with a steady commitment to serving our customers, highlighted by our Q4 Voice of the Customer survey where we saw the Net Promoter Score reaching an all time high. We continue to see mixed conditions across the markets we serve. Kevin BooneEVP & CCO at CSX00:10:24Industrial output remains muted, Interest rates are still high, and the truck cycle has yet to inflect. With that said, we hear optimism from our customers as they consider the potential for its support of domestic economic policies, and we continue to see strong activity into 2025 with new project inquiries into our industrial development group. Our focus remains to drive outgrowth in the markets we serve, continuing our track record of exceeding industrial production. Let's review merchandise business as shown on Slide 8. For the Q4, revenue and volume were flat compared to last year. Kevin BooneEVP & CCO at CSX00:11:02But on a full year basis, revenue was 3% higher with a 1% increase in volume. Looking across the end markets, chemicals remained strong in the 4th quarter, consistent with the full year performance, with volume increasing 6%. Robust demand for plastics and LPGs has driven much of the growth throughout 2024. Minerals volume was supported by positive demand for cement and aggregates, and forest products volume was up 3% as CSX capitalized on continued demand in paper markets and pulp board. On the other side of the markets, volume for fertilizers business was impacted this quarter as supply chains here in Florida felt the lingering effects of hurricanes. Kevin BooneEVP & CCO at CSX00:11:46Performance within metals remained sluggish as it has been all year, largely due to continued soft demand for steel. Volume for our automotive business declined 2% for the quarter as higher dealer inventories have led to lower build rates. Looking ahead to 2025, we're seeing strong demand signals in our Ag and Fertilizer segments, along with continued strength in minerals and chemicals. Interest rate sensitive markets, including automotive, metals and housing continue to remain challenged. While we anticipate a slower start in the Q1, we do expect moderate merchandise carload growth for the full year, supported by steady service driven conversions and new industrial development projects that should accelerate as we exit 2025. Kevin BooneEVP & CCO at CSX00:12:35Now, let's turn to slide 9 to review the coal business. Coal revenue declined 20% for the quarter on 7% lower volume as we've navigated the effects of reduced global benchmark pricing and production issues. All in coal RPU declined 14% year over year and 4% sequentially, in line with previous guidance. Export volume fell modestly, largely due to lower supply availability of certain coal mines with temporary geological issues limited production. That said, for all of 2024, export coal volume grew by 9%, even considering the impacts of the Key Bridge and a ship loader outage at Curtis Bay. Kevin BooneEVP & CCO at CSX00:13:18Exports represented more than half of our coal carloads for the full year, a first for CSX. Domestic shipments were pressured during the quarter, driven by lower natural gas prices and ample utility stockpiles. More recently, we have seen colder winter weather that has begun to reduce utility stockpiles, providing incremental opportunities as we move into the summer months. As we look into 2025, we anticipate a decline in coal volume with the weakest year over year performance in the Q1. This includes temporary production outages at a couple of its CSX served mines that will mainly impact the first half of twenty twenty five from a year over year volume perspective. Kevin BooneEVP & CCO at CSX00:14:05Based on current global benchmark prices, we expect all in coal RPU to be down roughly 3% sequentially in the Q1. As we have highlighted previously, we also see a couple of plant closures at domestic utilities that are scheduled for later this year. Despite these challenges, our utility customers are facing accelerating growth in power demand across areas of our service network where data center build outs are in progress. Lower utilization rates at existing CSX serve utilities does provide opportunities to work with customers to meet increased demand. Turning to Slide 10 to review the intermodal business, 4th quarter revenue declined 5% on a 4% increase in volume, with lower diesel prices year over year significantly impacting revenue per unit by 7%. Kevin BooneEVP & CCO at CSX00:14:54Our domestic intermodal business performed well for the quarter, converting traffic from over the road even in this challenging truck market. We have been we have many initiatives underway, including continued growth in our direct business, new volume related to our Myrtlewood interchange, future improvements in double stacking capabilities into the Mid Atlantic, and many others that make us optimistic about our growth ahead. Within international, quarterly performance remained robust, allowing us to deliver strong growth for the full year as we gain from alignment with our key customers. Overall, we continue to compete and win intermodal business. Our inland port initiatives remain on track and we're excited about the prospects of closer alignment with our channel partners. Kevin BooneEVP & CCO at CSX00:15:42As the political and trade landscape shifts, we will remain in close contact with our customers, ensuring that we will be able to adapt to their needs. As we look ahead to 2025 and beyond, there's a lot to be excited about. With that, let me turn it over to Sean. Sean PelkeyEVP & CFO at CSX00:16:00Thanks, Kevin, and good afternoon. Reported operating income and earnings per share both fell by 16% in the 4th quarter, impacted by a $108,000,000 or $0.04 impairment of goodwill related to quality carriers. I'll now speak to the Q4 income statement on an adjusted basis excluding the goodwill impairment charge. Revenue was lower by about $140,000,000 or 4%. Declines in fuel and export coal benchmark prices as well as business interruption from the hurricanes, drove a combined impact of around $200,000,000 Despite these challenges, the team delivered an 8th consecutive quarter of 3 plus percent growth in combined merchandise and intermodal revenue, excluding fuel. Sean PelkeyEVP & CFO at CSX00:16:43We remain focused on operating efficiently and delivered an adjusted expense reduction of 2% with more details on the next slide. Interest and other expense was stable compared to the prior year. Adjusted income tax expense decreased $33,000,000 The effective tax rate of 22% included a $26,000,000 benefit, largely driven by the revaluation of the state deferred tax liability. Our expected tax rate going forward continues to be 24.5%. As a result, adjusted earnings per share fell $0.03 including a $0.06 combined impact from hurricanes, net fuel price, and lower export coal benchmarks. Sean PelkeyEVP & CFO at CSX00:17:25Let's now turn to the next slide for a closer look at expenses. 4th quarter adjusted expenses decreased $40,000,000 Turning to the individual line items, labor and fringe was $26,000,000 lower, driven by lower incentive compensation expense and other items, partly offset by inflation. As expected, headcount increased slightly from the Q3, attributed to the timing of train and engine employee hiring, aiming to qualify the new employees ahead of the 2025 summer vacation season. We expect to absorb volume growth in 2025 with average headcount remaining stable versus current levels, while cost per employee will be higher year over year in line with labor inflation. Purchase services and other expense increased $43,000,000 The variance includes approximately $25,000,000 of smaller impairment charges, which were largely offset by a favorable legal settlement. Sean PelkeyEVP & CFO at CSX00:18:21Additional variances were driven by inflation, expenses related to the timing of locomotive modernizations, and storm recovery costs. Depreciation was up $17,000,000 on a higher asset base, in line with the rate of quarter over quarter increase we expect in 2025. Fuel cost was down $86,000,000 driven by a lower gallon price and a 4th consecutive quarter of year over year efficiency savings. Finally, equipment and other rents increased by $7,000,000 while property gains were $5,000,000 unfavorable in the quarter. Now turning to the discussion of full year adjusted results on Slide 14, revenue finished 1% lower for the year on 2% volume growth, while adjusted operating income was 3% lower and adjusted earnings per share increased by $0.01 This includes over $400,000,000 of operating income headwinds from the discrete items we have discussed throughout the year. Sean PelkeyEVP & CFO at CSX00:19:17As a result of our increasingly collaborative approach with customers, consistent operational execution, and cultural improvements flowing to our frontline employees delivering the service product, our customers are rewarding us with steady and profitable volume growth. In fact, volume increased in all four quarters for the first time in 10 years, while full year merchandise and intermodal pricing gains were once again above cost inflation. At the same time, we remain highly focused on controlling costs, eliminating waste and improving efficiency. Mike and the operating team made impressive strides in fuel efficiency during 2024, resulting in approximately $45,000,000 of savings. PS and O cost increased by just $50,000,000 versus 2023, inclusive of headwinds from prior year insurance recoveries as well as storm related costs in 2024. Sean PelkeyEVP & CFO at CSX00:20:10Core PS and O expense was stable in the face of inflation and 2% higher volume, benefiting from numerous initiatives across operating and G and A functions. PS and O will be pressured in 2025 by the Howard Street Tunnel Project, as well as ongoing locomotive modernizations and cloud computing expense, but we are committed to unlocking further savings. Our headcount stabilized during 2024 with volume gains outpacing employee growth over the second half of the year and we expect to continue delivering labor productivity gains going forward. Turning our attention to 2025, this company is headed in the right direction. We're building a strong culture, serving our customers at high levels, pairing new business wins and industrial development opportunities with ongoing efficiency to deliver strong bottom line performance and investing for the future. Sean PelkeyEVP & CFO at CSX00:21:04That said, the 3 considerations listed on this slide could drive significant net unfavorable impacts this year. As we enter the year, export coal benchmarks and fuel prices are working against us. And if they remain stable, would result in a combined $300,000,000 impact versus 2024, with nearly half of that in Q1 alone. On the flip side, we expect a roughly $50,000,000 net operating income benefit from cycling unique events, including hurricanes and the Key Bridge collapse, net of anticipated higher incentive comp in 2025. Finally, as we've outlined before, major construction projects on the Howard Street Tunnel and hurricane impacted Blue Ridge Subdivision will drive an incremental $10,000,000 per month net impact into Q4. Sean PelkeyEVP & CFO at CSX00:21:50Q1 operating income will be our trough off, well below prior year. Results will improve from there and we expect to return to year over year growth in the second half. At our Investor Day in November, we presented a theme of proven model with powerful momentum and profitable growth. Despite the discrete pressures, the One CSX team remains confident in our long term guidance. Let's now discuss cash flows and distributions on Slide 16. Sean PelkeyEVP & CFO at CSX00:22:18Investing in the safety and reliability of our infrastructure is our highest priority use of cash. Additionally, 2024 capital spending included increased allocations towards rolling stock and other return generating investments that support a pipeline of future growth and efficiency opportunities. The 2024 infrastructure figure also includes around $50,000,000 of initial spend on our Blue Ridge subdivision following the devastation caused by Hurricane Helene. We now expect total cost to exceed $400,000,000 before insurance recoveries as we work diligently to reopen this important route that will serve our customers for generations to come. Strong cash flow also supported close to $3,200,000,000 in shareholder returns for the year, including over $2,200,000,000 in share repurchases and $900,000,000 of dividends. Sean PelkeyEVP & CFO at CSX00:23:08The share repurchase program once again outperformed, with CSX purchasing shares at a 2% discount to the market price in Q4, delivering value to ongoing owners. While economic profit finished lower for the year, largely due to the discrete items mentioned on the prior slide, our goal is to increase economic profit over time, which has been shown to strongly correlate with outsized shareholder returns. With that, let me turn it back to Joe for his closing remarks. Joe HinrichsPresident, CEO & Director at CSX00:23:35All right. Thank you, Sean. We will finish up our prepared remarks by discussing our expectations for 2025. As you heard from Kevin, many markets remain uncertain as we look ahead at the full year. Operationally, we are undertaking substantial projects to rebuild the Blue Ridge Subdivision after Hurricane and Lean and expand the Howard Street Tunnel in Baltimore. Joe HinrichsPresident, CEO & Director at CSX00:23:54That said, the momentum we have built with our leading customer service gives us confidence that we can deliver volume growth in the low to mid single digit range, driven by our merchandise and intermodal business. We expect volumes in the Q1 to show the effects of weather and a slow start for the auto industry and then build over the course of the year. Given scheduled coal plant closures and a number of mine production issues, we do anticipate coal volumes to be lower year over year in 2025. Next, consistent with our commentary over the last few months, we expect full year revenue to be impacted by lower global benchmark pricing for coal and reduced fuel surcharge, particularly in the first half of twenty twenty five. Mix will also be a factor as the intermodal business has the lowest RPU, but is likely to show the fastest growth this year. Joe HinrichsPresident, CEO & Director at CSX00:24:43Our efforts to drive efficiency improvements and manage controllable costs will continue. As Sean discussed, the Blue Ridge rebuild and the Howard Street tunnel project will add expense over the year, but our team is working hard to deliver productivity gains. Given our current outlook, we expect to hold our headcount effectively flat for the year. We plan on CapEx being roughly flat year over year excluding spend on the hurricane recovery, which we report out throughout the year. And finally, our capital allocation priorities remain unchanged. Joe HinrichsPresident, CEO & Director at CSX00:25:15We will continue to invest in the safety and fluidity of our network, execute on high return growth projects and opportunistically distribute excess capital to our shareholders. To sum up, I am proud of how the OneCSX team responded to the challenges that we encountered over 2024. There are great opportunities ahead in 2025 and the longer term. We will execute and deliver on them on behalf of our customers and our shareholders. I have no doubt that CSX will continue to move forward and we look forward to keeping you updated on our progress. Joe HinrichsPresident, CEO & Director at CSX00:25:45Now I'll be happy to answer your questions. Matthew, let's begin the Q and A process. Matthew KornHead Of Investor Relations at CSX00:25:49Thank you, Joe. We will now proceed to our question and answer session. Now to make sure that everyone has the opportunity to take part in the time that we have, we ask you to please limit yourselves to one and only one question. Operator, we're ready to start the process. Operator00:26:05Thank And your first question comes from the line of Tom Wadewitz with UBS. Your line is open. Tom WadewitzSenior Equity Research Analyst at UBS Securities LLC00:26:38Yes. Good afternoon. Wanted to see if you were pretty clear on some of the headwinds and it sounds like a lot of those are in 1Q and first half. How you think about full year margin performance And if you kind of come out with some strengthening in volume in second half, can you see it potentially improve or is that tough to do given how meaningful some of the headwinds are? Sean PelkeyEVP & CFO at CSX00:27:09Hey, Tom, it's Sean. Sean PelkeyEVP & CFO at CSX00:27:11So, yes, I mean, I think clearly the headwinds are going to be concentrated here in the first half of the year, worse in Q1 than Q2. So first half of the year, I think margin improvement is sort of out of the question unless something changes with commodity prices or what have you. As we get to the second half, yes, I mean, I think it's quite possible we see not only growth in operating income, but margins as well in the second half, assuming that the environment that we're operating in remains stable. The core fundamentals remain in place. We're going to grow volumes low to mid single digits, and that will be very supportive to operating income and margin growth over time, particularly as some of these headwinds ease given the capacity that we have on the network to absorb that growth. Operator00:28:00And your next question comes from the line of Scott Group with Wolfe Research. Your line is open. Scott GroupManaging Director at Wolfe Research00:28:07Hey, thanks. So similar question, but not about margin, just about like operating income dollars. Do you think we grow operating income this year? Or is that I guess down a lot in the Q1, sounds like up in the back half. When you add it all up, do you think we grow operating income this year? Sean PelkeyEVP & CFO at CSX00:28:31Hey, Scott. So obviously, we didn't give specific guidance on what that's going to look like over the course of the year. What I would say is, if those headwinds that we outlined of $350,000,000 weren't there, we would deliver pretty solid growth in operating income this year. You know, low to mid single digit volume growth at 50% to 70% incremental margins that we talked about at the Investor Day is a good setup. You know, we do have some other challenges this year in terms of some of the utility coal headwinds that Kevin outlined, the mine issues that we've got right now, as well as, you know, the some of the closures later on in the year. Sean PelkeyEVP & CFO at CSX00:29:08So that makes this year a little bit worse, but going forward, we feel pretty good about being able to hold those coal volumes relatively stable with some opportunity in exports. So on an adjusted basis, what I would say is, if you were kind of looking at our Investor Day guidance of mid to high single digit operating income growth, this year, we'd be towards the lower end of that, if you adjust for the discrete headwinds. And then in the following years, we'll see a bit of a rebound, particularly as we cycle some of the issues around or some of the costs related to the construction projects we've got going on this year. Operator00:29:45And your next question comes from the line of Stephanie Moore with Jefferies. Your line is open. Joseph HaflingVP - Equity Research at Jefferies Financial Group00:29:51Great. This is Joe Halfung on for Stephanie Moore. Thanks for taking our questions. Maybe stepping away from the guidance for a second, relative to when we last spoke on your Investor Day, I was wondering if you could highlight any incremental conversations you guys have had with customers related to the industrial development pipeline, if there's any tangible things you can point to, just relative conversation with customers you've been having over the last couple Joseph HaflingVP - Equity Research at Jefferies Financial Group00:30:20of months post election? Thanks. Kevin BooneEVP & CCO at CSX00:30:25Yes. I think, when we're coming into this year, obviously, given the political landscape changing pretty rapidly here, we thought there might be a pause in activity and new projects going out for bid. We've actually seen quite the opposite. We've seen that really stay healthy and, we're, we're a number of new new projects have come our way that we're working on, and the group is very, very busy. So I think, that's a big positive for us. Kevin BooneEVP & CCO at CSX00:30:51Obviously, there's a long tail to those projects. You have to get them permitted and then get them underway. But we see that strength that we noted at the Investor Day, really continuing in the Q1 here and hopefully accelerating with some of the, obviously, policy that may take place here in the next few months. Operator00:31:12And your next question comes from the line of Chris Wetherbee with Wells Fargo. Your line is open. Chris WetherbeeSenior Analyst at Wells Fargo00:31:19Hey, thanks. Good afternoon. Just wanted to pick up on the comment that you mentioned. I think you said that ex some Chris WetherbeeSenior Analyst at Wells Fargo00:31:24of the cost items, you'd be in the sort of Chris WetherbeeSenior Analyst at Wells Fargo00:31:26the mid single digit or the lower end of sort of the EBIT range. I guess I want to make sure I understand that dynamic in the context of low to mid single digit volume growth. So I guess when we think about some of the other puts and takes that would drop from revenue down to or volume down to profit, can you talk maybe a little bit about the pricing outlook that you think about 2025, how that compares to 2024? Sean PelkeyEVP & CFO at CSX00:31:53Chris, I'll start and then maybe kick it over to Kevin on the pricing side. So essentially what I was saying there is if you take those $350,000,000 of headwinds, assuming commodity prices on the coal and fuel side remain flat, you've got the network disruption as well as some of the things recycling from last year and adjust for that, we'd be you know, roughly in the, in the kind of lower end of the mid to high single digit range, plus or minus a little bit, depending on what happens over the course of the year with the economic environment. But we feel good, very good about pricing. And I'll give Kevin an opportunity to speak to that. Kevin BooneEVP & CCO at CSX00:32:28Yeah. I think, on the merchandise side, you know, nothing really changing there. We continue to compete in the market and really leverage the service products that we have. You know, the biggest difference versus last year, obviously, as you've seen on the commodity price for coal, so that's met coal prices have come down. As you know, our contracts reflect, move with those prices. Kevin BooneEVP & CCO at CSX00:32:49And so we've seen that, hopefully we'll see some strength, pick up. But that's, you know, that market is very, very dynamic. And I will say on the intermodal side, it's encouraging to see at least some stabilization and maybe some contractual rates starting to move up slightly. So I'm not here to call a cycle. I think others are better prepared to do that. Kevin BooneEVP & CCO at CSX00:33:10But as we see hopefully through the year and into the back half, we might see a little bit more support than what we certainly saw last year in 2024. Operator00:33:22And your next question comes from the line of Ari Rosa with Citigroup. Your line is open. Ari RosaSenior Analyst at Citigroup00:33:30Great. Good afternoon. So I just actually wanted to stay on that line of questioning. Maybe you could talk about the impact of tightening truck capacity and what's usually the lag in terms of where we would expect to see that reflected in results? And specifically, I assume it would be reflected primarily in intermodal. Ari RosaSenior Analyst at Citigroup00:33:47But if you could talk about kind of other areas where we might see that impact kind of flow through results would be appreciated. Thanks. Kevin BooneEVP & CCO at CSX00:33:57Yes. The most obvious one is intermodal, but there is a lot of work that the team is doing on the merchandise side from a truck conversion point of view. And when you think about an environment where in the do nothing scenario, a customer can get savings by staying with truck, even though the value proposition might be greater with rail, you know, that there's not a lot of, you know, momentum to do that. Going into this year, I think, you know, some of our discussions are on the merchandise side and really accelerate as, as customers are looking for additional cost savings and we can really lean into that. So I'm, I'm optimistic that's going to be the case and that's the market that we can have a little bit of a supportive market, which we've been fighting the last couple of years here, will be very beneficial to us. Kevin BooneEVP & CCO at CSX00:34:42In remodel, when we look at our pricing, it does lag the market a bit here. So contracts, even the shorter duration ones can be a year and a lot of that takes place in the 1st part of the year. And so if we start to see some momentum, the bigger impact probably starts next year, but we could see some benefit as we exit this year. Operator00:35:05And your next question comes from the line of Brandon Oglenski with Barclays. Your line is open. Brandon OglenskiDirector & Senior Equity Analyst at Barclays00:35:13Hey, good afternoon, everyone. Thanks for taking the question. Joe, I'm sure investors are excited here at the opportunity long term for growth, but obviously, some of the earnings headwinds when GDP is up, that might be a little frustrating in the near term. But maybe can you talk to what this tunnel project will ultimately yield getting beyond some of the hurricane damage in the Blue Ridge region? And should we be thinking that 2026 could actually be that much better when you think about margin opportunity, incremental margins, pricing, volumes, etcetera? Joe HinrichsPresident, CEO & Director at CSX00:35:49Thanks, Brandon. Yes, I mean, I think what you've heard from including other transports include is that while the GDP has been growing, the industrial side of the economy has been flat or down over the last couple of years, which more closely aligns with certainly in the merchandise side of our business. So the interest rate sensitive parts, automotive, is still well below pre pandemic levels, housing market and steel, other things like that. So we're obviously looking forward to hopefully, whether it be interest rates coming down or other policy changes that will help the industrial side of the economy and maybe we'll see a little bit of growth this year for the first time in a couple of years. So certainly that will impact us. Joe HinrichsPresident, CEO & Director at CSX00:36:32I think at a higher level, the Howard Street Tunnel project is one of the most important projects in this company. And as Mike highlighted in his commentary, we've been waiting for a long time to do this and we had a plan that was going to be a 3 year plan that we've now accelerated into 1 year, which is going to be done in the 2025 calendar year. That, of course, means 2025 will have a lot more expenses tied to it for the rerouting costs and taking care of our customers while we do that. But we get the benefits much sooner than originally planned, which helps in 2026 and 2027. And those benefits include the ability for us to run double stack, all the way up and down the East Coast including, you know, places from Chicago. Joe HinrichsPresident, CEO & Director at CSX00:37:14There are trains we can't take right now from Chicago double stack to the East Coast because we can't get through the Howard Street Tunnel and some bridges around that area. So you can go all the way out to our interchange with our Western rails and talk about the advantages that will help us. It's one of the probably if not the largest competitive advantage we have right now on our intermodal business has been the inability to double stack and be able to reach the high population density sectors on the East Coast because of that. So this is a big deal. I mean, actually, if you step back, between the MMBR interchange that's now open, which was one of the other competitive advantages we had on intermodal and other parts of our franchise. Joe HinrichsPresident, CEO & Director at CSX00:37:55And now the Howard Street Tunnel, we're going to take care of probably the 2 biggest competitive advantages we had in our network by the end of 2025. So we're really excited about that. And that's a big deal because right now we have to double stack, we have to route basically up through upstate New York and down. So you can imagine all the weather in the winter doing that. But also it's the outer route miles are tremendous. Joe HinrichsPresident, CEO & Director at CSX00:38:19And so and frankly, we can't run up and down that I-ninety five corridor with Double Stack right now. So a big deal to us. We're looking forward to those benefits. And so yes, that will contribute to more meaningful you know, ability to grow profits in 2026 and 2027 along with other things that are going on, including industrial development, including the efficiency actions we're taking across the network and including all the work that we're doing with our customers. So, we continue to be very excited about the potential of this business and support the targets and the stuff that we outlined at our Investor Day in November. Joe HinrichsPresident, CEO & Director at CSX00:38:54And those that if you can do the math now and say, okay, as Sean highlighted, 25% is going to be lower end of that, that means we're still very strongly believe in our plan that 26% and 27% will be more supportive of making that happen. Thanks. Operator00:39:11And our next question comes from the line of Brian Ossenbeck with JPMorgan. Your line is open. Brian OssenbeckMD - Senior Analyst, Transportation at JP Morgan00:39:19Hey, afternoon. Thanks for taking the question. So, I guess maybe one for Mike. Should we expect as this tunnel project gets underway, there are going to be some meaningful deterioration or adjustments that we're going to see in some of the service metrics? Just trying to figure out how that would play out considering it is such a big undertaking in a compressed period of time? Brian OssenbeckMD - Senior Analyst, Transportation at JP Morgan00:39:40And then maybe just also get your thoughts on just the general health of the network having absorbed a couple of hurricanes, a couple port strikes or one near miss. And just your thoughts on staffing levels because it sounds like you're already pretty well staffed up into next year. So getting through all this in the near term, how do you feel like the network is positioned to hit that growth when it does come back perhaps in the back half of the year? Mike CoryEVP & COO at CSX00:40:05Thanks. Thanks for the question, Brian. I'm not going to get you to repeat the first part, but I can barely remember. No, I'm just kidding. In terms of the tunnel, Brian, we have already taken steps in the Q4 to start to move traffic and reroute it off the tunnel. Mike CoryEVP & COO at CSX00:40:20And so we're prepared. The cost Sean is talking about really is reflective of what we have to do to maintain some of our customer commitments and detour somewhere else that we're paying a haulage for. But effectively, I don't think the metrics are going to be affected, that dramatically. We've pretty much moved everything off. So, what you see is what you have now. Mike CoryEVP & COO at CSX00:40:42In terms of the network, yes, look, it was an interesting year. We started off in the Q2, really trying to focus on crew starts and looking at how our capacity was, our trains, how they were operating. And our focus was to basically take crew starts down in line with the service offering we had to make. And we started to do that and right up until and then we saw again, as you reduce the crew starts or the train starts, your dwell goes up. So we made adjustments. Mike CoryEVP & COO at CSX00:41:13And if you look in the middle of the year going into that Q3, the first set of hurricanes, we were running very well. And, on and those so those fundamental principles are still there. You keep if you look, there's pockets weeks where we didn't have the disruption from the hurricanes that we're I'm very, very happy with the performance of the railroad overall outside of those things. Going forward, yes, our headcount is stable. We have we do have more productivity improvements, right in front of us once we get in the look. Mike CoryEVP & COO at CSX00:41:45We just had 3 days of snow 2 days of snow and record and all that. Once we get through this, we're back on track because going into the Christmas shutdown, we're in very good shape and we really, really took action working with our customers as they reduced their needs to really, really reduce more starts. And that's our focus is, 1st of all, to run a safe railroad that employees know and come prepared for work and are able to do it. Number 2, service those customers, but productivity is extremely important for us because, we've made some great steps. We fought off the battles that we've had with these storms and the team is very entrenched in the principles that got us to where we were before the storm started. Mike CoryEVP & COO at CSX00:42:27So I'm very happy with the network. We've got work to do with all the different stuff going on right now like we always will. But overall fundamentally, we're on the right track. Operator00:42:39And your next question comes from the line of Jon Chappell with Evercore ISI. Your line is open. Jonathan ChappellSenior Managing Director at Evercore ISI00:42:46Thank you. Good afternoon. Sean, Jonathan ChappellSenior Managing Director at Evercore ISI00:42:49hate to Jonathan ChappellSenior Managing Director at Evercore ISI00:42:49get into minutiae on certain model line items. You said cost per employee will be up aligned with labor inflation. So I assume you mean like 4 ish percent. That said, you have a really tough comp in 1Q 'twenty four where it was up 7% and then a super easy comp in 4Q 'twenty four where it was down 4% because of the incentive comp. So do we think about it as 4% on average, but try to get the quarterly cadence more aligned with typically kind of lower cost per employee in the Q1 and peaking in the Q4, due to annual bonuses incentive comp? Sean PelkeyEVP & CFO at CSX00:43:26Yes, John. So here's how I think about it. I would take the Q4 number. I would add back the incentive comp adjustment. So that's about $1500 an employee. Sean PelkeyEVP & CFO at CSX00:43:37And that's a pretty good run rate for the first half of the year. We may actually come in a little bit better than that in the first half of the year, due to two reasons. 1, looking very closely at overtime, trying to reduce that and other unproductive costs. But also, it looks like likely lower health and welfare costs that kick in here this year. Then as we get to the second half, take that first half run rate, add 4.25 percent to that, which is what I would expect, for second half wage inflation. Sean PelkeyEVP & CFO at CSX00:44:09That should give you a good way to model it for the full year. Operator00:44:15And your next question comes from the line of Ken Hoexter with Bank of America. Your line is open. Ken HoexterManaging Director at Bank of America00:44:21Hey, great. Good afternoon. Two quick ones to clarify and then my question. I guess, clarifying, Kevin, did you say met coal at these levels, the 191, is that down 3% sequentially? Is that based on these levels? Ken HoexterManaging Director at Bank of America00:44:33Or does it go lower if rates hold at these low levels? And then, you mentioned some outages, some mine outages. Does that include the recent fire at one of your mines? I presume that's what you meant when you said some mine outages. And then I guess, Sean, my big question is, you kind of talked mid single digit growth. Ken HoexterManaging Director at Bank of America00:44:52I guess that would have been about $260,000,000 add to EBIT, offset by about $300,000,000 discrete items. So I just want to understand, are you sending the I just want to understand your messaging, is it that the base case EBIT is down $50,000,000 from the $5,350,000,000 that you've got for the target? I'm just trying to put together all the numbers you're throwing out there. Thanks. Kevin BooneEVP & CCO at CSX00:45:13All right. Well, that was a lot. Kevin BooneEVP & CCO at CSX00:45:16So let's start with Kevin BooneEVP & CCO at CSX00:45:17the coal question. Yes, at current levels, that's where we see that was the guidance at current levels, what we see here. Hopefully, we'll see some as we get in the second, third quarter, more reflective of kind of the cost curves of our producers and global producers. Quite frankly, we think it's probably under market right now, and that should hopefully balance out above $200,000,000 as we get in the back half of the year. We'll see if that happens. Kevin BooneEVP & CCO at CSX00:45:40And then, the other question was the outage that you mentioned. Yes, that's related to the recent one. We expect that to come back online in the second half of this year. I will say that, the team is doing a great job of looking for other sources and we do expect some of that to be made up at other mine locations to basically backfill the demand that still remains out there. So we don't expect that to be a full loss. Kevin BooneEVP & CCO at CSX00:46:08We'll find other opportunities to offset hopefully, a lot of that and more than half of that, headwind that we'll see. Over to Sean. Sean PelkeyEVP & CFO at CSX00:46:16Yes, Ken. So, I mean, your math is awfully precise. You know, it's too early in the year to kind of give you that close of a range. But I think generally speaking, kind of the way you're looking at it, if you take the, you know, adjusted number for 2024, the non GAAP adjusted number, you know, you subtract the $350,000,000 and then look at sort of mid single digit ish growth. And I would say there's some things this year that could make it a little bit worse than that. Sean PelkeyEVP & CFO at CSX00:46:46And that's really the coal challenges as well as the incentive comp piece that probably adds another $30,000,000 to $40,000,000 of expense this year versus 2024. But there's a lot of other variables in there as well. We're very, very focused on the cost side to try to make sure we can manage through the first half of this year as we've got some big headwinds, to manage with. And so, you know, there's levers that we can pull, but there there's obviously, things that we're watching in the economy as well. So there's a range of, outcomes that we could could model from here. Sean PelkeyEVP & CFO at CSX00:47:16And as we go through the year, we'll get, you know, much more, line of sight into exactly where that lands and can give you a little bit more color there. Operator00:47:27And your next question comes from the line of David Vernon with Bernstein. Your line is open. David VernonMD & Senior Analyst at Bernstein00:47:34Hey, thanks guys for taking the question. So, we've probably kicked this a couple of times, but Kevin, is there any way you can help us understand the 300, how much of that is volume, how much of that is price, kind of what you're making in there roughly, slices of pizza and an 8 slice pie kind of thing? And then if you think about the outlook as we look into merchandise intermodal, it feels like the Q4 numbers ended a little bit below the full year numbers. I'm just wondering if you're also seeing some volume pressure because some of the Blue Ridge outage and maybe even some volume because of the service issues might be happening with the Howard Street tunnels. Should we be thinking that there's some additional sort of volume headwinds building into 2025 here with related to this stuff? David VernonMD & Senior Analyst at Bernstein00:48:17Or is it purely just operating cost? Thank you. Kevin BooneEVP & CCO at CSX00:48:22Let me handle the first part. That was quite a bit again. The $300,000,000 that Sean highlighted in his opening comments was related to the met coal price. And then obviously the fuel surcharge was, so those two items, not a volume comment in that market. And then I'll hand it over to Sean. Sean PelkeyEVP & CFO at CSX00:48:43Yeah, and I think, David, what you're pointing to in terms of the momentum there in Q4, you got to remember the hurricanes were a pretty big impact. You know, we talked about a $50,000,000 impact with, you know, roughly $30,000,000 of that, being revenue. The revenue number was probably even a little bit higher than that when all was said and done. So, you know, that that that was a big piece of it. I don't, I mean, Mike and Kevin, you correct me if I'm wrong, but I I don't think we're anticipating any volume disruption from, the shutdown of the the Howard Street Tunnel. Sean PelkeyEVP & CFO at CSX00:49:12In fact, the work that we're doing and the costs that we're adding are to preserve that volume and allow us as we clear up that pinch point in our network to actually be able to identify and pursue some growth opportunities that Kevin and the team are looking at. Kevin BooneEVP & CCO at CSX00:49:27Yeah. I think with the blue ridge, there's small but immaterial, maybe some volume that would move off temporarily, just given the additional length of haul, but the majority of it, given the great work by the team and Mike's team and Kerry and others to come up with a solution, really preserve that largely for us. Operator00:49:46And your next question comes from the line of Bascome Majors with Susquehanna. Your line is open. Bascome MajorsSenior Equity Research Analyst at Susquehanna00:49:53Thanks for taking my questions. Can you talk a little bit about the regulatory opportunity under the new regime, either at the IFRA and the STB? And anything that has been held up or slow play that could generate needle moving productivity for CSX in 2025 or 2026? Thank you. Joe HinrichsPresident, CEO & Director at CSX00:50:15Yes, Bascome, this is Joe. I'll take that one. I think, first of all, you already saw some activity on the waivers that have been longstanding. That's important. We Joe HinrichsPresident, CEO & Director at CSX00:50:24need to Joe HinrichsPresident, CEO & Director at CSX00:50:25get more technology on the inspection side into this industry and we need to work with our union partners to make that happen, but there's a lot we can do at advanced efficiency and safety while still having plenty of work for our teams to do. That's a big one. I think if you look at, obviously Patrick Fuchs being named STB Chair, we know Patrick well, you know, very much, involved and engaged in our industry along with the other Board members. So, looking forward to that, working with the STB that's really focused on the data and what we can do to grow this business in a positive way. The FRA, I mean, David Fink, he was running Pan Am when CSX purchased it before my time, but so obviously knows the business and some of the stress points that the railroads faced in technology and also investment in capital and that kind of thing. Joe HinrichsPresident, CEO & Director at CSX00:51:16So we're feeling really good about a supportive environment for the industry when it comes to safety and technology and working together to advance. I mean, I think everyone is aligned that the best thing we can do is work together collectively to get more volume on the railroads. It's better for safety, better for efficiency of our economy. It takes trucks off the road. It reduces taxpayer funding for the roads in a little bit, and it also is more efficient and better for the environment. Joe HinrichsPresident, CEO & Director at CSX00:51:44So, I think the people that we're working with now understand all that. And so, I would say that the for the next several years look very supportive for us working together to make more advancements than we made in the last 4. Operator00:51:58And your next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open. Ravi ShankerManaging Director at Morgan Stanley00:52:05Great. Good afternoon, everyone. So it's a couple of years of a meaningful amount of discrete items now and I recognize that a lot of these things are either issues outside of your control or investments in the future. But what are your conversations with customers like on some of these bottlenecks? And are they understanding? Ravi ShankerManaging Director at Morgan Stanley00:52:25Is there a risk of share shift as a result of this? Or how do you think this plays out in the coming years? Kevin BooneEVP & CCO at CSX00:52:33Yes. I think from our customer discussions, there's a lot of excitement. You heard the service is not really going to be impacted. There's additional costs we have to absorb to maintain the service and maintain the level of service that we have provided. But these are significant investments that are going to allow them to reach new markets that they haven't had the opportunity to move on, on the CSX network. Kevin BooneEVP & CCO at CSX00:52:55So I think there's a lot of excitement, you know, for our customers to see that we're willing to invest in our network, quite frankly, and that always hasn't been the case. So, we continue to invest in the core infrastructure and invest there, but we're actually extending our network and creating single line service that we haven't had the opportunity to deliver in the, in the past. So there's a lot of excitement and I know our teams are excited to kind of deliver on that growth. Joe HinrichsPresident, CEO & Director at CSX00:53:20Yes, this is Joe. Joe HinrichsPresident, CEO & Director at CSX00:53:21Let me add real quickly to that. I mean, I'm really proud of the team, how both our operating and marketing sales teams have worked together. I mean, if you look at the 3rd and 4th quarters, we had 2 pretty impactful hurricanes and some other things. But if you look at the data from our customers, actually our net promoter scores in Q3 and Q4 were the it's consecutively the best we've ever had. And that, even though we had some disruptions and we had issues and you see it in some of the data, the work we're doing to put the customer first along with safety, of course, and to really work on finding solutions even if we have issues, it goes a long way to them seeing the commitment we have and that's really important for long term growth that the customers see that we're committed to when we have disruptions or have issues that we're proactively communicating with them, we're working to find solutions and that makes them feel a lot better about investing back into rail and looking for longer term growth and we're seeing that play out. Joe HinrichsPresident, CEO & Director at CSX00:54:12So, yes, we've had a lot of 3 items as you mentioned. I mean, for a couple of years now, we're looking forward to stop talking about fuel surcharge and coal prices year over year or quarter over quarter, But we're continuing to see volume growth and that's consistent exactly with what we're hearing from our customers. Our service levels are leading to volume growth. That volume growth has strong pricing with it and we're continuing to get efficiency gains. We get some of this noise out of the system. Joe HinrichsPresident, CEO & Director at CSX00:54:39I think you'll see the power of this network. Operator00:54:44And your next question comes from the line of Jordan Alliger with Goldman Sachs. Your line is open. Jordan AlligerVP & Equity Research Analyst at Goldman Sachs00:54:51Yes. Hi. Sorry, I just wanted to come back to the EBIT growth question again. Where you had suggested taking that $350,000,000 net headwind off of the adjusted 2024 and then growing by mid single digit, which sort of is the low end of the mid to high single digit that you talked about at your Investor Day. But off that base, like I'm just curious, like what gets it to the upper end of that mid to high single digit? Jordan AlligerVP & Equity Research Analyst at Goldman Sachs00:55:19Is it more of a volume issue? Is it a productivity issue? Like just sort of curious how you think about framing the range? Sean PelkeyEVP & CFO at CSX00:55:28Yes. Thanks for the question, Jordan. I think assuming commodity prices are not the driver, good or bad versus where they are right now, What makes the year a little bit better? I think it's us continuing to push to drive even more efficiency across all of the groups between operations and G and A. You know, we were able to hold purchase services and other costs essentially flat on a core basis last year. Sean PelkeyEVP & CFO at CSX00:55:55That takes a lot of work when you've got volume growth and you've got inflation up against you. So keeping a very, very close eye on those things. We've got initiatives built into the plan, but we're sitting down every day, looking at ways that we can continue to sort of, find opportunity, negotiate new agreements that help us on the purchase service side to reduce costs. So that's one. And then the other I would say is, on the volume side, certainly looking at the economy, but also the momentum on the trucking side, as Kevin talked about, do we start to see that turn? Sean PelkeyEVP & CFO at CSX00:56:32And these industrial development opportunities are coming online and the ramp in those volumes, the customer wins that we've got, we've got a number of those in the pipeline for this year. If our hit rate is higher, that obviously, helps us, grow operating income as well. Operator00:56:51And your next question comes from the line of Walter Spracklin with RBC Capital Markets. Your line is open. Walter SpracklinEquity Research Managment & Co-Head of Global Industrials Research at RBC Capital Markets00:56:59Yes. Thanks very much, operator. Good afternoon, everyone. So I just want to come back to the Investor Day 3 year forward compound annual growth rate targets that you gave, particularly on earnings per share. So you gave us high single digit to low double digit. Walter SpracklinEquity Research Managment & Co-Head of Global Industrials Research at RBC Capital Markets00:57:11If we look at that and just take the midpoint at 10% off 2024, it gets us to 2.43% for 2027, which is where consensus was. My question, I guess, is with the dip down now in 2025, it would imply you're going to have to run at a low teen for 2026 and 2027 to get back to that 2.43. And my question is, is that is the Investor Day target of 2.43 still relevant, given where we are in 2020 where we're kind of stepping down in 2025 and therefore have that low teen growth rate in 2026 and 2027? Or do we say, no, the world's changed a little bit since Investor Day and we should really model off a lower growth rate than that? Sean PelkeyEVP & CFO at CSX00:58:00Yes, Walter, I appreciate the question. But, as I said in the script, no, not we're sticking with the guidance. And so the numbers that you walked through, those are reasonable, high single digit to low double digit EPS growth. A couple of things I would just clarify. One is the $10,000,000 a month of network disruption costs that we have this year. Sean PelkeyEVP & CFO at CSX00:58:22You know, that's a headwind to this year, but that completely reverses in 2026 and turns into a net benefit for us as we grow volume and drive efficiency when all the construction is done. And then just the other sort of modeling point I would put out there is that the 3 year guidance assumes that over that 3 year period, we have stable commodity prices, both export coal and fuel. So we're at a lower point today on both of those than we were on average in 2024. Our hypothesis, our modeling framework is that by 2027, we're kind of back to where we were on average in 2024. Obviously, if that doesn't happen and met coal stays below 200, it's going to be tough to hit the numbers. Sean PelkeyEVP & CFO at CSX00:59:04But adjusting for that, we still feel very good about our 3 year guidance. Operator00:59:11And your next question comes from the line of Daniel Imbro with Stephens. Your line is open. Daniel ImbroManaging Director at Stephens Inc00:59:18Yes. Hey, good evening guys. Thanks for taking the questions. Kevin, maybe one more on the volume outlook. I guess there's a lot of headwinds out of your control, but I was going to ask one on the auto side. Daniel ImbroManaging Director at Stephens Inc00:59:26We've navigated elevated inventories for a few quarters here and it's weighing on autos and metals. I guess any updates on when your customers are expecting that production to actually return to growth this year? Inventory is rationing down out there in the field. Just what are you hearing or seeing from your field as you think about that segment hopefully returning to growth at some point in 2025? Kevin BooneEVP & CCO at CSX00:59:47Maybe I'll take it and give Joe he's obviously an expert in it as well. Look, we have seen a slower start to the year. That's shown up in everybody's carloads. It's out there. Certainly the weather and loading autos and this kind of weather is a challenge as well. Kevin BooneEVP & CCO at CSX01:00:03So that hasn't helped the volumes that we've seen here. We do expect them to improve from where we are at the levels that we've seen here over the last few weeks. But it is a you know, I think it's an open question of where rates go and portability and, and those things. I don't, I wouldn't, I don't sit here and say there's a lot of optimism here. I don't think there's, a lot of pessimism that is going to get significantly worse, as well. Kevin BooneEVP & CCO at CSX01:00:26So it's it feels like more of the same basically, but we'll see how it plays out for the rest of the year. Joe HinrichsPresident, CEO & Director at CSX01:00:33Yes, thanks Kevin. And well said. I mean, you think about it right now, I think the estimates are for sales this year to be in the low $16,000,000 range and the production to be in the mid-15s. So that maybe adjusts some inventory or just takes into account everything that happens with imports and everything. But before the pandemic, those sales SARs were $17,000,000 plus for a number of years in a row and production was pretty close to that. Joe HinrichsPresident, CEO & Director at CSX01:00:59And so there's a lot of potential there. We just have to see it realized and that means interest rates have got to come down and it has to be a balance between all those things. So we have an administration now that is very focused on autos and U. S. Manufacturing and interest rates. Joe HinrichsPresident, CEO & Director at CSX01:01:16So let's see how that plays out. Probably isn't a big is a big an issue for 2025, but what could it look like for 2026 and 2027 is a big opportunity. Thanks. Operator01:01:28And your final question comes from the line of Jeff Kauffman with Vertical Research Partners. Your line is open. Jeffrey KauffmanPartner & Transportation and Logistics Equity Research at Vertical Research Partners01:01:35Okay. Thank you. And thank you for squeezing me in. I'm going to go back and beat the dead horse a little bit here, but from a slightly different angle. You've talked a lot about the costs associated with Howard Street and Blue Ridge weighing on this year. Jeffrey KauffmanPartner & Transportation and Logistics Equity Research at Vertical Research Partners01:01:50And that cost is coming in a bunch of different areas, the outer route miles and the fuel burn, the extra crew, the asset related costs, extra locomotive, extra cars. Can we talk about, I guess, kind of the same way, once Blue Ridge is fixed, once, Howard Street is done, can we try and quantify the savings on the other side? So for instance, you're going to have double stack where you didn't before. You should be able to drive more cars through there with fewer trains, fewer assets. You should get to go out there and play for business that you weren't really eligible to do before. Jeffrey KauffmanPartner & Transportation and Logistics Equity Research at Vertical Research Partners01:02:30As I look at the net unwind of these projects and the opportunity for 2026, can you do anything to quantify that benefit the same way you quantified the cost of 25? Sean PelkeyEVP & CFO at CSX01:02:43Yes, Jeff, I appreciate the question. And you're right, obviously, as we get past this, it's going to turn into a very nice positive for us. If we sort of look at the cost savings opportunity and then combine that with the growth opportunity that's out there, taking a kind of a midpoint of what we think that revenue opportunity is, I would say within a couple of years, we will have fully recovered that $100,000,000 of, you know, call it roughly $100,000,000 of operating expense that we're going to take on this year. So and, you know, that's just that's just the initial growth opportunity. There's obviously more capacity that we're adding beyond that. Sean PelkeyEVP & CFO at CSX01:03:21So, to my earlier point, it does turn into a nice positive for us over the 3 year period. Operator01:03:30And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.Read moreParticipantsExecutivesMatthew KornHead Of Investor RelationsJoe HinrichsPresident, CEO & DirectorMike CoryEVP & COOKevin BooneEVP & CCOSean PelkeyEVP & CFOAnalystsTom WadewitzSenior Equity Research Analyst at UBS Securities LLCScott GroupManaging Director at Wolfe ResearchJoseph HaflingVP - Equity Research at Jefferies Financial GroupChris WetherbeeSenior Analyst at Wells FargoAri RosaSenior Analyst at CitigroupBrandon OglenskiDirector & Senior Equity Analyst at BarclaysBrian OssenbeckMD - Senior Analyst, Transportation at JP MorganJonathan ChappellSenior Managing Director at Evercore ISIKen HoexterManaging Director at Bank of AmericaDavid VernonMD & Senior Analyst at BernsteinBascome MajorsSenior Equity Research Analyst at SusquehannaRavi ShankerManaging Director at Morgan StanleyJordan AlligerVP & Equity Research Analyst at Goldman SachsWalter SpracklinEquity Research Managment & Co-Head of Global Industrials Research at RBC Capital MarketsDaniel ImbroManaging Director at Stephens IncJeffrey KauffmanPartner & Transportation and Logistics Equity Research at Vertical Research PartnersPowered by