CSX Q1 2025 Earnings Report

CSX EPS Results

• Actual EPS: $0.34
• Consensus EPS: $0.39
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: N/A

CSX Revenue Results

• Actual Revenue: $3.42 billion
• Expected Revenue: $3.53 billion
• Beat/Miss: Missed by -$111.80 million
• YoY Revenue Growth: N/A

CSX Announcement Details

• Quarter: Q1 2025
• Date: 4/16/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 16, 2025
• Conference Call Time: 4:30PM ET

CSX (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. CSX Corporation was incorporated in 1978 and is headquartered in Jacksonville, Florida.

CSX Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Thank you. And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. Matthew, you may begin.

[Matthew Korn, Head Of Investor Relations at CSX]

Thank you, Krista. Hello, and good afternoon, everyone. We're very pleased to have you join our first quarter conference call. Joining me from the leadership team are Joe Hendricks, President and Chief Executive Officer Mike Cory, EVP and Chief Operating Officer Kevin Boone, EVP and Chief Commercial Officer and Sean Pelkey, EVP and Chief Financial Officer. In 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 Korn, Head Of Investor Relations at CSX]

With that, it's now my pleasure to introduce Mr. Joe Hendricks.

[Joseph Hinrichs, President & CEO at CSX]

Alright. Thank you, Matthew. And hello, everyone. Thank you for joining our first quarter call. Since I came to CSX, we have been clear about our commitment to lead with service.

[Joseph Hinrichs, President & CEO at CSX]

Consistent, reliable, excellent service is what shareholder that strengthens our relationship with customers, expands our markets, and ultimately drives proper growth. Now I prefer that commitment this quarter. The start of the year typically brings operational challenges that we manage the network through the worst of winter weather. We believe that these challenges will be more difficult this year because of the constraints associated with our two major infrastructure projects, the Howard Street Tunnel and the Blue Ridge subdivision rebuild. Unfortunately, our performance fell short of our expectations.

[Joseph Hinrichs, President & CEO at CSX]

As a result, we left good business on the table, introduced our revenues and our inefficiencies met, we incurred more expense. We take full accountability for our performance this quarter and we are not standing still. The team is aligned. Our expectations are clear, and we are taking actions to stabilize our operations, improve efficiency, and enhance coordination across the entire One CSX team. All that said, I want to re reiterate the underlying strengths of our business.

[Joseph Hinrichs, President & CEO at CSX]

This is still the same great network and one CSX team. Our customer relationships are strong, and the fundamentals of our strategy are sound. I wanna thank our employees for their resilience and our investors for their continued support as we move forward with urgency and clarity. Now let's go over some highlights. Let's start with slide one where we feature some of the key results from our first quarter.

[Joseph Hinrichs, President & CEO at CSX]

Total volume decreased 1% compared to last year, but we did see intermodal volumes increased 2% on the quarter as we saw an uptick in port traffic. Total revenue was $3,400,000,000 for the quarter, down 7% from the same period last year. As we anticipated, much of this decline was due to the commodity effects of lower benchmark coal prices and reduced fuel surcharge. Earnings per share decreased by 24%, reflecting the effects of our margin from reduced revenues and our challenged network performance. We know that trust is earned through consistency.

[Joseph Hinrichs, President & CEO at CSX]

One quarter doesn't define us. What defines us is how we respond, how we learn, and how we come back stronger. That is our focus. We're committed to delivering better results and most importantly, to executing in the quarters ahead. Now I will turn the call over to Mike to provide details around our operational performance.

[Mike Cory, EVP & COO at CSX]

Thank you, Joe, and thanks to all of you for taking the time to participate today. As Joe highlighted in his opening remarks, this was a difficult quarter for the CSX network and the team. We've talked about how we have two major infrastructure rebuilds in progress that are causing us to reorganize and reroute a significant amount of our daily traffic. As a result, we were hit by severe weather and faced other tough railroading challenges. It has become more complicated for us to recover and it's just taking us longer to stabilize our operations.

[Mike Cory, EVP & COO at CSX]

These effects are clear in our service metrics as all of you have noticed. Let me say this as firmly as I can. Improving the fluidity of the network is essential in order to deliver on our promises to our customers, and we are committed to getting this done. We expect our performance to improve from first quarter even as we manage the ongoing infrastructure projects. I'll talk more in a moment about what steps we're taking, but let's first discuss safety results for the quarter.

[Mike Cory, EVP & COO at CSX]

The first quarter saw a third straight sequential decline in our FRA injury rate, which also brought us lower on a year over year basis. The continued education and mentorship programs that we've put in place are having a measurable effect, helping our employees understand how to reduce their risk exposure every day that they're on the job. I'm pleased that our FRA train accident rate also declined sequentially and improved year over year. Our team sees this as an encouraging affirmation that our SafeCSX program is taking hold and driving positive results. We will continue our work to build a safety focused culture here at CSX, always with the goal of everyone returning home safe and sound after every day.

[Mike Cory, EVP & COO at CSX]

Let's move to the next slide. At the top of this page, you'll see metrics reflecting our network fluidity. After working through the storms in the second half of twenty twenty four, our velocity was affected early in the first quarter of twenty twenty five after closing the Baltimore Tunnel, and it continued to be challenged as we managed through the after effects of harsh winter weather. Dwell demonstrated a similar unfavorable trend over the last several weeks as yard congestion persisted, making it difficult for trains to depart on schedule. We're working hard to address the increase in cars online as having excess inventory has slowed the network.

[Mike Cory, EVP & COO at CSX]

With particular flooding on our Southwest and Midwest regions, Nashville and Cincinnati in particular, we have much to do in this regard. The charts on the bottom show important customer facing metrics. Our intermodal business is highly service sensitive. We have to get this right to stay competitive in this market. As this chart shows, our intermodal trip plan compliance rebounded nicely in the first quarter after the hurricane related disruptions that hit last fall.

[Mike Cory, EVP & COO at CSX]

The team has worked hard to keep our terminals fluid and minimize the amount of time dray drayage drivers are waiting to drop off or pick up boxes. We're encouraged by this result, but we didn't do nearly as well with carload TPC, which was negatively impacted from the quarter's fluidity constraints. This is a primary area of attention for the team. We have to deliver here in order to support our current merchandise business and the substantial amount of new business that Kevin and his team have won and expect to win going forward. Finally, our CSD or first mile last mile measure shows fairly steady performance, but we know that for our customers, every percentage point represents important freight that they've entrusted to CSX.

[Mike Cory, EVP & COO at CSX]

So we understand where we are, and we are certainly committed to getting back to where we need to be. Top to bottom, our team is focused on speeding our operations back up and rebuilding the positive momentum that comes from a fluid, balanced network. We know we're not going to get back to our true potential until we get these major projects completed, but we are doing the hard work to drive incremental improvement step by step as we go through the year. One of the first things we're doing is to get the resources in place that will enable us to run a consistent operating plan even with the two major closures to work around. We're bringing online a modest number of locomotives to help get the network in balance and reduce train delay.

[Mike Cory, EVP & COO at CSX]

This is scheduled railroading. When trains leave on schedule, everything else is able to fall in place. We're also taking steps to drive our asset utilization. Our field leaders are connecting with our customers to identify and flush cars off our network. As cars accumulated, network fluidity declined, so we're working closely with our customers and taking immediate action to get these levels back to where they need to be.

[Mike Cory, EVP & COO at CSX]

Finally, we're making sure that everyone in this organization acts according to the priority that we at CSX place in delivering customer service. There's no single measure for the railroad that accounts for everything, but for years, TPC has served us as a very good guide to effective statistics. When we miss, we hold ourselves accountable, find a solution, and make it right with our customers. We have a lot of work to do, but remember this, we have the same people and the same assets that we had a year ago, and we take a lot of pride knowing how to apply the core principles of an effective scheduled railroad. On top of that, we're adding improved tools such as the real time operations portal system that we previewed at our Investor Day.

[Mike Cory, EVP & COO at CSX]

Hundreds of railroaders across the network use RTOP every day to strengthen communication and support faster, more effective decision making. The bottom line is that we're aligned across the team, and we're gonna deliver for our customers and our shareholders. With that, I'll turn it over to you, Kevin.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Alright. Thank you, Mike. Right now, CSX and our customers are navigating elevated levels of macro uncertainty. Clearly, there's an added market volatility and global trade policy is shifting day to day. We're staying close to our customers to understand the changing landscape, partnering to ensure supply chains remain resilient and efficient, as well as looking for opportunities to grow together, including investments in US manufacturing.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Year to date, end market demand has remained relatively stable. While some areas are clearly stronger than others, we have not seen any major negative inflections. That said, we are unsatisfied. The disruptions we faced across the network resulted in missed opportunities in some of our key end markets. As you've heard, our entire team is 100% engaged, and we have confidence that we will show improvement as the year progresses.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

As an example of our commitment, I want to quickly highlight the CSX's TDSI automotive terminal team, set a record with four terminals winning the auto industry's premier awards for origin and destination operations as recognized by the AAR. We are incredibly proud of our TDSI team and how they represent service excellence here at CSX. Now let's turn to the slides. Starting with our merchandise business as shown on slide six, in total for the first quarter both revenue and volume declined 2%. RPU increased 1% year over year as higher core pricing gains offset lower fuel surcharge and the effects of negative mix.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Looking across the different end markets, fertilizer volume was up 2% compared to last year benefiting from modest improvement in short haul Bone Valley shipments, but revenue was flat as RPU was affected by this mix shift. Market demand was strong for Ag and Food, but operational challenges limited our ability to meet this demand reducing our shipments compared to the market opportunity. Minerals volume was lower by 1% as weather impacted aggregate shipments, but underlying construction activity remained robust. Cement volume was favorable over the quarter supported by the ramp up of new production which contributed to favorable RPU mix and helped lift revenues by 4% for the quarter. Chemicals revenue was up 1% against a 1% decline in volume.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

We saw positive demand in plastics and energy related areas such as propane and LPGs, but cold weather had an impact on asphalt shipments. Forest Products volume declined 4% reflecting an uncertain building products environment when considering interest rates and changing trading policies. Sales and equipment continued to be sluggish with volume down 7% for the quarter. Automotive production was slow to start the year and though we saw improvements in March, volume and revenue declined 78% respectively. As we look to the second quarter and the rest of the year, we're closely watching the daily changes in trade and tariff policy.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

As I said before, based on what we observed from our merchandise customers now, demand across merchandise is relatively steady. There are even some encouraging recent signs with a good seasonal pickup in aggregates, strong end market demand in some of our ag markets and some early favorable effects from tariffs as steel prices have improved. If markets hold, we see opportunities to capitalize on improved network performance, allowing us to capture and fulfill more of the demand in some of our key markets. Now let's turn to Slide seven to go over the coal business. Coal revenue declined 27% on 9% lower volume as the team navigated lower export prices, producer issues and operational challenges in the quarter.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

All in coal RPU declined 20% year over year and fell 4% sequentially slightly more than the 3% decline that we anticipated last quarter. We saw year over year declines in both our export and domestic businesses. Export tonnage declined by 12% partially driven by the impacts of two significant temporary mine outages. While domestic tonnage was lower by 4%, we did see positive demand trends through the quarter. Utility demand has been supported by higher natural gas prices and we see positive signals from some of our key customers for increased demand into the summer and beyond.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Domestic shipments to steel mills were also down year over year reflecting soft conditions in the metals market start the year. For pricing, the Australian benchmark averaged $185 per ton over the first quarter and currently sits around that level. On a lag basis, this would be a modest headwind to RPU in the second quarter, although we could see a slight positive yield offset if we're able to increase our deliveries to the southern utility customers. Turning to Slide eight to review the intermodal business. In this quarter revenue was down 3% despite a 2% increase in volume.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

RPU was lower by 5% with a 3% impact due to lower fuel surcharge and the remainder largely due to stronger international shipments. The volume growth for the quarter was driven by international activity as we saw positive trends in container import flows sourced from our global partners. While some of this may have been due to a moderate pull forward ahead of anticipated tariffs, we do not see any real step change in the trend line until we approach the March. Domestic was effectively flat with grain in our rail asset shipments and new initiatives offsetting mixed results among some of our other channel partners. Again, we're encouraged by what we've seen over the quarter, but visibility is low into the rest of the year.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

The trucking market has not inflected, but does not seem to be past the bottom, which is moderately favorable for the intermodal overall. Finally, let's turn to Slide nine for an update on industrial development at CSX. It's been very encouraging to see how our overall program has continued to progress. As you've heard us say at recent conferences, inbound calls to our team remain at very high levels. And our total pipeline of projects continues to grow, reaching nearly 600 by quarter end.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Even better, one quarter of these projects are already under contract or nearing the final site selection. Activity within this pipeline continues to move forward with 24 new facilities going live on our network over the first quarter. These new plans and expansions will ramp up over the next few years contributing to our positive outlook on growth. We expect to keep this momentum up through the rest of the year with up to 50 additional facilities scheduled to start service over the next nine months. We remain confident that as the program continues to mature and accelerate we are on track towards realizing the volume growth path we outlined at the November Investor Day.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

We remain very excited about this unique growth opportunity and we'll continue our efforts to attract more and more customers who will benefit from growing their business on the CSX network. With that, let me turn it over to Sean.

[Sean Pelkey, EVP & CFO at CSX]

Thank you, Kevin, and good afternoon. Looking at first quarter results, revenue fell by 7% or $258,000,000 from a 1% drop in volume as well as lower export coal benchmark prices, lower fuel recovery and declines in other revenue and trucking. Expenses increased by 2% and I'll discuss the line item details on the next slide. Interest and other expense was $14,000,000 higher compared to the prior year and we expect this amount to step up slightly following our debt issuance in March. Income tax expense fell by $76,000,000 on lower pretax earnings.

[Sean Pelkey, EVP & CFO at CSX]

As a result, earnings per share decreased by $0.11 Declines in export coal benchmarks and net fuel prices drove a $04 headwind to EPS. We expect a similar commodity price headwind in the second quarter, which should ease throughout the back half of the year. Going into the year, we knew that Q1 would represent an earnings trough, both on a year over year and an absolute basis. Then difficult operating conditions faced during the quarter led us to miss our own expectations for both revenue and expense. Despite new challenges from storms and flooding early in the second quarter, our team of railroaders is working tirelessly to clear congestion and deliver the service product our customers deserve, which will drive revenue and expense benefits moving through the year.

[Sean Pelkey, EVP & CFO at CSX]

Let's now turn to the next slide and take a closer look at expense. Total first quarter expense increased by 2% or $38,000,000 This includes around $45,000,000 of additional costs related to network disruptions, congestion and severe winter weather. These headwinds, plus the impact of inflation, were partly offset by savings from lower fuel prices. Turning to the individual line items, labor and fringe was up $16,000,000 primarily due to inflation. Headcount has remained stable over the last year, and we expect it to be about flat through the year.

[Sean Pelkey, EVP & CFO at CSX]

Purchased services and other expense increased by $54,000,000 About half of this increase was tied to network disruptions and weather, with inflation and other items driving the remainder. Depreciation was up $15,000,000 due to a larger asset base. Fuel cost decreased $50,000,000 driven by a lower gallon price and savings from efficiency and lower volume. Gallons per GTM has now improved on a year over year basis for five consecutive quarters, driving over $50,000,000 in cumulative savings over that period. Finally, equipment and rents increased by $3,000,000 Now turning to cash flow and distributions on Slide 13.

[Sean Pelkey, EVP & CFO at CSX]

Investing for the safety, reliability and long term growth of our railroad continues to be our first priority use of capital. Q1 property additions were higher, including $133,000,000 of spending towards the rebuild project on our Blue Ridge subdivision. For the full year, our expectations are unchanged with non Blue Ridge spending roughly flat to 2024 and the total Blue Ridge rebuild expected to exceed $400,000,000 before insurance recoveries. Free cash flow was stable in the first quarter as lower earnings were offset by cycling a previously postponed tax payment in the prior year. Now as a reminder, cash outflows in the second quarter will include a roughly $425,000,000 tax payment that was postponed from 2024 due to hurricane related tax relief.

[Sean Pelkey, EVP & CFO at CSX]

After fully funding capital investments, we are committed to returning cash to shareholders, including nearly $1,000,000,000 in the first quarter. Our approach will remain balanced and opportunistic, factoring in an attractive current share valuation while closely monitoring shifts in demand for our services and the broader economic climate. With that, let me turn it back to Joe for his closing remarks.

[Joseph Hinrichs, President & CEO at CSX]

Okay. Thank you, Sean. Now we will conclude our remarks by walking through our updated guidance for the full year 2025. First, we continue to expect overall volume growth for the full year. As Kevin said, demand remains fairly stable.

[Joseph Hinrichs, President & CEO at CSX]

But the near term effects of rapidly changing trade and tariff policies are uncertain, which makes it difficult to project a reasonable range. That said, we remain very well positioned to facilitate and benefit from the continued long term trend toward expansion of U. S. Manufacturing capacity. As we have called out in the past, our revenue will reflect the challenges of lower commodity prices and changes in mix.

[Joseph Hinrichs, President & CEO at CSX]

So the year over year impact of lower export coal benchmark should be smaller than what we reported in the first quarter. As Sean highlighted, we expect first quarter to a trough for our probability for this year as we improve the fluidity of our network as we continue to drive a greater efficiency, and we deliver labor productivity, we should see sequential improvement. Our CapEx forecast is unchanged as you heard from Sean. And as you've seen this past quarter, a balanced opportunistic approach to capital returns also remains in place. To conclude, while this core did not meet our expectations, I appreciate the commitment, focus, and the efforts of our entire OneCSX team.

[Joseph Hinrichs, President & CEO at CSX]

That said, we recognize that the effort must translate into better outcomes, and that is where our attention is right now. We're fully committed to running a safer, faster, and more reliable railroad, and we know that doing so consistently is the path delivering the long term profitable growth we expect to ourselves. Thanks for all of your interest in our company. Matthew, we're ready to take questions.

[Matthew Korn, Head Of Investor Relations at CSX]

Thank you, Joe. We'll now proceed to the question and answer session. We have to make sure that everyone has the opportunity to participate in the time that we have. We ask you to please limit yourselves to one and only one question.

[Operator]

Your

[Operator]

first question comes from the line of Tom Wadewitz with UBS. Please go ahead.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC]

Yes, good afternoon. Wanted to see if you could, I guess, don't know, break down into maybe high level, but kind of buckets of the operational challenges. You obviously making the strategic move with Howard Street Tunnel and the investment there and that's in effect. Is that half of the challenge on the operating side or how do you view that? Was that a greater impact?

[Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC]

And then you talked about weather, I don't know how big that is. I guess the other piece would seem to be, I don't know if there's some that's from like kind of longer train strategy that maybe there's noise related to that or maybe just not as good an execution. But just wanted to see if you could kind of attribute a little bit more and then also give a sense of how quickly maybe you can see improvement in the operating performance? Thank you.

[Mike Cory, EVP & COO at CSX]

Thank you for the question Tom. Look. Got no excuses for where we are. What we're dealing with are the results of significant compounding events, basically, that have built over several months, you know, right up to last week's flooding and line closure of one of our most critical lines. So what we're doing is really focusing on a series of things, and it's, first of all, reducing the cars online.

[Mike Cory, EVP & COO at CSX]

And that's what's accumulated through all these these events. And there was, like, six of them, and they're every month coming up to this point. We're working really close with our customers to identify, first of all, the excess cars in our serving yards and our active inventory, and then we're working with them where we can to provide extra service to work these cars off. And then also providing enough service so they understand and and can reduce their pipelines to help us create the fluid that we need. Lastly, you know, we we always have embargoes as an option, but that's not really our preferred, preferred move.

[Mike Cory, EVP & COO at CSX]

The next thing is we're adding locomotives into areas that we know were congested, we need that ability to be flexible to be able to move, you know, the traffic that we have. And we're also placing additional mechanical folks out in the field to to reduce the amount of time to cycle back locomotives that go to major shops. In terms of our crews, we're transferring employees from other jurisdictions as they become available into these affected terminals. We're temporarily adjusting our planned capital track and structures program to reduce activity in those affected areas. That'll allow us again to provide more flexibility or more capacity.

[Mike Cory, EVP & COO at CSX]

And, you know, to get back, really, Tom, again, I just have no excuse as to where we are other than a buildup of of a series of significant events that really took away the capacity that we had planned once we took down the Howard Street Tunnel. If you remember, it's about seventeen, eighteen trains each way prior to that with the Blue Ridge gone. And we've been affected severely in our other two westernmost routes, and that's what we're working through. So it's not an effect of any plan we had in terms of long trains or anything else. This is just a series of events that we have got to work through, and that's what the team is absolutely committed to.

[Mike Cory, EVP & COO at CSX]

And we will improve through this quarter, and and our goal is to get to the summer where we see, you know, normal seasonality of some traffic tapering off, whether it's auto or ag, to allow us to fully reset ourselves into q three. But it's gonna take gonna take the time and definitely, it's gonna get the effort from everybody from me on down. Hope that answers you.

[Operator]

Your next question comes from the line of Brandon Oglenski with Barclays. Please go ahead.

[Brandon Oglenski, Director & Senior Equity Analyst at Barclays]

Hey, good afternoon, and thank you for taking the question. Mike, maybe if we can follow-up there. So it sounds like this is going to take maybe longer than a quarter to resolve and you might need to see lower levels of demand to push through here. But I guess thinking about this from a margin perspective and sorry, maybe the question is more for Sean. But normally, you see like a 400 basis point improvement from 1Q to 2Q operating ratio or operating margin, however you want to look at it.

[Brandon Oglenski, Director & Senior Equity Analyst at Barclays]

Is that on the table here? Or with these additional resources maybe taking longer time to recover, is that kind of off the table at this point?

[Sean Pelkey, EVP & CFO at CSX]

Brandon, thanks for the question. I think Q1 versus Q2, typically Q2 is always better, right? The magnitude each year is a little bit different depending on how challenging the winter was in Q1 and other factors that go through there. Our expectation is that, clearly, q two results are gonna be better than q one this year. You know, I I wanna clarify one thing, which is, you know, Mike talked about putting a couple of resources here and there.

[Sean Pelkey, EVP & CFO at CSX]

We're really not adding costs. These are very small things that, at the end of the day, when we run more fluid, we actually save costs. It's cheaper. Right? And and not only that, you know, we wanted to make it clear that there's a revenue opportunity there as well.

[Sean Pelkey, EVP & CFO at CSX]

There's demand that we weren't able to meet in q one that as operations begin to improve, we're gonna be able to go get those opportunities assuming that the demand environment remains stable. So those things will help. You know, I think the pace of margin improvement and operating income improvement from Q1 to Q2 will largely depend on that macro environment as well as the pace of improvement that you see in operations, which will translate to cost, but also, arguably more importantly, to the revenue side of the equation.

[Operator]

Your next question comes from the line of John Chappell with Evercore ISI. Please go ahead.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

You. Sean, I'm to stick with that topic a little bit here. I mean, in Investor Day and in January, you laid out a bunch of, you know, one off specific items for this year. That 45,000,000 that you laid out in slide 12, is that all incremental to what you'd identified in January? And is that all ring fenced to one q so we know what an appropriate starting point is for two q?

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Or I guess, is there some overrun? And, you know, Mike just mentioned another flooding situation last week. So just, again, trying to figure out how much of this is incremental to the already one off things and how we think about 2Q starting, you know, going forward.

[Sean Pelkey, EVP & CFO at CSX]

Sure. Thanks, John. The, so the $350,000,000 the biggest part of that is the commodity price headwind of about $300,000,000 We still think that's a good number for the year. Met coal prices came down a little bit over the course of Q1, hopefully found a bottom here. But we'll see a big impact again year over year in Q2, probably pretty similar to what we saw in q one from the commodity price perspective.

[Sean Pelkey, EVP & CFO at CSX]

When it comes to the cost side, that $45,000,000 that we called out, that includes the 10,000,000 a month that we expected due to reroute costs around both the Howard Street Tunnel and the Blue Ridge. You have to remember in the first quarter, we had two months of Howard Street reroute costs with that project beginning February 1. So call it 20 to $25,000,000 of reroute costs and then another 20 to $25,000,000 of, you know, weather, congestion, you know, lack of fluidity. That's the opportunity for us going from q one to q two. I don't think you're gonna see that whole 20 to 25,000,000 come out, particularly given some of the challenges we've had to start the quarter, but you'll see it improve as we continue on in the next couple of months.

[Sean Pelkey, EVP & CFO at CSX]

And again, don't forget, I think there's a sizable revenue opportunity for us as well as things get fluid.

[Operator]

Your next question comes from the line of Ari Rosa with Citigroup. Please go ahead.

[Ari Rosa, Senior Analyst at Citigroup]

Great. Good afternoon. So you mentioned some of the lost customer contracts. I was just hoping maybe you could quantify that. And then either Joe or Kevin, if you could talk about kind of where customer conversations are on the tariff impact and kind of how you see customers positioning for kind of the policy uncertainty that we're kind of working through right now?

[Ari Rosa, Senior Analyst at Citigroup]

You know, I think that would be helpful. Thanks.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Yeah. I wanna clarify that. It is an important point. There's no lost contracts that we've seen. In fact, it's more about being able to lean into some of the growth opportunities that were out there for us to capture, and a lot of that was on our unit train side of our business.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

So that's where it's concentrated, but there's other instances. And I I I would also, point out that we've done a you know, given the communication that we have with the operating team and the great job that Shannon, who runs our customer service group does, we really mitigated the the real the real issues at the at the customer sites and continue to, you know, prioritize where it really makes sense, those those shipments and making sure those things are getting delivered and we're not creating disruptions for our customers. But it was really about leaning into further growth opportunities. On the tariff side, you know, it changes every day. There's a lot of conversations.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Joe, myself, and I've been spending a lot of time with our customers. We've had a number of conferences and other events, and it's, you know, it's obviously a fluid situation. There's a lot of positives that can come out of this, and, clearly, there's there's some uncertainty on the consumer side and what that means for basic consumption in The US. But there's, you know, obviously, longer term, if you see more industrial production coming to The US, that's a very, very big positive for for you for for The US and and our network because we're well positioned to to capture a lot of that activity, given where we are in the Southeast and Midwest primarily. So, I think, you know, right now, we're trying to stay as close as we can in each one of these markets, trying to understand how the freight flows are gonna change.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Clearly, with these tariffs, they will change. I think you could see a lot of benefits from decoupling from China that could benefit the East Coast potentially, and we're watching that and making sure we're staying upfront of it both with our investments and how we're thinking about that and really working with our customers to position them so they can capture the markets as they change.

[Joseph Hinrichs, President & CEO at CSX]

Yeah. Let me just add real quick. This is Joe. You know, I think last earnings call, we talked about we had, during the fourth quarter of last year, we had our highest ever net promoter score from our customers. And we were really proud of that because that happened during a very difficult time period during the hurricanes and and everything.

[Joseph Hinrichs, President & CEO at CSX]

We still while it declined a little bit in the first quarter, we still have one of our highest scores ever and significantly up from the year before when we were running a lot better, frankly. So it's a testament to the work that's going into our customer service and the focus we have on communicating with customers, prioritizing where they tell us to prioritize, and making sure that they know what we know so that we can, you know, plan our business accordingly. So that's a major improvement that we've made as an organization over the last several years is that connectivity with the customer and that constant communication. So when things don't go as planned, we're still in touch, we're all making sure we adjust and they adjust as as appropriate. But we'll we'll continue to to, obviously, continue to prioritize that.

[Joseph Hinrichs, President & CEO at CSX]

As Kevin mentioned, the biggest opportunity we left on the table was really on unit trains, really, coal in January and February. We got we had much better performance in coal in March, and then really the grain, throughout the quarter because we had so many issues through that Midwestern corridor that's been a lot of traffic has pushed over from the East given the the the shutdowns we have right now. But we'll get we'll get back on that as weather certainly cooperates better but also as our network gets better. Thanks.

[Operator]

Our next question comes from the line of Brian Ossenbeck with JPMorgan. Please go ahead.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

Thanks. Good evening. So maybe just to clarify the revenue opportunities that is that still sitting there that you can go after again and just wasn't available picked up on service? Or did you potentially lose it and then just be kind of getting back to normal? So first clarification.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

And then secondly, maybe Sean, if you can update us on the guidance you gave last quarter, which was the low end of the target mid single to high single digit EPS or I'm sorry, EBIT growth from the Investor Day for this year when you back out the sort of the normalization that you called out. So given everything that's happened just wanted to see if you could update us on that as well. Thanks.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Yeah. I'll start off on the, you know, some of that revenue, I think you could say it was perishable, but a lot of it is getting back up to the demand levels that the markets are seeing right now. And so that's an opportunity in the second quarter where we see strong demand in some of these specific markets that we're meeting that demand level and they're not having to use alternatives. So some of it was perishable, but there's a big opportunity in 2Q versus 1Q.

[Sean Pelkey, EVP & CFO at CSX]

Brian, I would just add on the second part

[Sean Pelkey, EVP & CFO at CSX]

of the some of the

[Sean Pelkey, EVP & CFO at CSX]

second part of the question. You know, I think given what we did on the volume guide, you know, and the uncertainty that's out there, I think, you know, it's that bleeds over into sort of what we're thinking, when it comes to EBIT or operating income as well as margins. I think it's challenging to pin down exactly how things are gonna play out over the course of the year. The there's opportunities there for sure, as Kevin's outlined here and, you know, Mike's talked about in terms of, improving the fluidity of the network. Both of those things are important.

[Sean Pelkey, EVP & CFO at CSX]

The demand environment is is important as well, and all of that will feed into how well we're able to do, on a full year basis. You know, that being said, when you look at what we what we're hit with this year, some of the things that relate to the outages we've got and the costs associated with that, but also, you know, what we were hit with here in the first quarter, it's all temporary impacts. Right? These are things that will cycle. And so as we exit, 2025 and think forward to the next couple of years, we still feel good about the guidance that we gave in November on the three year CAGRs down the line.

[Operator]

Your next question comes from the line of Christian Wetherbee with Wells Fargo. Please go ahead.

[Christian Wetherbee, Senior Analyst at Wells Fargo]

Yes. Hey, thanks. Good afternoon, guys. Sean, maybe a quick follow-up on that and then one for Kevin. I guess, to make sure I understand, think you guys talked about potentially growing profit in the back half of the year.

[Christian Wetherbee, Senior Analyst at Wells Fargo]

I guess when you think about that, is that something that is maybe a little bit harder to do with the sort of uncertain volume environment and maybe thinking about that separate from some of the costs that you're carrying from the service challenges that you're facing? And I guess just for Kevin, when you I think you said in the remarks earlier that maybe something on the intermodal side had changed a bit in early April. Just want to get a sense of what that was or if I heard that correctly.

[Sean Pelkey, EVP & CFO at CSX]

Yes, Christian, we'll stay away from guidance quarterly or full year guidance. Of course, that being said, Joe outlined the commodity price headwinds that we're facing will ease as we go through the year, assuming that met coal prices remain stable, fuel prices remain relatively close to where they are right now. The comps get a little bit easier in the back half, and we also had the hurricane impacts from last year in the fourth quarter. So that makes year over year growth a little easier in the second half of the year, but a lot depends on what happens in the macro and, of course, the improvement in the operations.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Yeah. On the intermodal side, the point was we saw some acceleration in late March and kind of continuing in through this month. And we believe a portion of that's probably related to some pull forward related to the tariffs, so some strength in the international market that we're seeing currently.

[Operator]

Your next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

[Ken Hoexter, Managing Director at Bank of America]

Hey, good afternoon. Joe, maybe just talking about that same thing that the big picture here on volume. You're talking positive volume growth and 1Q was mentioned to be trough. But I guess if we start thinking about that maybe a cliff of volumes, it seems like if China is down 20%, twenty five %, when you mentioned things like, hey, we can pick up some industrial activity, I presume that's longer term or are you suggesting that there are things near term that can kind of offset that? And then just a quick number question for Mike that the on time arrivals of 55% and origination of 68%, is that adjusted for the construction projects or is that just weather impacts?

[Ken Hoexter, Managing Director at Bank of America]

I'm just trying to understand what normal would look like. Thanks.

[Mike Cory, EVP & COO at CSX]

Ken, no, that's regular schedules. That's not adjusted for any the outages. That's just the performance that we have right now and that we need to improve. Yeah.

[Joseph Hinrichs, President & CEO at CSX]

I can. So I'll answer the rest of your part of your question.

[Joseph Hinrichs, President & CEO at CSX]

I mean, first of all, we

[Joseph Hinrichs, President & CEO at CSX]

have to remember and recognize that the industrial part of the economy has been in kind of a negative growth environment for better part of almost two years. And so there may be some opportunity as that if that starts to pick up. What we're seeing in real time is, our order orders coming from steel plants is going up. As you might imagine, there's a lot of discussion around increased steel production in The US given the tariffs that are happening. You know, you could see a scenario where, The US certainly, you expect to see a scenario where The US auto production picks up in The United States, maybe not North America in total, but in The US.

[Joseph Hinrichs, President & CEO at CSX]

And that will drive, both steel and aluminum, but also other parts, but also, of course, finished vehicle deliveries. You can see that scenario playing out. Housing is still, as Kevin mentioned in his remarks, still down and, you know, I'm I'm not gonna be one to try and predict when that recovers. But you could start to see a little bit of movement certainly in the auto space, and that's we'll watch that one very carefully, especially for us in the East, you know, where a lot of The US plants are in our footprint. But but medium term, we're still bullish on industrial development projects that, you know, we continue to talk about.

[Joseph Hinrichs, President & CEO at CSX]

And as Kevin mentioned, the first quarter was a lot of activity, even in increased level of activity for their team, which that's a good sign. And so that's gonna continue. We talked about it's already, you know, 20 some coming online in the first quarter and more coming online this year. So, you know, we're watching to see what happens on the industrial part of the economy that could be helpful. But but to reiterate, coal demand volume wise is still there.

[Joseph Hinrichs, President & CEO at CSX]

I mean, certainly met coal prices have come down, but export volumes, we've had some mild outages which affected us a little bit, but there's still some increased activity now on the domestic utility side. So coal volume's still there. It grows a very strong grain harvest, especially, you know, a lot of grain needed to move to the Southeast. So the grain volume has continued to be strong. Aggregates, we expect to continue to be strong.

[Joseph Hinrichs, President & CEO at CSX]

Minerals should you know, and minerals should be should be okay with all the construction projects and everything going on. So we go sector by sector. Obviously, there's some weakness in some areas. We watch chemicals very closely because our largest sector and that one was kind of, you know, kind of flat year over year in the first quarter. But you can see that one hopefully holding firm, and then you've got these other areas where you can see some growth.

[Joseph Hinrichs, President & CEO at CSX]

So in the medium term, we can see in the near term, rather, we can see some opportunity in the second quarter, and we got to make sure we can we have the network flowing to be able to realize it. Thanks.

[Operator]

Your next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.

[Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs]

Hi. Yes, just wanted to come back to the industrial development. It seemed pretty optimistic. I'm just sort of curious, I know it's still early probably with the tariffs and potential boost to domestic industrial production. But are you starting are you actually hearing that maybe there's some thought about accelerating decisions to go ahead?

[Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs]

And then secondly, have you thought about the previous tailwind you talked about for the projects long term? Think it was about 2%. I mean, you thinking maybe there could be some potential upside to that? Thanks.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Yeah. You know, in terms of upside, I think the potential is these current projects are brought online quicker and ramp up faster if the demand environment, supports it. You know, we look at the metal side, and, obviously, timing could be very, very good, when you think about tariffs and, needing domestic production there on aluminum and other parts where we're well positioned to really benefit from that. That's what we're watching. I, you know, I don't think at this stage, given that it's a very fluid situation, that we're seeing a lot of acceleration of decision making.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

I think the rules need to be set for that to happen. But, clearly, you know, the administration is looking pointing to trying to incentivize domestic production, and that would be a very good thing for our network.

[Operator]

Your next question comes from the line of Jason Seidl with TD Cowen. Please go ahead.

[Jason Seidl, Managing Director at TD Cowen]

Thanks, operator. Joe and team, good afternoon, everyone. I wanted to focus a little bit on the intermodal side and how we should think about sort of the reported yields going forward. Because if you take a look at the international trade, the booking numbers are down pretty drastically, so there could be a shift coming your way soon. And one of the major intermodal players was talking about at least some of the slightly disappointing numbers on the pricing side of the domestic market.

[Jason Seidl, Managing Director at TD Cowen]

So I was hoping maybe you can work through that with us for the modeling purposes.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Yeah. You know, we've largely gone through bidding season. I think you got some pretty good commentary, through, you know, already one that's already reported and that is a partner of ours. So, you know, probably, we're we are where we are for the remainder of the year, probably not a huge opportunity for an inflection in the back half of the year from a pricing perspective. If you saw more strength in domestic versus our international business, you know, that generally is a positive from a yield, from an RPU perspective.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

And so we'll see if that plays out as we get through the year. And if domestic business picks up, that would be a positive from that aspect. But it's you know, there's a lot of moving parts right now, and we're just working with our customers and our partners to make sure that we're meeting the demand and and looking at the freight flows. And if they're changing, working with Mike and his team to make sure we're we're on top of that.

[Operator]

Your next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.

[Ravi Shanker, Managing Director at Morgan Stanley]

Great. Good afternoon. Just a couple

[Ravi Shanker, Managing Director at Morgan Stanley]

of housekeeping items here. Can you just remind us of the updated coal contracts if there is a floor to pricing on the benchmark price? I think there was before or not. And second, any color on the other revenues into a little bit of step down here? What's a good run rate for the rest of the year?

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Yeah. You know, every every contract's unique, so there's not a a certain, floor. But, yeah, we're we're above those floor levels, today, but they all have floors embedded in it. And, hopefully, we don't touch those floors where we are based on what we've seen here recently with some a little bit of stabilization over the last couple of months.

[Sean Pelkey, EVP & CFO at CSX]

And Ravi, on the other revenue, yeah, it came in a little bit lower. I'd say there's a lot of items that go into that line item from subsidiary revenue to storage to revenue reserves. So it can be a little bit more challenging to predict. I'd say where we are now is a pretty good run rate going forward, maybe plus or minus a little bit from the 115,000,000 that we saw in Q1.

[Operator]

Your next question comes from the line of Daniel Imbro with Stephens Inc. Please go ahead.

[Daniel Imbro, Managing Director at Stephens Inc]

Yes. Hey, good evening. Thanks guys. Maybe I want to dig in on the cost side a little bit here. On headcount specifically, I think volume has been softer to start the year.

[Daniel Imbro, Managing Director at Stephens Inc]

I think last quarter the expectation was maybe flattish headcount this year. Sean, can just talk about how volume dependent that headcount trajectory is through the year? Could you flex it lower if volume remained underwhelming? And then similarly, I think you baked most of your union contracts now for the back half of the year. So how should we be thinking about maybe comp per head inflation as we move through the year?

[Daniel Imbro, Managing Director at Stephens Inc]

Thanks.

[Sean Pelkey, EVP & CFO at CSX]

Yeah. Thanks for the question. I'll answer it. Mike, if you have anything to add, feel free. But on the headcount side, I mean, think where we are in Q1, yeah, we didn't move as much volume.

[Sean Pelkey, EVP & CFO at CSX]

But because the network is not as fluid as it should be, you're using your crews inefficiently. So as service recovers, volume goes up and, you know, the crews are working more efficiently and and running the trains on schedule. So, I think we're in a good spot when it comes to crews. We're in a good spot really across the support functions as well. Clearly, if there's a major drop off in volume, we adjust to that and we flex, but that's not the base case for us.

[Sean Pelkey, EVP & CFO at CSX]

I think we'll see headcount remain relatively flat through the year. There'll be some timing impacts with training and all of that, but nothing significant from quarter to quarter. And then in terms of comp per employee, I think you hit on it. In terms of second half, you'll see the 4% wage increase hit. That's really the only difference between first half and second half.

[Sean Pelkey, EVP & CFO at CSX]

The expectation would be that going from Q1 to Q2, we should see a little bit of a decline in Comprehed, especially when you consider some of the overtime we were running related to weather issues and storms in the first part of the year. So but then in second half, really just inflation.

[Operator]

Your next question comes from the line of Rica Hernan with Deutsche Bank. Please go ahead.

[Richa Harnain, Director - Lead Surface Transportation & Airfreight Equity Analyst at Deutsche Bank]

Hey, everyone. Thanks for the time. I guess, just one on the revenue opportunity that was sort of left behind. Guess, can you quantify that maybe further like and how easy I appreciated the comments around the Net Promoter Scores being still very, very good despite some of the disruptions you faced in the first quarter. But how easy is that share shift opportunity to come back to your network?

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Yeah.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

You know, we've obviously done a lot of work internally with the math, and what the math would suggest is, you know, somewhere a million plus, a day in in revenue opportunity if you look at cycle times that were more normalized, in some of these markets. So, you know, sometimes you don't know the exact demand because you're not up against it, but that's, you know, that's rough math that we've done here internally. And then on the, you know, on the on the Net Promoter Score, I think we've earned the trust. We have some great relationships with our customers, and, you know, the team has done a great job of staying in front of them, communicating, sharing, you know, when we're gonna have issues, when we have storms on the network. Our communication levels have never been better about getting in front of it so our customers can plan.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

So we we have every expectation as we run better that the customers have stayed with us. They trust, you know, what we're doing. We're over communicating where we can, and we've really built that trust with our customers. So we expect and I mentioned before, the contracts, we've continued to maintain our share in the market, we believe, and you'll see that as we improve our network operations.

[Operator]

Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Please go ahead.

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

Thanks very much, operator. Good afternoon, everyone. Kevin, you called out a favorable partner alignment in your international intermodal side as an opportunity. Can you expand a

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

bit on that? And if that's going

[Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets]

to create any additional opportunities as any of those partner alignments perhaps get a little bit get a little bit more or get deeper or or or if you can expand them to other partners as well?

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

I wasn't I wasn't necessarily being specific to any one specific partner relationship. I think we are well positioned when you look at our portfolio on the international side longer term with some partners that are really focused on growth and are we think our winners in the market. So that wasn't a specific reference to any new contract or anything like that on that side, but we are well positioned there. And we're doing a lot of unique things, I think, from an inland port perspective and other things that really work with our customers to find growth opportunities for them. You know, we're thinking a lot about the shift away from China and, you know, certainly that we believe that helps the East Coast and, working with the ports there and really making sure we're positioned to, you know, where there's opportunity and where freight flows wanna come into the East and move, further into our network that we're well well ahead of it and, have the capabilities quite frankly to to handle that business.

[Operator]

Your next question comes from the line of David Vernon with Bernstein. Please go ahead.

[David Vernon, Vice President and Senior Analyst at Bernstein]

Hey, good afternoon guys and thanks for taking

[David Vernon, Vice President and Senior Analyst at Bernstein]

the question. Mike, as you think about the resiliency part of restoring service levels, is this a resource issue? Is it just a scheduling issue and a lack of weather issue? I'm just wondering if you're going to be able to kind of get the service metrics back on track here before some of the work is done in like Howard Street or whether we're going to be kind of living with these challenges for the rest of the year?

[Mike Cory, EVP & COO at CSX]

No. Thanks for the question, David. It it is it is gonna be a gradual process to get the network back. And so it's not going

[Mike Cory, EVP & COO at CSX]

to be

[Mike Cory, EVP & COO at CSX]

overnight. Our focus is really over this next quarter to get us into position to take advantage of some of the tapering of some of the commodities. Again, the compounding weather that's affected us has really made us go back to the the position of we have to start from scratch. This last piece of flooding really affected a key corridor for us that we counted on, you know, to take the traffic off the Howard Street and the Blue Ridge reroutes. So it's to be a process, but we'll get through it.

[Mike Cory, EVP & COO at CSX]

It's just not going to be overnight. It's going be throughout the quarter.

[Operator]

Your next question comes from the line of Bascome Majors with Susquehanna. Please go ahead.

[Bascome Majors, Senior Equity Research Analyst at Susquehanna]

As you work through a lot of disruptions, many of them out of your control, some of them chosen like Howard Street and dig out and also face you know, a demand picture that's more uncertain today than it was a month ago. I mean, clearly, 2025 is gonna be a challenging year in a lot of ways. But, Joe, as we look to next year, is 2026 the year that investors should judge the financial output of your strategy? Or do you think it makes more sense to look to 2027 and year three of the three year plan to really get a clean comp and enough time to really have the outcomes that you've driven? Thank you.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Yeah. Thank you.

[Joseph Hinrichs, President & CEO at CSX]

Yeah. Bascome, thanks for the question. I'll answer the the question, but first, wanna take a step back because we've been on this journey, you know, for over two and a half years.

[Joseph Hinrichs, President & CEO at CSX]

And if you look at now that we have our some of our segment reporting in our 10 q and and then we had the 10 k, you can kinda see more clearly the trucking and the rail side of the business. If you look at in 02/2023, our margins were 40% best in the and the rail margins were 40% best in the industry. Last year, we're 39%, second best in the industry. And so our strategy, if you wanna call it that, has been working and leading and providing leading levels of customer service and margin. Clearly, when you start to look at the data, late fall of last year or fall of last year, our cars online started to go up a little bit.

[Joseph Hinrichs, President & CEO at CSX]

Our dwell started going up a little bit, and then the hurricanes hit. And and then you've seen the data since then. You can do a direct correlation between the dwell, the cars online, the trips plan compliance, and what's happened. And, you know, we're all committed to getting back to those levels.

[Joseph Hinrichs, President & CEO at CSX]

So

[Joseph Hinrichs, President & CEO at CSX]

the the the three year kind of thesis we laid out in investor day in November is still something we believe in, and we actually feel we will we can and will deliver. Obviously, we had a, you know, a worse first quarter than we were expecting, to be sure. But the fundamentals of the first quarter that we were that we were projecting still hold held true, you know, lower net coal prices, lower fuel surcharge, you know, the Howard Street Tunnel and the Blue Ridge rebuilds, you know, having some impact on our on our network. And so as we cycle through all that and we continue to execute the levels we know we're capable of doing, getting the getting the dwell, the velocity back to where it was prior to the hurricanes, getting the cars online down, and realizing the potential, the fluidity of this network, and how we focus on customer service and relationships we have with customers. We haven't lost a major contract, and I'm really proud of that because it's really important as we build for the future.

[Joseph Hinrichs, President & CEO at CSX]

All those fundamentals should continue to deliver exactly what we talked about in November at Investor Day. So it's a 26, 20 seven story to be sure. Our expectation is, of course, as Sean laid out in November that we see and Kevin, we see some industrial, you know, production improvement over that time period. And if you take out all the volatility of met coal prices and fuel, we should see those kind of improvement levels that we talked about. Now now we have a more near term prove it scenario, which is we gotta demonstrate to you and and to all of our shareholders and to all of our stakeholders that we can get ourselves out of this situation we're in.

[Joseph Hinrichs, President & CEO at CSX]

And I feel confident we'll be able to do that, and we have the team to do that. We know what it takes. We know how to do it. Actually, we did it in the fall of twenty two pretty pretty quickly without the Outerfleet Tunnel and

[Joseph Hinrichs, President & CEO at CSX]

the Blue Ridge issues, but we had fewer people.

[Joseph Hinrichs, President & CEO at CSX]

So our team knows how to do this, and Mike and his team are working around the clock seven days a week on on looking at everything that we can do to make that happen. So near term, we need to show you we can get our network back to the kind of, you know, kinda up to industry industry leading levels and service and and margins, and then realize that growth in volume that we believe will come industrial development and from industrial production and hopefully economic growth as well. So I'd say '26, '20 '7, but in the near term, we gotta we gotta get our network back and give you confidence that we can deliver those volumes. Thanks.

[Operator]

Your next question comes from the line of Jeff Kauffman with Vertical Research Partners. Please go ahead.

[Jeffrey Kauffman, Partner & Transportation and Logistics Equity Research at Vertical Research Partners]

Thank you very much and thank you for squeezing me in. A question more for Kevin and it might be a tough one to answer, but if you were to try to put some circles around buckets of pre ship or some tariff accelerated related business you may have seen, what's your best shot at that?

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

That's a tough one. I think obviously it's probably concentrated on the international intermodal side, on the container side. And, you know, it's consumer products, things like that if you can. But, you know, you know, the lead times on these things. First, you gotta get, you know, you gotta put the order into the factory.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

It's gotta get to the, obviously, the port where it's being manufactured, and then it takes weeks on a on a on a ship. And so the ability to really get ahead of this is probably pretty limited, but I I did wanna recognize there's probably a few points, couple points that we're seeing probably on our international side here currently, related to some of that dynamic. I do think, you know, from an export perspective, as as things really shift, we're we're thinking more and more about the advantages of the East Coast versus the West. Obviously, the West has been very leveraged to China. And as freight flows, you know, change, if ag products don't wanna go to China, where are they gonna go?

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Could they you know, are they gonna go to Europe and other places as as those are supplemented, from other areas? So there's a lot of moving parts. I think some of these things, could really benefit where we're positioned as a network, but all these things are very, very fluid right now. And we're just trying to stay ahead of it and make sure we're actively thinking about it with our customers, and so we can deliver the solutions when they decide where these freight flows want to go, and we're there for them.

[Operator]

Your final question today comes from the line of Scott Group with Wolfe Research. Please go ahead.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research LLC]

Good evening. This is Ivy Ni on for Scott. Thanks for the time. Last question related to tariffs again. Roughly what percent of your volumes or revenues are in fact tied to China?

[Scott Group, Managing Director and Senior Analyst at Wolfe Research LLC]

I imagine it's mostly international intermodal. Is there any material China exposure in any other commodity segments? Thank you.

[Kevin Boone, Executive VP & Chief Commercial Officer at CSX]

Yeah. We're yeah. We don't you know, obviously, given our East Coast position, we're really not as leveraged to to China as as others. So it's pretty it's probably concentrated on that intermodal side for us that comes over the West Coast and in our network.

[Operator]

And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Participants

Executives

• Matthew Korn, Head Of Investor Relations
• Joseph Hinrichs, President & CEO
• Mike Cory, EVP & COO
• Kevin Boone, Executive VP & Chief Commercial Officer
• Sean Pelkey, EVP & CFO

Analysts

• Tom Wadewitz, Senior Equity Research Analyst at UBS Securities LLC
• Brandon Oglenski, Director & Senior Equity Analyst at Barclays
• Jonathan Chappell, Senior Managing Director at Evercore ISI
• Ari Rosa, Senior Analyst at Citigroup
• Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan
• Christian Wetherbee, Senior Analyst at Wells Fargo
• Ken Hoexter, Managing Director at Bank of America
• Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs
• Jason Seidl, Managing Director at TD Cowen
• Ravi Shanker, Managing Director at Morgan Stanley
• Daniel Imbro, Managing Director at Stephens Inc
• Richa Harnain, Director - Lead Surface Transportation & Airfreight Equity Analyst at Deutsche Bank
• Walter Spracklin, Canadian Equity Research Managment and Co-Head of Global Industrials Research at RBC Capital Markets
• David Vernon, Vice President and Senior Analyst at Bernstein
• Bascome Majors, Senior Equity Research Analyst at Susquehanna
• Jeffrey Kauffman, Partner & Transportation and Logistics Equity Research at Vertical Research Partners
• Scott Group, Managing Director and Senior Analyst at Wolfe Research LLC