CSX Q1 2024 Earnings Report

CSX EPS Results

• Actual EPS: $0.46
• Consensus EPS: $0.45
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.48

CSX Revenue Results

• Actual Revenue: $3.68 billion
• Expected Revenue: $3.66 billion
• Beat/Miss: Beat by +$15.98 million
• YoY Revenue Growth: -0.80%

CSX Announcement Details

• Quarter: Q1 2024
• Date: 4/17/2024
• Time: After Market Closes
• Conference Call Date: Wednesday, April 17, 2024
• Conference Call Time: 4:30PM ET

CSX (NASDAQ:CSX) is a leading North American transportation company that provides rail-based freight services and supply-chain solutions. Its operating subsidiary, CSX Transportation, moves a wide range of goods for customers across multiple industries, using a combination of long-haul rail service, intermodal operations and terminal and yard services. The company focuses on delivering efficient, reliable freight transportation between major production centers, consumption markets and port gateways.

CSX’s freight portfolio includes intermodal containers and trailers, bulk commodities, industrial products and specialized unit trains. Customers range from manufacturers and agricultural shippers to energy, chemical and retail companies that rely on rail to move heavy and bulk cargoes cost-effectively over long distances. In addition to line-haul rail service, CSX provides logistics support, transloading and coordination with truck and ocean carriers to enable end-to-end supply-chain solutions.

Headquartered in Jacksonville, Florida, CSX primarily serves the eastern United States and provides connections to coastal and inland ports and intermodal hubs that facilitate international trade. Its rail network and terminal infrastructure are designed to integrate with other transportation modes, enabling shippers to connect to markets across the U.S. and to global supply chains through major seaports.

CSX traces its roots to a number of legacy railroads and was organized as CSX Corporation during industry consolidations in the 1980s. Over time the company has pursued operational improvements and investments in infrastructure, technology and service offerings to enhance network performance and better meet customer needs. CSX operates as a publicly traded transportation company and serves a broad base of industrial and commercial shippers.

CSX Q1 2024 Earnings Call Transcript

Key Takeaways

• Solid Q1 results: Total volume grew 3% driven by a 7% lift in intermodal, with operating margin at 36.8% (up 90 bps sequentially) and Q1 EPS up 2% sequentially despite a 4% year-over-year decline.
• Operational headwinds included severe January weather and the Francis Scott Key Bridge collapse, which is expected to cost CSX $25–30 million per month until full port access is restored.
• CSX is intensifying safety initiatives, partnering with unions on proactive risk identification, in-depth incident investigations, and enhanced training to reduce its FRA train accident rate further.
• Customer service remained strong, with high trip-plan compliance, a nearly 50% reduction in driver dwell at the Fairburn intermodal terminal, and the highest voice-of-customer scores to date.
• Full-year guidance is unchanged: CSX targets low- to mid-single-digit volume and revenue growth, $2.5 billion in CapEx, and continued balanced capital returns via dividends and opportunistic share repurchases.

Presentation

[Operator]

Good afternoon, everyone. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question, please press Star followed by the number one on your telephone keypad. To withdraw your question, press Star one a second time. I would now like to turn the conference over to Matthew Korn, Head of Investor Relations. You may begin your conference.

[Matthew Korn, Head of Investor Relations at CSX Corporation]

Thank you, Brianna. Hello, everyone, and good afternoon, and welcome to our first quarter earnings call. Joining me this afternoon are Joe Hinrichs, President and Chief Executive Officer, Mike Cory, Executive Vice President and Chief Operating Officer, Kevin Boone, Executive Vice President, Chief Commercial Officer, and Sean Pelkey, Executive Vice President and Chief Financial Officer. In the presentation accompanying this call, you will find slides with our forward-looking disclosure and our non-GAAP disclosures for your review. With that, it is now my pleasure to introduce Mr. Joe Hinrichs.

[Joe Hinrichs, President and CEO at CSX Corporation]

All right. Thank you, Matthew. Hello, everyone. Thank you for joining our first quarter call. CSX had a solid start in 2024 that was in line with our expectations. I've learned that when it comes to railroading, there never really is an easy quarter, and this year has already brought us a number of challenges. Thankfully, we have a great ONE CSX team of over 23,000 people, and as you've seen in our weekly volume performance, our railroad has kept moving forward after the early periods of severe weather in January. The latest incident, of course, has been the tragic Francis Scott Key Bridge collapse. CSX had a deep historical relationship with Baltimore, and we have important operations there, particularly with our export coal business.

[Joe Hinrichs, President and CEO at CSX Corporation]

We're committed to doing our part to help the city recover, and we are happy to see the progress already being made toward reopening the port. Later in the call, Mike Cory and Kevin Boone will tell you more about what we are doing now to mitigate the impact of this event for our customers. All that said, we are very pleased with the momentum that we built over the quarter and are seeing in the business today. We knew we had the opportunity to grow our profitability compared to the fourth quarter, and we did just that. Our goal was to maintain our strong customer service levels while looking for ways to run the network more efficiently, and we have done so. We have more work to do, and we are confident in our railroad and are excited about the rest of the year.

[Joe Hinrichs, President and CEO at CSX Corporation]

Now let's start with slide one, where we highlight some of the key results from our first quarter. Total volume grew by a solid 3%, with strong support from our Intermodal business franchise, which grew at 7% compared to last year. Our operating margin reached 36.8%, which represents a 90 basis point improvement compared to the fourth quarter. Revenue of just under $3.7 billion was about 1% lower than a year ago and flat compared to last quarter. Operating income was 8% lower than last year, but up 3% sequentially, and while our earnings per share declined by 4% versus last year, EPS grew by 2% compared to the previous quarter. Now, altogether, this was a good first quarter that reflected our solid progress.

[Joe Hinrichs, President and CEO at CSX Corporation]

The entire ONE CSX team knows that there is much more that we can achieve, given all the opportunities ahead and the great people we have across the entire railroad. But before we begin, I'd like to take a moment to recognize and remember Jim Foote, who passed away earlier this week. Jim was our President and CEO from late December 2017 until I arrived in September 2022. He guided this company through some very challenging and transformative times in our history, including rebuilding the network after the dramatic changes in 2017 and dealing with the COVID pandemic. I had several impactful and insightful conversations with Jim while I was being recruited to come to CSX, and I thank Jim for his support with our board of directors to bring an outsider in as CEO of CSX.

[Joe Hinrichs, President and CEO at CSX Corporation]

We thank Jim for all his contributions to CSX and the railroad industry overall throughout his 40-plus-year career, and our thoughts and prayers go out to his family and friends. Now, let me turn the call over to Mike Cory, who has brought a tremendous amount of new energy and new ideas to CSX, to discuss our operational performance.

[Mike Cory, EVP and COO at CSX Corporation]

Yeah, thank you, Joe, and thanks for everybody for taking the time to be with us today. So let's look at the first slide on safety. While we saw an improvement in the FRA train accident rate year-over-year, in my view, our overall performance results in this quarter pale in comparison to what this team is capable and will deliver. So as a team, we've begun to really work collectively to elevate and integrate the beliefs and actions that a strong safety culture requires. We recognize that in order to successfully change our safety performance, we need different and better skills. This includes proactive risk identification for our employees and their supervisors. And we thoroughly investigate every incident to determine the root cause and the necessary follow-ups to prevent recurrence.

[Mike Cory, EVP and COO at CSX Corporation]

And we pass that information on to our employees through portals to ensure the information is shared, learned from, and used in improving everything from training to oversight of all our employees. Our employees, in both the union and the management, provide a key opportunity to build a strong safety culture. We're starting to partner with our union leaders to help us change risk tolerances across our property, and this partnership is starting to provide real benefit toward creating a strong safety culture. This takes time and effort on all sides, but I'm very pleased with our progress so far. We're also listening to our employees' suggestions, and we're applying them to our safety plan in order to become more responsive to our customers' needs in a safe and efficient way. Let's look at the next slide.

[Mike Cory, EVP and COO at CSX Corporation]

Looking at this slide, you're going to see our standard velocity and dwell metrics that I'm sure we'll talk about today. Our focus this quarter has been on providing strong customer service while controlling costs. While we've seen a slight decrease in velocity and an increase in dwell, our train sizes have grown in line with the increase in volume we've handled for our customers year-over-year. Crew starts have remained flat, with GTMs up 1.5% and carloads up 3%. A cost focus also includes management of the large capital program we have our engineering crews working on, and we're focused on making sure they have enough time for the work to be done properly. As a result, our crews are accomplishing all of their scheduled work, and they're also gaining efficiency.

[Mike Cory, EVP and COO at CSX Corporation]

In both ties and rails, we've seen reductions in unit costs, good reductions. And as we've enforced stricter compliance with planned track time for crews, we've seen slight decreases in velocity and increases as well. Our intent is to build and execute a more inclusive plan that provides the right work window while minimizing loss of velocity. And I expect to see improvement as we continue to refine and develop this plan for the rest of this year's cycle and beyond. Our focus on cost has also identified some strategic locations that are not as productive as they could be. We see cost-saving opportunities by reconfiguring and strategically utilizing these assets into our operating plan. This will reduce cars running out of route and excess handling, and our customers will benefit as we increase speed and open up capacity on other corridors. And that's the most important part.

[Mike Cory, EVP and COO at CSX Corporation]

Even as we make these changes to our operation, there's no change to our goal of servicing the customer the best way we can. Having an efficient network that can consistently perform to our customer's needs will allow us to gain share, keep the business from truck, and attracting customers to rail. On to the next slide. On this slide, you're gonna see some of our customer service metrics, which still remain strong. Intermodal trip plan compliance remains high. Truck driver turn times and arrival to availability, which is a measure of efficiency at the yard, have also improved as we collaborate with our customers to improve their experience at our terminals. As an example, our Fairburn terminal, southeast of Atlanta, is a critical asset for our domestic intermodal business, but has not performed to our customers' needs as well as our expectations.

[Mike Cory, EVP and COO at CSX Corporation]

Our intermodal leader put together a team, and they developed a better process for use of both the footprint and the assets, in turn, creating fluidity that has reduced driver dwell at Fairburn by nearly 50% in recent weeks compared to earlier in the year and previous to that. This leads to capacity and more opportunity for conversion from truck. Our carload trip compliance declined slightly, but remained over 80% for the quarter and has improved in the first month of Q2. We're very proud of the service that our customers experience with CSX. To show this, we've added another important metric to this slide, and that's customer switch data, which represents our reliability to be able to deliver on our commitments at the first and last mile of service for our customers and most of our short line partners.

[Mike Cory, EVP and COO at CSX Corporation]

As you can see, this remains very high. In closing, we have many opportunities ahead of us, and the team is focused on creating a climate of success for all involved. We're focused on safety, service, and efficiency, won't waver as we continue to provide the best service product we can for our customers. With that, over to you, Kevin.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

All right. Thank you, Mike, and good afternoon, everyone. The team continues to build momentum with our customers, targeting modal share conversion and quickly bringing solutions to the market that target profitable growth. Our ability to react quickly and provide solutions for our customers was highlighted by our efforts in Baltimore, where we rapidly stood up an alternative solution to meet the intermodal needs of the community. Despite a continuing weak truck market, the team has done a great job focusing on developing new opportunities, including truck-to-rail conversion, industrial development, working closer with our rail partners to identify joint opportunities, and accelerating strategic discussions that allow our customers to benefit from our best-in-class service. Communication and collaboration between sales and marketing and operations is a key differentiator for CSX.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Our recent Voice of the Customer survey results for the first quarter shows the highest service scores since we began the survey, which highlights the positive trajectory that we are on. Let's turn to slide seven to look at our merchandise performance. Our merchandise revenues were up 1% compared to last year, with flat volumes and a 1% increase in RPU, as contract renewals and slightly favorable mix more than offset the effect of lower fuel surcharge. Across the business lines, automotive accelerated nicely after a slow start at several manufacturing plants. Chemicals, our largest market, continues to gain momentum in plastics, food, and NGLs. Forest products volumes were flat overall, but saw encouraging signs in pulpboard and building products as the construction season appears to be off to a stronger start.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

We told you that minerals face a tough comparison for aggregates, which were unseasonably strong in the first quarter of 2023. But total demand is very strong against a healthy backlog of large construction projects, with infrastructure spending expected to accelerate. Metals volumes were a bit weaker year over year, with the weather affecting flows in certain scrap markets. Finished steel has also been a bit sluggish, but we see opportunity for sequential improvement in the back half of the year. Fertilizer volumes continued to be unimpacted by frost day production issues here in Florida, but an early application season in certain markets supported demand for longer haul, higher yield shipments of potash and other fertilizers, which lifted our RPU.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Finally, our ag and food business remains relatively soft, constrained by a strong global soybean supplies, which limit demand for U.S. exports, and still high availability of local crops in many of our customer regions. Underlying demand across grains, feed, and food products is solid, and we're optimistic challenging conditions will normalize into the back half of the year. Turning to slide eight. For the first quarter, coal revenue was flat year-over-year, as 2% volume growth was offset by a 2% decline in all-in RPU, largely due to fuel surcharge. Our benchmark-based export yields were slightly lower compared to last year, but we also got some benefit from favorable mix on the domestic side. As expected, shipments reflected the strength in export markets, with export tonnage up 25% year-over-year.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

It really is a testament to the great work by the team, including the incredible work by operations, to meet the increased demand. We also anticipated that the domestic market would be challenged by low natural gas prices and lapping last year's restocking demand. Domestic shipments for the quarter were down 9.17% against a very tough comparison in the first quarter of 2023. With Baltimore and the effects of the collapse of the Key Bridge, I'm going to stress how important our partnership is with the city. As Joe noted before, we have a long history with Baltimore, going back to the very beginning of our railroad, and the One CSX team is working hard to find alternative solutions to help the community and our customers.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

In terms of the revenue impact to CSX, export coal will see a near-term headwind with both our Curtis Bay facility and the dual-serve CONSOL Marine Terminal that are unable to load vessels. Two days following the incident, Joe and I joined senior leadership from CSX to visit key alternative export facilities. We have already begun to divert a portion of our Baltimore volumes to other outlets. Currently, we estimate that the net revenue impact to CSX from the port closure is between $25 million and $30 million per month, including the benefit of diverting some of these tons. It's still very early in the remediation process, but the Army Corps of Engineers has projected that the full channel depth, which we need for coal vessels, to be reopened by the end of May.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

It's also likely that you see a good amount of congestion immediately after reopening, so there's potential for it to take a few weeks to ramp back up to full run rate. In the meantime, we are studying in communication with our customers, business partners, state, local, and federal authorities. We are working closely with Mike and his team to make sure we are optimizing all available resources to serve our customers as successfully as possible. Turning to Intermodal on slide nine, revenue increased 1% on 7% volume growth. Lower fuel surcharge and negative mix pulled our RPU lower by 5%. Growth was very strong for our international business, as healthy consumer demand and more normalized inventories have supported higher import levels.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

We saw volumes increase year-over-year with many of our shipping partners as we gained from new contracts, new lanes, and a comparison with last year's weak market conditions. We are very encouraged by the recovery we are seeing and continued positive demand signals as we look over the rest of the year. Our domestic intermodal business also grew over the quarter at a more moderate pace than what we've seen over the last couple of quarters. What's been constant is our service performance, which continues to help us win new business and drive truck conversion, even as weak truck market conditions persist. We're optimistic that truck capacity will normalize in time and benefit the intermodal market. More importantly, we are confident that we will be prepared when the demand rebounds. Finally, let's turn to slide 10, where we have an update on our industrial development program.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Our project pipeline remains strong, with hundreds of companies eager to partner with us to find attractive ways to expand their production capacity on rail-served sites. Something that's often overlooked is how diverse these development projects really are. The chart on the left shows the market split based on potential carload volume for the approximately 100 facilities that have come online over the last 12 months. These new sites and expansions represent $4.2 billion in total capital investment and have added new capacity in many of our key markets, such as chemicals, minerals, and forest products. But this is only scratching the surface. The chart on the right shows the market split for the full development pipeline, ranging from projects we anticipate starting up later this year to project proposals that will be constructed several years from now. There are two key takeaways from this forward-looking view.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

First, the total estimated potential carload opportunity, measured by expected capacity, implies a meaningful acceleration in activity as we look forward. Scopes can change and timelines can shift, but the setup is very encouraging for meaningful growth and contribution over multiple years. Second, the long-term pipeline is also diverse. We are excited about the multiple electric vehicle manufacturing facilities that are scheduled to come online over the next several years. When combined together with related raw material or battery facilities, they represent approximately 12% of the total long-term volume potential. Minerals, metals, chemicals, and other projects represent the larger contributors. This is a big opportunity for CSX, and our industrial development team has been working nonstop to build the partnerships that make all of this possible. We're excited to tell you that there's much more to come.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

With that, let me turn it off. Let me hand it over to Sean. Thank you.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Thank you, Kevin, and good afternoon. First quarter revenue fell by 1%, while operating income was down 8% for $110 million. These results include a number of discrete items versus the prior year, with approximately $140 million of impacts from last year's insurance recovery, changes in net fuel, as well as declines in other revenue and export coal pricing. Across merchandise, coal, and intermodal, revenue, too, excluding fuel recovery increased 4% in the quarter, benefiting from 3% volume growth and strong pricing across the merchandise portfolio. Expenses were 4% higher, and I will discuss the line items in more detail on the next slide. Underlying results reflect continued momentum generated by the ONE CSX team, both in our service-driven top-line performance and broad-based cost control and efficiency initiatives.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Q1 was our second consecutive quarter of sequential operating income growth, despite a $30 million net fuel headwind relative to Q4. In addition, sequential operating margins grew nearly 100 basis points, demonstrating this team's focus on growth and efficient service performance. This momentum positions us well to deliver year-over-year gains in the back half of 2024.... Interest and other expense was $9 million higher compared to the prior year, while income tax expense fell $25 million on lower pre-tax earnings, net of a slightly higher effective rate. As a result, earnings per share decreased $0.02, including $0.05 of impact from the previously mentioned discrete items. Let's now turn to the next slide and take a closer look at expenses. Total first quarter expense increased by $85 million.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Turning to the individual line items, labor and fringe increased $75 million, mostly impacted by inflation, higher headcount, costs from union employee sick pay, and higher incentive compensation. Even so, cost per employee was down versus the fourth quarter, and we expect cost per employee to again be favorable sequentially in Q2. Total headcount should remain stable despite higher seasonal volumes. Purchased services and other expense increased $23 million, which includes a $46 million impact from a prior year insurance recovery. Efficiency gains evident on this line represent significant cross-functional collaboration to drive sustainable cost improvements across both operating and overhead budgets. We expect this momentum to continue going forward. Depreciation was up $17 million due to a larger asset rate base. Fuel cost was down $39 million, mostly driven by a lower gallon price.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Progress continued in fuel efficiency, which improved year over year and saw smaller than normal seasonal degradation from Q4, despite severe winter weather early in the quarter. Finally, equipment and rents increased by $2 million, while property gains were unfavorable by $7 million. Now, turning to cash flow and distributions on slide 13, free cash flow of $560 million is lower year to date, driven by a decrease in net earnings, increased investment in the business, and deferred tax payments, partially offset by prior year back wage payouts. CSX exits Q1 with a healthy balance sheet and an A-rated credit profile. Our first priority remains investing capital towards safety, reliability, and long-term growth. CSX also distributed nearly $500 million to shareholders, split between share repurchases and dividends, demonstrating our balanced but opportunistic approach to returning excess cash.

[Sean Pelkey, EVP and CFO at CSX Corporation]

We also believe a long-term focus on economic profit aligns our interests with that of our shareholders. While first quarter economic profit declined due to previously mentioned discrete headwinds, we expect it to increase over time as we efficiently convert freight off the highway while maintaining strong asset utilization and attractive returns on our capital spending. Now, with that, let me turn it back to Joe for his closing remarks.

[Joe Hinrichs, President and CEO at CSX Corporation]

All right, thank you, Sean. Now, we will conclude our remarks by walking through our guidance for the full year 2024, which has not changed. Led by our customer service, we continue to expect total volume and total revenue growth in the low- to mid-single-digit range. We expect our merchandise business to gain momentum through the year as effects from new business wins, truck conversions, and the ramp-up of industrial development projects build on favorable trends in many of our end markets. We look for steady growth in the intermodal, supported by stable consumer demand and more normalized retail inventories, which are driving improved port activity. We continue to work closely with our channel partners, finding creative solutions to gain share even as the truck market remains soft.

[Joe Hinrichs, President and CEO at CSX Corporation]

Global benchmark coal prices have fluctuated but remain high compared to history, and though the situation at the Port of Baltimore limits some of the export volume in the near term, we are taking actions to effectively mitigate as much of the impact as we can. Our team at Curtis Bay and across the rest of the coal franchise, we're ready to ramp back up as quickly as possible once the channel returns to full operation. On profitability, we made good progress this quarter and grew our operating margins sequentially. And as you saw in our results and heard from the team on this call, we benefited from volume growth, solid pricing gains, and focused efforts to improve efficiency and productivity.

[Joe Hinrichs, President and CEO at CSX Corporation]

Our goal is to consistently grow our margins over time, and while Baltimore and global core prices are near-term challenges, we feel very good about our ability to deliver strong economic performance in the second half of this year. There is no change to our CapEx forecast of $2.5 billion. As you heard from Sean, our balanced opportunistic approach to capital returns remains in place. To conclude, during a quarter where there were many potential distractions, I am very proud of how the One CSX team stuck to our plan, focused on execution, prioritized our customers, and achieved good results. There is much more to come as we make every effort to run safer, faster, and more reliably for our customers, so we can deliver profitable growth over the long term.

[Joe Hinrichs, President and CEO at CSX Corporation]

Thanks to all of you here in the company, and let's, Matthew, we're ready to take questions.

[Matthew Korn, Head of Investor Relations at CSX Corporation]

Thank you, Joe. We will now move to our question and answer session. In the interest of time and to make sure that everyone on this call has an opportunity to take part, we ask you to please limit yourselves to one and only one question. Brianna, we're ready to start the process.

[Operator]

Thank you, Matthew. Your first question comes from Justin Long with Stephens. Please go ahead.

[Justin Long, Managing Director of Equity Research at Stephens]

Thanks, and to start, our thoughts and prayers are going out to Jim's family. Obviously, he left a great legacy on the industry. But for my question, I wanted to ask about the second quarter. Typically, you see a seasonal improvement sequentially in both margins and earnings. Do you still think that's possible despite the impact from the Baltimore port closure? And then, I guess along those lines, curious if you have any thoughts around coal RPU in the second quarter as well. Thanks. Hey, Justin, happy to take both of those questions. So yeah, in terms of sequential improvement, that's normally what we see from Q1-Q2.

[Sean Pelkey, EVP and CFO at CSX Corporation]

You know, while clearly the Baltimore impact is gonna you know be felt in the second quarter, we still feel that we should be able to grow earnings sequentially from Q1-Q2. And what I would say is, you know, that's both top line as well as being able to do it while containing costs and deliver really strong incremental margins from Q1-Q2. The headwind clearly is export coal, not just the Baltimore impact, but in terms of RPU, I think you know pricing has come down. What we're seeing right now in the marketplace is probably something that's gonna lead to a mid-to-high single-digit decline in coal RPU from Q1 to Q2. But even with that backdrop, still feel pretty good about our ability to continue this momentum.

[Operator]

Your next question comes from Jonathan Chappell with Evercore ISI. Please go ahead.

[Jonathan Chappell, Senior Managing Director of transport at Evercore ISI]

Thank you, and good afternoon. Mike, as you indicated in your slides, you'd probably talk about velocity and dwell a little bit in this call. So, you know, obviously, there's been some disruption, whether it was weather in January or Port of Baltimore in the last part of March, but things have kind of filtered into a little bit into April as well. Can you just give us a state of the union on, you know, why some of those metrics have maybe moved in the opposite direction as when you first started, and kinda how you get them back moving in the right direction as soon as, you know, in the next couple of weeks?

[Mike Cory, EVP and COO at CSX Corporation]

Yeah, sure, John. Thank you very much for the question. But I just wanna make it really loud and clear, these metrics are extremely important. We're not happy with them. They're not significant, and I'll put it in perspective here. So some of the-- you know, we really shocked the system. And one of the first things we did was really start to look at the efficiency of our capital, engineering capital programs. So $1 billion, $1.5 billion dollar envelope, and quite frankly, last year, we didn't get the work done, and we paid more than we should have for the work that we got done.

[Mike Cory, EVP and COO at CSX Corporation]

So this year, we decided that we were going to be very strict about the curfews, and those are any time the track is out, needed for between 6 and 10 hours across our network for these big, giant gangs to get out there and do all their work with rail ties, bridges, you name it. And again, we started this probably around... you can see the dip, probably around early February, late January, because it was after the winter started, but after we went through the winter storms. And it really impacted our southern corridors. We, you know, we stuck to our guns. We held our trains at the terminals to run in line with the curfew. That dwells the cars in the yard, that also congests and bunches up traffic.

[Mike Cory, EVP and COO at CSX Corporation]

We really let that go for a month, but then we've been working ever since that point to start to redefine the program that we're doing, split up the work. One thing we really did before was do all the work in the south during the wintertime because of the winter up north. We've got to find ways, and we will, to spread the work out. But that in itself caused, you know, a fluctuation in train speed from previous years because we did not be that strict. We've come in under our rail and tie budget, so everything unit cost-wise is the right way. But the biggest thing, it provides that safety, that safety hardening of the track that we need to do every year with the volume we move. That's number one.

[Mike Cory, EVP and COO at CSX Corporation]

And if you remember, we went into the last quarter, we'd reduced 5% of our crew starts, and we, you know, we absorbed 1.5 GTMs, 3% cargo, whatever you wanna call it, without any more teaming headcount. What that did was really, you know, it focuses on increasing the, the tonnage on the train. It then starts to convert itself to better utilization of locomotives, I mean, something as simple as going from 3-2. Those things start to slow the trains. That they're still within an acceptable parameter as far as I'm concerned right now, it's not where we want to be, though.

[Mike Cory, EVP and COO at CSX Corporation]

On top of that, we really took a strict view on our use of Trip Optimizer, and that's, you know, that's really there to moderate the speed of the train, but again, get its fuel efficiency, and we increased our use by over 10% this quarter. So we did all this over the backdrop of a, you know, a typical first quarter. If you look last year, the numbers came down as well. I mean, you get, whether you wanna call it winter, they're excuses, but these things on top of that, I'm comfortable with all the actions we're taking, that we will we'll figure out a better way to do the work blocks. But at the same time, this is forcing the folks in our terminals, they don't have as many outlets at times to move their cars.

[Mike Cory, EVP and COO at CSX Corporation]

And so we're working through that. In fact, it got to the point now where in going through this exercise, we started to identify some yards that were closed for the right reason. I, I shouldn't say closed, but they were deconfigured. You know, I'm not talking about opening up humps, but there's some strategic yards that we're going to look at using as we go forward, that I'm, you know, I'm looking at, at quite a few out-of-route car miles, handlings, all the good stuff that produces more speed, but it'll reduce cost, and we don't find that until you start to push the program. We could easily just absorb traffic, put some more trains on. PSR is not running to speed. PSR is providing the proper service at the right cost and being able to incrementally grow your, your, your margins and grow your business.

[Mike Cory, EVP and COO at CSX Corporation]

And so that's really what's going on. I see improvement in the future. I see it every day. I see the engagement of our folks. This has also provided a real opportunity for us to teach our operating supervisors how to balance. As Sean said earlier, this is. There's a lot of cost in everywhere we look on this railway. Obviously, the biggest is labor and fuel, and that's what we're tackling. But this is teaching them how to go about this exercise without, at the end, sacrificing customer service. And one dwell number we don't show is our arrival to placement for our customers. It's improved 10% in many of the major industrial areas.

[Mike Cory, EVP and COO at CSX Corporation]

The reason for that is we have, we have actually increased our local service. We've taken some of the money we saved on the line of road, but we make sure we're trying to build trust with our customers, because now the next opportunity, one of the next opportunities, is to look at their fleets and get them to work with us, to trust us to be there like we are, and hopefully reduce some of the fleet that we have out there and still add more incremental business onto what we have. But I hope that answers it, but there, there's a plan behind this. Thank you.

[Operator]

Your next question comes from Tom Wadewitz with UBS. Please go ahead.

[Tom Wadewitz, Managing Director and Senior Equity Research Analyst at UBS]

Yeah, good afternoon. Wanted to get some thoughts. I think I'm just pricing and, you know, you got a bunch of moving parts. I'm thinking X, the coal item. But, you know, we've seen, I guess, from, you know, J.B. Hunt tonight and some of these surface transport-focused companies that, you know, there's weak demand, and there's even more pressure on pricing. And so I just wanted to, you know, try to get a sense of, you know, if in your merchandise you're getting good price, is there some headwind that affects what you do on price and revenue per car from this ongoing weakness? So just, I guess trying to think about, you know, is price stable? Is it gonna get better?

[Tom Wadewitz, Managing Director and Senior Equity Research Analyst at UBS]

You know, the way we model price, which ends up being revenue per car. Thank you.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Yeah, Tom. Nothing's changed on the pricing side. You know, we're obviously a tough truck backdrop that will improve, and we'll see a lot of benefits from that, I think, as we see the cycle hopefully has bottomed here from what we're seeing. But you know, when you look at the market, you know, what we do on the pricing side is obviously we're able to, like, capture that inflation, and I don't see anything really changing there. It's always a balance, and we manage the portfolio accordingly. And you know, whether there's opportunities, obviously, to gain more volume, we work with our customers, but it's according to what we—you know, how our growth algorithm works. It's volume and price as we look at it, and nothing has changed there.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

As hopefully cost inflation comes down, then, the customers will benefit from that, going forward. But, obviously, not the environment that we had last year, where inflation was very high. That's starting to moderate some. Hopefully, that gets the picture, too, and, with the rates and things like that. But that's where we are today. Still, as planned, I think I was very happy with the results in the first quarter, what the team was able to deliver, and, we're right on track.

[Operator]

Your next question comes from Brian Ossenbeck with J.P. Morgan. Please go ahead.

[Brian Ossenbeck, Managing Director and Senior Equity Research Analyst at JPMorgan]

Hey, afternoon. Thanks for taking the question. So I guess, Sean, I wanted to come back to your comments on headcount. I think you said that it's still relatively flat going into the second quarter. That was the plan. I don't know if that holds for the rest of the year, but it sounded like at least in the near term. So maybe you can elaborate on that a little bit. And also, the comp per employee stepped down sequentially, and you expect it to step down again into Q2. Can you just explain, you know, that trend? And, of course, we should probably be thinking that that moves up in Q3 sequentially as you hit the new labor agreement with the 1.5% adjustment. So some additional thoughts on that and how that progresses and headcount overall would be helpful. Thank you.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Sure, Brian. Yeah, so on the headcount side, I would say, you know, we came into the year; we actually added a little bit from Q4-Q1. Most of that was for the engineering work that Mike talked about and making sure that we could get everything done this year. We're gonna manage that down through attrition. As we get to the second half of the year, you know, we're gonna watch business levels. We're gonna see how we're running, but I think it's fair to assume that we're gonna be relatively stable as we get to the second half, if not down a little bit sequentially. And so you're gonna see a clear return to headcount labor productivity in the second half of the year.

[Sean Pelkey, EVP and CFO at CSX Corporation]

And then in terms of comp per employee, yep, second quarter will be another step down versus Q1. Couple reasons for that. You know, one is, first quarter, we had some winter-related costs, and then, you know, secondly, as some of the capital-related programs get a little more ramped up in the second quarter, that has a benefit to cost per employee sequentially, Q2 versus Q1. And then you're right, as we get to the second half of the year, the current labor agreement stipulates a 4.5% union wage increase. So we'll feel the impact of that as we go from second quarter into the second half.

[Operator]

Your next question comes from Scott Group with Wolfe Research. Please go ahead.

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

Hey, thanks, afternoon. So, Mike, it sounds like you're trying to find a balance right now between some of the service metrics and just OpEx. You know, when you look at cost excluding fuel was down just slightly from Q4-Q1. How should we think about just overall cost ex fuel from Q1 and into Q2? And then just maybe just overall, like, you know, we're a quarter into the year, it sounds like margin's down year-over-year again in Q2, but inflecting positive in Q3, Q4. So full year, do we think we could see some margin improvement, or is that, you know, given the first half, is that too much to ask?

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Thank you, Scott. I'm gonna let the expert over here, Sean, talk about margin, because as you know, I never talk about margin. But you know, your theory is right. Like, we're trying to balance without, first of all, you know, safety and the customer, without damaging that. And we have a long way to go on safety. So these things we're looking at are all focused on really on the cost side. So whether if we can,we can shift some of the capital that we're planning to use by being more productive into other areas that we hadn't planned, and make some of these yards useful or more useful than they are. I see definitely cost benefit. It's things like that. It's not something I. You know, Sean's looking at me. He's gonna start talking to you about a bit about the numbers, but really, that is our focus, to bring that margin up on the cost side. But I'll turn it over to Scott or to Sean.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Yeah, no, thanks, Mike. Yeah, and You know what, what he says is true. We're focused on how do we deliver growth, and how do we do it at strong incremental margins by maintaining the fixed cost profile and not adding a whole lot of variable costs along the way. If not, you know, finding opportunities where we can run things more efficiently. So, to your direct question about cost ex fuel, I think, yeah, it's fair to assume we got a chance to improve that even further, going from Q1-Q2. But that ties in with the comments I just made about comp per employee and keeping headcount relatively flat. So we'll build some momentum. You know, I think the year-over-year comps are a little more difficult in Q2, given the Baltimore impacts.

[Sean Pelkey, EVP and CFO at CSX Corporation]

You know, if that hadn't happened, maybe could have even grown operating income, and margin in the second quarter. But with it, it makes it more challenging. Second half of the year, we feel good about the setup. You know, some of these headwinds that we're facing, the first couple quarters fade, and we're gonna have labor productivity. We'll continue to grow the business. The industrial development projects Kevin talked about, you know, a number of those start to come on, as we get a little bit later into the year, so there's a lot to like about it.

[Sean Pelkey, EVP and CFO at CSX Corporation]

We are not gonna give any specific guidance about full year operating income growth, margin growth, but clearly, sticking with the low to mid-single digit total volume and revenue growth is very helpful, particularly, when we're focused on what we can do to drive continued efficiency gains.

[Joe Hinrichs, President and CEO at CSX Corporation]

This is Joe. Just to add one more comment. So we'll work hard to try and help tell our story a little bit better and differently going forward. But I just want to be clear, our focus on the customer and customer service has not waned at all. And as you heard Kevin mention in his comments, you know, we get surveys from our customers on a regular basis, and we had the best score we've ever had in the first quarter. So we have to find a way to tell the story that isn't just told by velocity and dwell or even trip plan compliance. That's why we introduced the customer switch data and some other things.

[Joe Hinrichs, President and CEO at CSX Corporation]

For example, you know, our tonnage went up per train, and so if we combine a train, two trains into one, maybe we go from—you know, three engines to two engines, being used in that combination, and that, that higher tonnage train might be a little slower and might take a little more dwell time, but the customer's okay with it. It helps our efficiency, and the customer is still happy. And so—but that'll show up as a little more dwell and a little less velocity, but better efficiency. And as long as the customer's happy, we're okay. So we check with the customer first, and then we work backwards, as opposed to some of the stories you've heard in the past, which was about internal focus and then tell the customer about it later. That's a very unique and important difference and distinction.

[Joe Hinrichs, President and CEO at CSX Corporation]

But importantly, as you saw quarter-over-quarter, while some of our numbers may look like they degraded, but our efficiency got better and our customer responses and survey response were the best we ever had. So we're walking that fine line, so we're gonna have to find a way to help you guys see that, at the same time, getting more efficient. And working with our employees as ONE CSX team, to teach them how to do that and work together to do that in a positive way. And that's the balance we're trying to do, and I appreciate, you know, Mike and his entire operations team, working with Kevin and the sales and marketing team to bring that to life.

[Joe Hinrichs, President and CEO at CSX Corporation]

It's a collaborative effort, and it's work because it's teaching, it's also listening, but it's finding creative solutions and not being focused on one metric. At the end of the day, we can deliver sequential improvements, and so as long as we deliver sequential improvements to our customers and in our earnings, we can show you how that leads to growth over time. Thanks.

[Operator]

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

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

Hey, good afternoon, and thanks for taking the question. Kevin, I wonder if we can come back to the industrial development pipeline that you guys have been mentioning. The new graphic in the slides is somewhat helpful, but can you talk about the 100 facilities that have already opened and some examples where that's delivering volume today? And then how you expect that works through the end of 2024 and into the beginning of next year?

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Yeah, I mean, look, we're in the very early stages of this, and when a facility comes online, there's usually, you know, depending on the industry, a 12-24-month ramp, right? So, you know, for this year, for example, you know, we have in the aggregate side, really on the metal side as well, is where we've seen some concentration in that activity. As we look forward, you can see, you know, where the activity is gonna take place. But these projects, some of them longer than others, but once they come online, there's really a glide path of growth that's related to that as they bring that capacity on and enter the market. So we're excited about it.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

I think we'll share a lot more as the year progresses on and give you a lot more detail of how that layers in over time. But we thought we'd give a little more color just around how diverse that pipeline is and how it continues to build. And I think that's exciting to have diversity around. We're not concentrated in one single industry. It's really, we're seeing it across the board in the markets that we serve.

[Operator]

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

[Ken Hoexter, Managing Director and Senior Research Analyst at Bank of America]

Great, thanks. I'll throw in my condolences also to the Foote family. Always had fun discussions with Jim over the last 20 years and appreciated his insights, so thanks for the comments earlier. Mike, just following up on another step here, looking at flat headcount, low- to mid-single-digit volumes and revenues, so when should we expect to see the service stats improve? When do we get the flow-through? Have you seen that already in the data in April. And then, I guess, thinking about Baltimore and the impact of coal volumes now down 12.5% last week. So Baltimore is now impacting the results. How should we think about what percent of volumes can be moved to Newport and, and maybe improve some of the, the metrics? Thanks.

[Joe Hinrichs, President and CEO at CSX Corporation]

Yeah, Ken, that's a good question. Almost—I almost—I thought I explained earlier. I'm not—I can't give you an answer so much on when to expect to see the service improve, because the service is good. Like, you know, I expect to see over the next few quarters here, yeah, the velocity and dwell will continue to improve versus what they are, but the service level is going to be what the customer needs, and right now, that's what we're fulfilling. But so again, we're gonna do a lot of different things here to test our facilities, our people, but you know, we're trying to put stricter process in place, and that's gonna have some effect until we learn to get through it.

[Joe Hinrichs, President and CEO at CSX Corporation]

But I see the metrics improving. I see them now improving. It's just we still have, you know, we still have the odd thing that's taking place, and lots of it's revolved around these engineering gangs, that we are full-hearted, like our full engineering team, plus our operating and transportation team, are meeting as we speak, you know, to continue to find a way to not have such restrictive curfews. But we have to do that. Other than that, the network is fluid. And I'll let Kevin talk about Baltimore, and what we're doing to shift things to Newport.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Yeah, I think, just looking at last week, not that we live, week to week, this is, it's gonna be a little bit choppy with some of the, terminals we're working with in terms of taking on some additional capacity. I don't think last week is necessarily the trend that we're seeing. We're seeing some good performance and them stepping up, here, this week on, on that. But when we look at the impact, I, I explained $25 million-$30 million net impact, from, from the Baltimore incident. That will continue at least through May, and then we'll probably have a, hopefully, a glide path, into June of improving that.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

But we're looking at, you know, offsetting a third of that business, maybe a little bit more, if we can get all the terminals to work with us.

[Operator]

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

[Jordan Alliger, Senior Equity Research Analyst at Goldman Sachs]

Yeah, hi. Thanks. Just curious, can you talk a little bit, maybe specifically, what the international intermodal growth was in the quarter and versus domestic? And based on your comments, it seems like international is outstripping domestic, maybe by a wide margin, I'm not sure. Why is that the case, and what gets domestic intermodal growth rate back up? Your trip plan compliance looks really good, so I'm just sort of curious those dynamics. Thanks.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Well, you know, I think, obviously, the comps on the international side were fairly easy in the first quarter. That's where we saw, you know, some pretty dramatic declines last year, as, you know, you saw destocking happening almost across the board in a lot of companies out there. So, you know, we benefited from that. The team has done an amazing job of identifying, you know, new service, some other areas, to identify some profitable growth that we went after, good contract relationships. You know, we're, we're aligned with the right partners, and, you know, we benefited from that. So you've seen double-digit growth on our international side, while, you know, our domestic was slightly up, this past quarter. And, you know, the domestic market's a lot more truck competitive, as we all know.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

You know, if you've been listening, you know, the last couple of days, it hasn't been. The trucking companies have obviously struggled, and I think we're pretty proud of, you know, the results we were able to put up in that context. So, we think there's better days ahead, but certainly a challenging market, and the results were good in that context, for sure.

[Operator]

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

[Bascome Majors, Senior Industrials and Equity Research Analyst at Susquehanna]

Thanks for taking my question. Can you talk a bit about how some of the emerging uncertainty at your eastern competitor has helped you perhaps capture some volume short term, and maybe longer term, has that uncertainty yet another rail impacted the desire or intention of some of your customers to really start to use rail more as an outlet in their supply chains that you've been working for years now with industrial development and other efforts? Thank you.

[Joe Hinrichs, President and CEO at CSX Corporation]

Thanks, Bascome. This is Joe. As you know, certainly in the timeframe that I've been here with this, with this One CSX team, we've been really focused on, you know, our mission, which is really to focus on improving the employee culture and the employee experience through One CSX, and to give better service to our customers, which we believe will lead to profitable growth for, for ourselves and importantly, growth with our customers. That hasn't changed and hasn't waned. I think, in fact, what you've seen over the last couple of months is customers coming out and, and wanting that commitment to service and that commitment to, for our, for our whole industry to be focused on what can we do to grow.

[Joe Hinrichs, President and CEO at CSX Corporation]

So we're not, you know, we're not distracted by what's going on, and certainly not, you know, not getting distracted by it. We're focused on what we can do, and you saw in the quarter, sequential improvement across the board, and we talked about our confidence and to be able to continue to deliver that. And that's what I'm really proud of our team, is not getting distracted and staying focused on our customers, on our employees. We need to improve safety, as Mike talked about, and looking for opportunities to grow. And what we're hearing from customers is they're very happy with the service CSX is providing, and they're very pleased with the continuity and the consistency of our messaging, but also our results and our actions.

[Joe Hinrichs, President and CEO at CSX Corporation]

That's what we want to stay focused on. At the higher level, as you hinted at, as an industry, we have to continue to get better service to our customers. I've talked about it extensively at many different conferences and events, and we're all working together to do that. I'm seeing more collaboration across the industry to make that happen, and I'm encouraged by that, and we wanna be a part of that. And so to ultimately realize the potential of this entire industry, we all need to get better at the fluidity of our network, how we work together, and the service we provide our customers, and that's gonna take us working better with all the stakeholders in this industry to help make that happen.

[Joe Hinrichs, President and CEO at CSX Corporation]

So, we can grow as an industry if and when we all get better at customer service and working together. So that's the focus we have at CSX. You're not gonna see us change our— You know, there's no 2.0 or 3.0, or 4.0 plan. It's the same ONE CSX, focusing on our employees and our customers, and you're gonna see us continue to execute. Thanks.

[Operator]

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

[Jason Seidl, Managing Director of Industrials at TD Cowen]

Thank you, operator. Sort of along those lines, you know, we've seen a huge shift on the intermodal side, back to the over-the-road, operators, and mainly due to price, and then I guess last year, some operational issues with the Class One rails and some declining diesel prices. You know, I guess two things: what percent do you think the gap has to close, between where trucking and pricing is now for domestic intermodal to start getting business back? And have you been able to quantify just how much freight shifted to the over-the-road market? Thanks.

[Joe Hinrichs, President and CEO at CSX Corporation]

Yeah. Thanks, Jason. Look, there's still a value proposition out there. Is it a little bit tighter than maybe a year ago when truck prices were a lot healthier? Absolutely. And I think the discussion is more about when you look at it, you know, what can add value in the near term? And when you have to do nothing, and you get price declines in your trucking business, then you're not as compelled to look at the intermodal option as you would be in a more normalized market. And so I think that all probably balances out as we get through the year. It feels like, you know, we're at the bottom, bouncing along here, and as things solidify, I think those conversations accelerate.

[Joe Hinrichs, President and CEO at CSX Corporation]

We've, you know, we put up, we've put up domestic growth, and we're pretty proud of that. The product that we're offering, the service that we're offering is compelling in the market, even at these, these lows, and I can only, only imagine how compelling it's gonna be as the market recovers. So we're pretty excited about it. We're talking about it actively as a, as a group of when the, when the growth comes back, that we're gonna be pre-prepared more than anybody else to, to handle it. So that's, that's exciting for us. When that recovery happens, and we're not certain, I think it's fair to say the trucking market is probably a little bit worse than what, you know, people anticipated coming into the year, but we were pretty resilient in a very, very challenging market.

[Operator]

Your next question comes from Ben Nolan with Stifel. Please go ahead.

[Ben Nolan, Managing Director of Research at Stifel]

Yeah, thanks. I was going to ask a little bit about the Baltimore impact. I appreciate the $25million-$30 million a month. Just curious if that is predominantly coal or if there are any other impacts on maybe some of the other business lines. And then also, in addition to the revenue impact, are there any cost impacts from rerouting to other ports or anything below the revenue line that we should think about?

[Joe Hinrichs, President and CEO at CSX Corporation]

I'll cover the revenue one. That, that one's easy. It's coal that we're seeing there. Maybe some slight opportunities, but they're not large enough to, you know, be impactful to that number. And then on the cost side, Mike.

[Mike Cory, EVP and COO at CSX Corporation]

Yeah, and, and I think Kevin alluded to it. We had a little bit of a rough startup, going over to Newport, and that's now smoothed itself out, but really, really not a lot more cost than, the most of the traffic moves through other than the point of coal. So not, not significant in that sense, no.

[Joe Hinrichs, President and CEO at CSX Corporation]

I just wanna tell you guys a little story because I get often asked all the time, "What are the benefits of ONE CSX and the culture we're trying to achieve here?" Within two days of the incident in Baltimore, we put out a request for transfers from our engineers and conductors who were in other locations to be able to relocate temporarily for a couple of months to help with the change in the train setup and schedule we needed to support the movement of coal elsewhere. And, you know, we needed maybe 12 people to go, and we had 7-8 times that people immediately sign up to help.

[Joe Hinrichs, President and CEO at CSX Corporation]

And that's a testament to what we're seeing here, is that our people are willing to be a part of the solution and to serve our customers and know how important that is, and, that's just a great example. So there's a little bit of cost of that, you know, relocation and a temporary transfer. But, I can tell you, a little over a year ago, we were trying to get temporary transfers, and we struggled. And this time, we—I mean, we had so many people sign up, it was great to see. And those are the signs you wanna see of a healthy culture and people are really service-oriented, but also understand the bigger picture of what we're trying to do here in serving our customers. And so we have not been the constraint or the bottleneck at all.

[Joe Hinrichs, President and CEO at CSX Corporation]

In fact, we've been able to really... Kevin and I were with one of our largest coal customers the other day, and, and he was just so proud of the work we've done and our team has done to, to respond so quickly and be able to react, and that's a testament to our people. That's just another example of why it's so important to stay consistently focused on our culture and our people, and help them understand that we're here to serve customers, and that's why we exist, to do it safely, obviously, and efficiently. But, that message is, is resonating and our people are responding.

[Mike Cory, EVP and COO at CSX Corporation]

Yeah, and just one more point, Ben, that I, I should mention. This is, you know, with this issue, we've been able to get a betterment in terms of our maintenance at Curtis Bay. We've been able to go in there and do work that we would have had to do it under load with a lot of volume moving through, so we've fully taken advantage of some pretty major, you know, restoration that we were able to accomplish there, that we're still working on. So that's been a good thing.

[Operator]

Your next question comes from Amit Mehrotra with Deutsche Bank. Please go ahead.

[Amit Mehrotra, Transportation Analyst at Deutsche Bank]

Great. Thanks for taking the question. Sean, I just wanted to clarify one quick thing. I think in response to the first question regarding 1Q-2Q, you said profits up. I don't know if you said margins up. You may have said it, but I didn't catch it. Just want to clarify that point. And then, Kevin, I just wanted to talk about interchange. So I think before, unless I'm mistaken, maybe you interchange half your volumes. Is that mostly evenly split between the two West Coast rails or I'm just trying to understand how much you actually interchange with UP and, you know, what proportion of kind of that interchange, total interchange is actually represented by the UP? Thank you.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Amit, it's Sean. I'll take the first part. Yeah, profit up Q2 versus Q1, and, and margins up. I think that's a fair expectation, on both sides.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Look, I think we've said, you know, roughly half of our business touches another railroad, and certainly, when you look at the Western railroads, particularly UP, they're a very large part of that. So they're a very important partner to us. But, all of our partners are very important. So, you know, it's encouraging. We're hearing a lot of signs to go after more business, and we're working collaboratively to do that. So, a lot of opportunities out there that we see.

[Operator]

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

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

Yeah, thanks very much. Good afternoon, everyone. So when I'm comparing your outlook, and I know your outlook is unchanged from prior, but when I look at your, what some of your commentary regarding the moving parts that have occurred in the first quarter, and looking into the rest of the year, you did have a little bit of a tougher January. Mike pointed to some operating measures that aren't where he wants them to be. You've got a worse coal market. There was the Baltimore outage. Trucking is worse, but you maintain your guidance.

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

So I'm just curious as to what if those are the puts, what are the puts, what are the takes in terms of what's the offsets here to maintain your guidance, despite kind of those headwinds that emerged a little bit here so far in 2024?

[Sean Pelkey, EVP and CFO at CSX Corporation]

Yeah, Walter, I'll do my best on that one. So yeah, I mean, certainly a little bit of winter in January, a couple of things on, you know, there. And then, of course, the Baltimore outage was, was unexpected and, you know, that's, that's a hit to the forecast. But, you know, still feel very confident about what, what the second half looks like, in particular, from a volume and revenue perspective and, and what it looks like on the cost side. You know, we did an exercise here where we looked at every dollar of every budget, and, you know, there's a lot of small wins that we're getting here, just, just, you know, $1 million, $2 million dollars here and there across, every line item, both within operations and across the business.

[Sean Pelkey, EVP and CFO at CSX Corporation]

So, you know, I think it's, it's everybody focused on how do we deliver the kind of economic financial performance that, that sort of backs up all the momentum that we've got with ONE CSX, the goodwill that we've got with the customer. And, you know, to the extent there's revenue headwinds, how do we, how do we close the gap on some of those? But still, still a lot of confidence, I think, from the CSX team.

[Operator]

Your next question comes from Stephanie Moore with Jefferies. Please go ahead.

[Stephanie Moore, Senior Analyst at Jefferies]

Hi, good afternoon. Thank you. I wanted to maybe switch gears a little bit and talk about, maybe capital allocation and maybe your, your focus on, on share repurchases. I've seen it kind of come down a bit over, you know, the last couple of quarters. So just wanted to gauge your, your appetite in terms of incremental share repurchases as, as the year progresses. Thanks.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Thanks, Stephanie. Yeah, it's Sean. We're still, you know, committed to the share repurchase as well as the dividend. You know, it's certainly a step down in the first quarter of the year, but we, you know, the stock ran up pretty quickly, and so we try to be opportunistic and gauge the amount of buybacks that we do based on, you know, the momentum in the stock. So with the pullback that we've had recently, we're buying a little bit more. Still committed to do a significant amount of share repurchases this year.

[Sean Pelkey, EVP and CFO at CSX Corporation]

It'll be a little bit less than it was last year, just simply because we came into the year with a little bit less cash on the balance sheet, and last year we raised a little bit of incremental debt to help, you know, help juice the system, and that led to some additional buybacks. But we're still very committed to that, and you'll see it go up and down quarter to quarter, just based on, you know, the opportunity that we have in the market.

[Operator]

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

[Ravi Shanker, Equity Research Analyst at Morgan Stanley]

Thanks. Good afternoon, everyone. So two part here on the ports. One, just on Baltimore, a follow-up. I think you've said you redirected about 33% of the traffic so far. Does that mean there's going to be, like, pent-up demand when the channels have normalized in 3Q or late 2Q and beyond? Just wanted to confirm that. And also on the East Coast to West Coast, kind of share shift, kind of what innings are we gonna on the normalization there? And are you hearing from your customers ahead of labor talks on the East Coast ports and maybe any preparations there? Thank you.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Yeah, look, in terms of pent-up demand, there's, there's outages in the summer that happened, for the coal miners, and we'll see, you know, how they handle that with some of the obviously slowdown that we've seen. Is there opportunity to make up some of this volume in the third and fourth quarter? There is, that's not in the, in the plan right now, but we'll see how that, that plays out. If the, you know, the prices remain strong, I'm sure there's gonna be a lot of incentive to, you know, meet those contractual obligations and those things. On the East Coast, West Coast, look, if you've been to Savannah lately, there's huge, huge investments, going on. Investments, obviously, when you're spending billions of dollars, you gotta have visibility to demand out there.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

There's tremendous demand that they see coming in. We're not hearing any anticipation of significant freight moving from the east to west. Obviously, if that happened and they wanted to move to the east, there could be a net benefit to us. So I think, you know, from our perspective, it's probably a neutral outcome if that happened. And in some cases, you could see some business that normally would come into the ports and move truck that would come over the west and move over our railroad, which would be an incremental opportunity for us. So I don't see a high probability to risk there. Maybe some more opportunities if that happens, but we'll continue to watch it.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

But over the long term, we see a lot of capacity growth in the East, and it's just not there in the West.

[Operator]

Your next question comes from David Vernon with Bernstein Research. Please go ahead.

[Analyst]

Thank you for taking the question. This is JD Miller for David Vernon. I guess, Kevin, going back to the question, on the 10x opportunity, can you give us some more color on what is driving this massive tenfold increase? Is it just traffic coming on from the highway to rail, or is it more of an increase on the efforts from your team? Just a little bit more color on that would be helpful. Thank you.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

I think, you know, in general, you know, there's a lot of geopolitical risk out there. There's a lot of movement in terms of how companies post the pandemic are thinking about their supply chains. And we talked about this before, but their supply chains are being viewed as competitive advantages and being closer to your end consumer, which we have the most valuable end consumers in our network in the world, is becoming a priority. And we're seeing those investments take place to really to happen. So it's broad-based, as I mentioned, a lot of activity, but I think that's the major draw. You know, I think they saw through the pandemic, a lot of disruption with how much it costs to get things delivered to the end consumer.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

So now it provides an opportunity, where we can maybe get the inbound and the outbound, which is pretty exciting for us. So it'll happen over time. There's already a lot of capital in the ground, a lot of the capital that's already been spent, so we'll participate in that. But it's a real shift from what we've seen probably over the last three or four decades in terms of activity. Rather than the industrial base decaying within our network, we see some growth in that industrial base, which should benefit us over time.

[Operator]

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

[Jeff Kauffman, Research Analyst at Vertical Research]

Thank you very much, and our thoughts are with the Foote family as well. Just terrific guy. I want to go back to Bascome's question on any nervousness with customers using other rails, given all the media and the hype. Maybe not so much in terms of customer wins, but at this point, what types of questions or what types of concerns are being raised to you, and is there an anxiety among the customer base?

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Look, I mean, I've seen more activity with our customers willing us to share us their truck files, to really open up the book in terms of what their supply chain looks like, given some of the service performance we've been able to achieve over the last few quarters. So that's exciting for us. We're really looking internally about, you know, what we can deliver. I think, you know, customers want certainty, and they want visibility, and I think we're providing that. They understand the path we're on, they're supportive of that path, and they're seeing the service along with it.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

So, I had many customers, you know, last year say, "Hey, we wanna see the service, and then we'll, we can talk about, you know, more opportunities for you." And now we're in the midst of a lot of those discussions, and it's the team is working really hard. The backdrop, you know, the wind's not at our back. Clearly, we have a lot of markets that are at cyclical lows. Those will come back, but the opportunity right now is to win wallet share. And as you win wallet share and the markets turn, that would translate into a lot of growth for us. So, incredibly excited. We're internally focused on what we can accomplish, those discussions, what we can deliver, and, you know, I think we're having a lot of those conversations.

[Joe Hinrichs, President and CEO at CSX Corporation]

Yeah, and Joe, Kevin and I have spent. Sorry, Kevin and I have spent. I don't know how many customers we've met with in the last couple of months, but we've had an FSA and a number of other events. I think we've touched almost every major customer we have.

[Kevin Boone, EVP and Chief Commercial Officer at CSX Corporation]

Mm-hmm

[Joe Hinrichs, President and CEO at CSX Corporation]

You know, directly, personally, and we've seen a lot of, gotten a lot of feedback on the consistency, reliability, and the continuity of our messaging and also our actions. And that's what customers want. Having been one for decades myself, just want to have reliability, and they want constancy of purpose. They want to know what you stand for and that you're going to deliver it. And that's what we're starting to show. And as Kevin said, our customers are starting to trust us again, which is the foundation for us to be able to grow with them, is for them to trust us.

[Joe Hinrichs, President and CEO at CSX Corporation]

And that's the trust that we want to keep delivering and building and gaining because of the constancy of what we're standing for, which is, of course, we're going to engage our employees as ONE CSX, to serve our customers better and do that with better safety. The trust is going to come from the actions that we teach and what we do. And so we're going to stay on that course, and it's delivering for us, and you saw it in the first quarter, and you'll see it again next quarter.

[Operator]

This will conclude our question and answer session. That does conclude today's conference. Thank you all for your participation. You may now disconnect.

Participants

Executives

• Joe Hinrichs, President and CEO
• Kevin Boone, EVP and Chief Commercial Officer
• Matthew Korn, Head of Investor Relations
• Mike Cory, EVP and COO
• Sean Pelkey, EVP and CFO

Analysts

• Amit Mehrotra, Transportation Analyst at Deutsche Bank
• Bascome Majors, Senior Industrials and Equity Research Analyst at Susquehanna
• Ben Nolan, Managing Director of Research at Stifel
• Brandon Oglenski, Director and Senior Equity Analyst at Barclays
• Brian Ossenbeck, Managing Director and Senior Equity Research Analyst at JPMorgan
• Jason Seidl, Managing Director of Industrials at TD Cowen
• Jeff Kauffman, Research Analyst at Vertical Research
• Jonathan Chappell, Senior Managing Director of transport at Evercore ISI
• Jordan Alliger, Senior Equity Research Analyst at Goldman Sachs
• Justin Long, Managing Director of Equity Research at Stephens
• Ken Hoexter, Managing Director and Senior Research Analyst at Bank of America
• Ravi Shanker, Equity Research Analyst at Morgan Stanley
• Scott Group, Managing Director and Senior Analyst at Wolfe Research
• Stephanie Moore, Senior Analyst at Jefferies
• Tom Wadewitz, Managing Director and Senior Equity Research Analyst at UBS
• Walter Spracklin, Co-Head of Global Industrials Research at RBC Capital Markets
• Analyst