Q4 2019 Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to the CSX Corporation fourth quarter 2018 call. As a reminder, today's call is being recorded during this call all participants will be an a listen only mode. Following the presentation. We will be conducting a question answer session to ask a question press star one for opening remarks.
Introduction I would like to turn the call over to Mr. Bills leader Chief Investor Relations Officer for CSX Corporation, you may begin.
Thank you and good afternoon, everyone. Joining me on todays call or Jim Flynn, President and Chief Executive Officer, Mark Wallace Executive Vice President of sales and marketing, Kevin doing Chief Financial Officer, and Jamie Boy <unk> Executive Vice President of operations on Slide two is our forward looking disclosure followed by our non-GAAP disclosure on slide three.
With that it is my pleasure to introduce President and Chief Executive Officer, Jim.
Thank you Bill and good afternoon.
I want to begin thinking all of our CSX employees for another great job. This quarter. They continued to show that they're the best operators in the industry.
Both the fourth quarter and full year. They once again, both their own records and set new all time low operating ratios.
Our service is the best it has ever been and getting better the key here is reliability.
Operating a simpler more efficient network, we are able to offer rail users a service that is like in consistency.
With lower cost and more environmentally responsible.
Shippers are selecting us further shipping needs and we have tremendous opportunity for growth.
Let's now turn to slide five in the presentation.
To answer results are straightforward with only a few unique items, which Kevin will point out a few minutes.
Fourth quarter EPS declined 2% to 99 shows.
The operating ratio improved by 30 basis points to a new record of 60.
That's continued operating momentum offset topline headwinds.
For the full year EPS increased 9% to $4 in 17 cents and the operating ratio improved by 190 basis points to 58.4.
These are truly great results, considering the industrial economies second half performance.
Turning to slide six fourth quarter revenue declined 8% year over year due to the continued impact of the softer industrial economy.
Intermodal Lane rationalizations in coal headwinds.
Merchandise revenue and volume declined 3% as growth in AG, and food and minerals markets was more than offset by declines in chemicals auto and other markets.
The Philadelphia refinery explosion, and GM strike accounted for more than two thirds of the volume declines in the quarter.
Intermodal revenue declined 9%, 97% lower volume, primarily due to the impact of lane rationalization rationalizations implemented around the 2018 peak season.
We've now lapped the impact of these changes.
Coal revenue decreased 22% on 17% lower volumes with declines in both export and domestic markets do the impact of lower export demand and benchmark prices as well as low natural gas prices.
Lastly, other revenue declines resulted from lower storage revenue at intermodal facilities, and and lower demurrage charges.
Moving to slide seven let's review our safety performance.
The full year personal injury rate declined 15% and we reduced the full year train accident rate by 41%.
Including setting another company record in the fourth quarter for the lowest accident rate.
This progress is the result of concerted daily effort on the part of the employees performing the work.
At the same time, we still see areas, where additional improvement is needed.
In 2020, we will maintain our rigorous safety program focused on continuing Ed continuing education of our workforce.
Further strengthening rules compliance and empowering employees to have the courage to ACA, they see something funds safe.
As I've said before we will never be satisfied with our performance. If just one of our employees gets injured while at work.
Moving to slide eight let's review, our operating performance for the quarter.
CSX set new all time company records for both velocity and dwell achieving significant year over year improvements as well as strong sequential momentum.
The combination of these improved metrics helped significantly increase car miles per day.
As we continue to translate incremental operating efficiencies into higher asset utilization across the network.
We also continue to set fuel efficiency records operating below one gallon of dual per thousand GTM. Despite typical seasonal headwinds in this quarter.
CSX is the only was class one railroad to have cost this threshold.
You'll efficiency remains a key focus for the team given the combination of financial as well as significant environmental benefits from reducing fuel consumption.
We believe opportunities remain to get even better going forward.
Reducing emissions is important to us our customers and the communities we serve and we're proud to have been recognized by various institutions as leaders in sustainability for the transportation space.
On slide nine most importantly, we are translating these operational improvements into more reliable service for our customers.
Plant performance set new records again, this quarter with 83% of our merchandise cars and 95% of intermodal containers hearing there hourly plan targets.
Additionally, we successfully completed the rollout of individualized planned performance data to our merchandise and intermodal customers.
Feedback on the tool has been very positive and we believe providing this unique level of transparency to our customers will continue to differentiate CSX is best in class service.
I'll now turn it over to Kevin who will review the financial results.
Thank you Jim and good afternoon, everyone.
Turning to slide 11.
Through the highlights of the summary income statement.
As Jim mentioned total revenue was down 8% in the fourth quarter.
In fact, a lower intermodal and coal volume as well as reduce fuel recovery.
Lower other revenue and unfavorable mix more than offset the benefit of pricing gains and merchandise and intermodal.
Moving to expenses.
Total operating expenses were 9% lower in the fourth quarter a significant achievement.
Flexsteel, such as ability to react to changing markets, while delivering record service levels.
Overall these results reflect the company sustained operating improvements.
A significant gains in labor and asset efficiency.
Labor and fringe expense was 3% lower with average headcount down 7% or nearly 1600.
Agency gains were strong in the quarter.
Partially offset by inflation other costs and incentive compensation, including acceleration of stock compensation related to certain retirement eligible employees.
Our ongoing refinement of the operating plan continue to drive savings from your crew starts.
Enabling a 9% year over year reduction in the active train and engine employee base.
And driving a 7% improvement and crew utilization.
As measured by gross ton miles per active train and engine employee.
Workforce.
This unsi and management execution, we reduced overtime across the operating department by nearly 15% sequentially or approximately 30% versus the fourth quarter 2018.
Additionally, the average active locomotive count was down 10% year over year in the quarter.
The smaller fleet combined with fewer cars online and freight car repair efficiencies.
Drive a 9% reduction in the mechanical workforce.
While also reducing mechanical overtime expense by over 40%.
Finally, we cycled a unique benefit in the prior year related to the railroad retirement tax refund.
Yes, and no expense improved 20% versus the prior year.
Continued improvements to the train plan combined with increased network fluidity have enabled and 8% reduction and crew travel and repositioning expenses.
On the mechanical side.
Lower locomotive counts also drove savings and Emmis Anil.
Putting a 26% reduction and locomotive materials and contracted service expense versus the fourth quarter 2018.
Real estate in line sales were 10 million lower in the quarter, we continue to see a pipeline of real estate opportunities and for planning purposes. We currently expect gains in 2020 to be approximately $60 million.
While the impact of these transactions will remain on even from quarter to quarter.
As you remember in March of 2018 at our Investor Conference, we guided for 300 million and real estate sales proceeds over three years.
We will significantly exceeded guidance with our expected 2020 results.
You will expense was 37 million favorable.
See percentyear over year in the quarter.
These savings were driven by 7% decrease in the per gallon price or further aided by lower volume and significant efficiency improvements.
Our enhanced focus on utilization of distributed power and energy management software combined with training grain handling rules compliance drove a fourth quarter record fuel efficiency.
Full year 2019 fuel efficiency was also an all time best for CSX.
Looking at the other expense items.
Depreciation was relatively flat year over year.
While we did recognize 10 million in additional expense this quarter due to a 2019 depreciation study.
This was more than offset by other items, none of which were individually significant.
We expect depreciation expense to increase approximately 50 to 60 million in 2020.
Reflecting the continued impact of the recent study.
As well as a higher net asset base.
Equipment rents expense increased 9%.
As the impact of inflation and other items more than offset the benefit of lower volume related cost and efficiency gains.
Equity earnings increased 7 million in the quarter due to higher net earnings at our affiliates.
Looking below the line.
Interest expense increased primarily due to higher debt balances, partially offset by a lower all in coupon.
Other income decreased 4 million as a company recognize a 10 million make whole premium on the early redemption of 500 million of long term notes in October .
This was partially offset by increased income from higher investment balances.
Income tax expense decreased 45 million due to lower pretax earnings.
Further aided by a certain state tax matters in federal legislative benefits.
Absent unique items, we would expect an effective tax rate of approximately 24.5% for future quarters.
Closing out the personnel as Jim highlighted in his opening remarks.
Operating income declined 8% year over year in the fourth quarter.
Collecting the challenging volume environment.
Despite the tough backdrop the company delivered another record operating ratio of 60%.
I think 30 basis point improvement over the fourth quarter 2018.
Finally, turning to slide 12.
Turning to the cash side of equation on slide 12.
2019 capital investment declined 88 million or 5% year over year.
Overall capital investment declined investments in our core track bridge and signal infrastructure saw an increase of 13%.
As we continue to prioritize investments that provide safe and reliable train operations.
Overall, our reduce asset intensity, especially in rolling stock.
Has enabled us to sustain lower levels of capital investment without compromising safety or reliability.
The level of PTC spending has also come down significantly in the last two years.
Free cash flow has continued to be a key focus for this team.
Generating operating productivity, while driving improved capital efficiency as produce differentiated free cash flow conversion.
Growth in CSX is core operating cash flow generation.
Alluding improvements in working capital.
Drove a 9% increase in adjusted free cash flow to 3.5 billion.
Well the 19.
We returned over 4.1 billion to shareholders in 2019, including nearly 3.4 billion in buybacks.
Over 750 million in dividends.
Additionally, we are exiting 2019 with nearly 2 billion of cash and short term investments, which combined with another year of substantial free cash flow generation.
Significant opportunities to reinvest in the business and continue to return cash to shareholders.
With that let me turn it back to Jim for his closing remarks.
Great. Thank you, Kevin lets turn to slide 14 intra outlook for 2020 .
We expect underlying economic demand to remain relatively consistent with current levels.
It took industrial activity, a while to cool off and it will take a while to heat backup.
Based on this we expect full year revenue to be flat to down 2% versus 2019.
As for kids includes more than 300 million of topline headwinds from the gold business, driven primarily by lower export coal volumes and pricing.
For the first shifted year the merchandise business will continue to lap the higher economic level, the higher level of economic activity from the first half of 29 team.
But we expect merchandise volume growth to turn positive in the second half of the year.
We expect intermodal volumes to increase in 2020, as we have now fully lapped the lane rationalization impact and look to grow the re engineered network.
As to the operating ratio our goal is to operate as efficiently as possible, while ensuring we maintain a reliable service products.
Our focus is on growing the business and in that context, we are targeting cost efficiencies that will not inhibit service.
There are additional cost levers out there for us to Paul, but we must make sure we are well positioned to capture new business and respond to demand within industrial production moves up.
Looking at the 2019 operating ratio results, we again outperformed our real estate target of approximately a $100 million year.
Adjusting for this outperformance implies a baseline operating ratio.
The 9%.
Despite roughly 300 million of operating income headwinds in 2020 related to export coal and non core items, such as lower realistic gains higher depreciation and lower all the revenue, we still expect to realize enough incremental savings across the business to maintain.
Or hopefully even improve our margins.
For capital allocation or first colon cancer is maintaining the integrity and reliability of a railroad.
As Kevin noted in 2019, we again significantly increased investments in rail infrastructure.
Sending more on rail ties balancing signals and we expect to maintain this level of investment going forward.
In total we project capital expenditures for the year of 1.6 to 1.7 billion inline with our 2019 targets.
In the absence of any high return growth projects, we expect the Knicks principal use of cash flow will be there continue to return of capital to shareholders to both dividends and additional share buybacks.
Importantly, we are committed to doing so in a way that maintains our strong investment grade credit rating.
Over the last two years, we've accomplished many exciting things FCX CSX and fundamentally transform the way the company does business.
However, none of us or resting on that success.
We have only scratched the surface of this company's potential.
I believe the best is yet to come for CSX as we continue our journey to becoming the best one railroad in North America.
Well.
Thank you, Jim and interest to time I would like to ask everyone to please limit themselves to one question and one follow up only if necessary with that we will now take questions.
Thank you we would now be conducting the question and answer session. Our first question comes from Brandon Oglenski from Barclays Capital. Your line is open.
Hey, good afternoon, everyone and congrats on a pretty good year relative to pretty difficult conditions.
Jim or I don't know if mark losses on the line, but do you guys might digging a little bit deeper into your macro assumptions behind the.
Flat to down 2% revenue assumption I think you did call out some headwinds in coal as well you might just repeating that again.
Sure Brian This is mark.
Yeah.
So going into 2020, we expect to.
A continuation of the current macroeconomic trends to continue.
As we know the consumer economy remains strong, but PMO ideas and other macro indicators suggest.
We're not going to see a near term increase in industrial activity.
He is projected to be relatively flat for the year and the PMO I read in December was 47.2, which was the second worsens onein and the fifth consecutive month signaling a contraction so.
Given this we're not forecasting a hockey stick recovery, but any improvement in the macro environment would be upside for us.
Despite these challenges we're going to continue to get better to what we can control providing high quality service to our customers and executing.
We have not changed.
Look or long term revenue growth intermodal as we've said many times. We I think we think we can grow Twoish times, GDP and merchandise GDP plus.
So we're going to stay close to our customers.
Watch things and see if.
Sentiment improves throughout the year, but clearly as I said, we're not forecasting any type of a big recovery in the in the in the year.
Okay, I guess, it's a related follow up Mark can you just tell us how the marketing strategy and so strategy has changed CSX, especially related to intermodal and merchandise.
Yes, sure I mean, we should go ahead 2019, we spent a long time revamping the entire sales and marketing organization.
We've changed a lot of people brought in some great talent.
We've actually.
Developed a strong marketing team no longer a fracing team as we've discussed in the past.
The marketing team is doing a fantastic job.
Working hard doing actual marketing activities are looking for opportunities.
To gain share and from truck and going after them and providing the sales team with the leads in those opportunities to grow our shares we are leveraging.
This is a fantastic service product that to Jamey and his operating colleagues have provided the sales teams is to sell.
On the intermodal side again, you know as Jim alluded to we're through or Lane rationalizations that began in late 2017.
We have a great intermodal network that we're leveraging and we're excited to solar as Jim said, our 95% plus tripling compliance plan performance numbers.
Even higher in some other in some ways.
Is exciting and customers are taking note and were and we're executing and doing really well with with our intermodal customers there.
Thank you.
Thank you next CFO , Tom Wadewitz from Yes. Your line is open.
Yes, good afternoon.
Wanted to see a.
Appreciate the detail on on call that perspective.
I think that 300 million revenue number any thoughts on how we might think of that in terms of an EBIT number is that I.
Presumably up fairly high incremental margin is that.
A few percent incremental margin or how would you think about the EBIT headwind related to the coal revenue comment that you provided.
Hey, Tom as Kevin, we really never broken down the profitability between our different segments, but we've always said that the coal business is obviously, a very attractive business for us and we're going to continue to.
Move as much goal as we can but thats, probably as far as we want to go there on the on the profitability side.
Okay.
What about.
Yes.
Thought in terms of the pricing assumption you have for seaborne I mean, it seems like you.
See Queensland benchmark looked like you gave I think it went down to or that the.
Market went down to the 130 area, you've kind of I think come back to 150 is there any sense of isn't that coal headwind kind of what you're assuming.
Broadbrush for that.
Foreign prices for Matt.
Yeah.
Tom its emerges in the.
The second bench, the mentioned benchmarks and again, the Mets is 65% of our export coal.
Mitch current prices have continued to decline.
As the global production has weakened and currently.
150 Bucks.
As a reminder.
Our contracts reprice quarterly.
So you should expect to see little bit of a drag on the ARPU into into Q1.
Thats kind of where it is.
And we'll see what happens throughout the year as a reminder, this time last year.
Prices were coming into the first quarter of the year or go to 220 Bucks.
So you just assume that kind of stay where they are today is at.
The right was really about it correct. So we'll see we'll see the overall for coal coal we're going to see.
Step down in the first quarter, but to sequentially throughout the rest of the year. We don't think it's going to give any worse.
On the or failure.
Okay. Thank you for the time appreciate it.
Ken Hoexter from Bank of America Merrill Lynch. Your line is open.
Great. Thanks, Good afternoon, and just maybe Jim looking at the expense side, you've got kind of accelerated cost here, but if volumes are going to be down maybe you can talk about if most of the PSR gains are over how do you think about.
Moving along with with reducing expenses in light of these reduced volumes in contrast to your statement about being cautious about not going too far to be prepared for the rebound.
Specifically like in the employee.
Jamie to give a little color here, but.
There are a significant amount so cost reduction.
Embedded in that guidance that we provided.
Just to offset.
And Flaishon.
In other cost increases that we set out you know in terms of the increases in depreciation et cetera. So.
But this game in this game is not over.
And we're going to do the first and foremost thing is to make sure that we're well positioned to provide.
Really good quality product to our customers.
In the future and again I'll, let Jamie off for a little more color on this specific initiatives absolutely look and we're we're continuing to look for good improvements this year on fuel.
Definitely towards our car higher end of things, we're finding as we become.
More fluid out there in the railroad moves better.
Our bigger yards are able to do more for us. So we're looking at getting rid of more out a route miles.
Our locomotive fleet continues to to go in a great direction, as we utilized and get more miles out of our engines, which again turns into a.
Fewer asset costs with respect to repairs and parts and and and really it just keeps on chipping away.
Each and every day.
Getting involved and getting into what's going on out on the ballast line and that's probably the most important piece that the team is doing is as we're getting on the ballast line and we're walking out there and looking at each industry looking at how we switch them, how can we do things better and by getting out of headquarters and making sure that holds a rate team include.
To myself is out there each and every week, taking a look at what we can do different and better not only does it give us at opportunity continue to reduce costs foot.
Continued to improve the products that were able to supply mark and his team to get out there and games more business as we keep on moving along.
Thanks, Jamie I guess, maybe I was trying to be more specific on on the employee side right. So employees were down over 1500 year on year is that something you would see accelerating at this point given the volume declines or is that holding.
I don't understand given Jim's commentary over not not taking out too much to be prepared for the rebound.
Well you know as we've said before you know our focus is on labor cost not just headcount reduction we made a significant reduction in the labor costs.
In not just targeting.
Yes, So we'll continue to look for ways to reduce or labor costs and.
As we did in this quarter and as we will do and every quarter.
We have.
To manage the company.
We will do whats necessary around here.
Based upon what we see in terms of the business activities.
Right now and kind of given your guidance that we think especially on the merchandise side of the business is going to be some reasonable stability sequentially in terms of where the.
Volume line should be.
And that.
And increase.
On the intermodal side.
And.
We'll manage that kind of according to that if that if it goes.
If it goes sideways.
Or downward you guys gets are you guys get the numbers every week.
And.
If you if you Miss a week or something we'll pointed out to that which direction the numbers are going to.
Great and just a quick follow up Jim the arrivals really jump there may be Jamie from 53% on time, two quarters ago to 85% now is there something beyond just execution that you're kind of that you want to highlight I guess on the positive side something really.
Strong performance there.
And look at the team is executing the guys are owed to open the ground taking a look at everything we can.
We'll probably I can tell you right now we're going to crank the times, a little bit we're going to pull some times out of our trains were going to get things moving faster on the network with respect to cut note. Some hours on how long it takes to get across the network and that number might bump down a little bit into the next quarter, because we tighten things up so that's a gauge for us to.
To make sure that our assets and people get to the other end. So we can turn them back but at the same time when I see that number start to go up.
Tells a myself and the team that on the service design side, we can take a look at removing some hours in times from from our trains getting across the network.
Appreciate the thoughts thanks, guys.
Allison Landry from credit Suisse. Your line is open.
Thanks. Good afternoon. So obviously this year you have a number of headwinds that you outlined and that was really helpful. But I just want to understand and and also you talked about more to do on the cost side, but.
Just broadly speaking do you need a more normal volume environment in order to really leveraged I was costs and and get the all our even lower.
Yes somewhere in that mid to high Fiftys, how should we think about that in terms of the different revenue environments.
Yes, Hey, Allison its Kevin.
Clearly, we've we've outlined more cost savings that we thing and Theres runway to continue to do.
The model, we're setting out here as we're positioning ourselves for growth and really to leverage.
When the growth homes, and so I think we're very excited about them. The model. We've created there's a lot of leverage in this model.
It's really dropped the revenue at a high incremental margin.
Yes, that's what we're looking forward.
Mark in the team are diligently pursuing.
Pursuing growth opportunities for us so.
Yeah.
Jim just explained to US is the volume environment gets worse than what we've said, we all know we have to react we did last year.
We came into 2019 thinking revenue was going to be 500 million higher.
The reacts after in the second order and Jamie and the team pulled together, we came up with a new plan based on the volume.
We saw from that point on and we adjusted and I think we did a great job.
So we'll do it again, if we assume.
And the math okay.
Let me answer we'll just workout in terms of what the margins or should the business levels come there.
Building a tremendous.
The company here with great operating levers to take advantage of incremental volumes.
When they come back.
Okay, that's definitely helpful.
Maybe just on that point, specifically to your your expectations for intermodal volume growth. This year, if truck rates remain weak it out for some period of time through 2020.
It is our point at which you might be willing to give a little down price maybe drive some of that traffic into the network or you just wait for for capacity to shore up and then and then wait for the volumes.
Well listen.
We are not to we're not going to be cutting prices to grow the business.
I think the team years CSX has worked way too hard to two to do everything we've done to provide or customers with exceptional service out there.
A large portion the vast majority of our intermodal network on the domestic side is under long term contracts anyway, we're not looking to grow by just to go we own sloshing rates, that's not our game plan, that's going to or.
What we're going to do.
The the trust environment is still pretty loose.
As we saw last quarter.
We don't think theres going to be any meaningful shneur quicker or tightening their but clearly if that if that happens that will be a demand driven environment too.
Thanks.
And that would be good for for intermodal that happened.
Thank you.
And then more out Chen from Deutsche Bank. Your line is open.
Thanks, operator I everybody.
Kevin just wanted to quickly could from the $300 million recall that was a revenue number right.
Absolutely those revenue okay, yeah that makes sense and it's obviously imply 15% decline any help on how we can maybe you can provide some color on what split between volume and revenue per your yield on that the what's the what's the makeup of that and then I thought you had said last quarter. The DNA expenses were going to.
Pickup sequentially by about $15 million, we obviously didn't see that just wondering what.
Theres any impact to the first quarter and what should we think about from a sequential from a DNA perspective, yes ill handle DNA question on my past optical bus in the market when do you hear from.
On the depreciation we did expect from the life study to have a little bit of uptick here in the in the fourth quarter.
Which was offset some by some smaller items.
So basically netted out to zero I did guide for 2020 in the 50 to 60 million range incremental depreciation year over year. So we'll see some bump up from the life study in some incremental capital spend next year.
I guess expectation so no change of the 2020.
Expectation there.
I mean, it on the on the call side, let's let me run through the the coal environment.
Hopefully, we can get to the year answer without answering to specifically, but.
Okay, serving starting with export.
You know as we've talked about before it's going to its going to two cities between.
And thermal as we go through the year 2019.
Our expectations for export coal was there was around 40 million tons, we slightly missed that number coming in are up 30, 838 million I tried to rounded up to 39, becoming Wyoming too so thats 30, but.
We now expect this year.
To deliver low thirtys for 2020.
Yeah as I said.
We expected declines both.
And thermal but probably larger for thermal that on the Mets side.
On the thermal side again its.
One third of our of our export shipments.
Where we've seen large volume declines given low natural gas prices and mild winters in Europe , obviously affecting the gold demand there and to benchmark as we talked about a little bit earlier is 55 bucks per ton so really low.
On the mix.
Again is mostly a price story the other volume story, but a pretty story.
Back to my comment earlier.
The prices have continued to slide down to about.
$150 per tonne today.
So that's kind of what we see on the on the export to accrual.
Right.
Okay. That's that's very helpful. And then just one follow up for me Kevin we saw.
I guess, a pretty sizable uptake in the labor and fringe per employee I know there was you called out some acceleration incentive stock comp. So I'm just wondering what's the right way to think about that line item in 2020, because you have regular inflation, but you guys have also been kind of focusing on managing overtime with the volume environment being what it is a good there could be some cross currency. So if you can just talk about.
That and if I missed it just help us think about how head count will be at the end of 2020 as well. Thanks, you talked about all the incentive comp as a little bit ahead, when did that number when you calculated the other thing that you have some remember in the fourth quarter is we have a lot of our capital teams.
Particularly on engineering side that go over in the vacation and whats.
A lot of their labor through the year is going towards capital, but once they go on vacation that start to hit our OE et cetera. So there is a bit of seasonality to our per employee costs and so thats. What you saw there in the fourth quarter, but it was a year over year number it was up over 4% year over year.
Yes, I think some of that impact as well and then obviously the inflation the headset.
Within that number.
Theres.
A little bit of mix as well.
Going into next year I wouldn't see any significant rise and are currently costs.
Other part of the question just the year end headcount 2020.
Yes, I think look we have a lot of momentum obviously that we've carried through the 2019 that will go into 2020 will continue to focus on managing attrition. There's a process here, where we look at every job that comes available and and ask ourselves is given the new model or whether that job as necessary. So we'll continue to evaluate those.
With a lower volume theres opportunities on the operating side that will find.
And we'll continue to manage the labor side, it's not all of our head count So belt overtime, which we saw some great success in fourth quarter.
We have.
Big targets next year to continue to drive the overtime down as well so it's across the board on the on the labor savings.
Okay. All right. Thank you for the time gentlemen, appreciate it.
Brian Ossenbeck from Jpmorgan Your line is open.
Hey, Thanks for taking my question.
So mark was asking about the pricing environment, especially given the softness here to start the year and in rail volumes in the industry economies mentioned last quarter. You gave some indication of same store sales and how they were were trending so just given the backdrop and what we're seeing on the real indices from pricing perspective, a wanted to see what you.
Thought was kind of the current market temperature when it came to price.
Realizing you just commented on not not gaining volume for price. So yes, we assume the market would be helpful.
No I was going to consumer reviews, but we're not so but within within merchandise and intermodal or same store sales pricing in Q4 was in line with what we saw on Q3, which which again was the strongest I think we're sitting back then was was the strongest we've seen in the past three years.
And our contract renewals the pricing on our contract renewals.
The came up in the quarter exceeded.
Our same store sales pricing so.
Clearly the team is doing a great job to value the the products for the service that we're offering to customers.
And we're we're pleased and I am pleased.
With degree working team is doing on there on the pacing so.
And in terms of the inflation indices do you have a lot of.
Exposure.
In the contracts, they're just going naturally we reset lower.
In this coming year or is that not.
I mean, the thermal side those are annual contracts, so they will reset sort and now.
As I talked about earlier, the reprice every quarter, but clearly so the the Mets benchmarks being 140 ish.
Or 150 ish.
$150 a ton in Q4 will sort of reset those contracts in Q1.
So.
Yeah.
Okay. Thanks, Mike.
That group Wolfe Research your line is open.
Hey, Thanks, good afternoon. So.
I think you talked earlier about 300 million of operating profit headwinds.
So I I presume, that's coal plus any of the discrete cost stuff.
I just want to refute review that discrete costs things, so I I got real estate and depreciation, but maybe Kevin can you just walk us through any of the other discrete cost headwinds that you see in 22.
Yes, I think we are obviously, we called out the.
Real estate sales this year and 2900, we realize roughly 160 million.
The guidance for that as 60 million, which I talked about in my opening comments.
The depreciation step up of 50 to 60 million.
Versus what we saw in 2019 or.
Adams outside of coal that we really Caldwell.
Hey, anything on the other railway revenue or the other income that you want us to be thinking about.
Yes, I think where were run rating today is probably a consistent a good way to think about it going into next year.
So there will be a little bit of headwind on the other revenue side.
You know our customers.
The merge cost of lowered gone down over the over the year. So we'll have a little bit higher.
Other revenue in the first half the year and kind of normalize to where we are right now.
Okay, and then just lastly, when when we get back to revenue growth what are the right incremental margin sounds like you're positioning yourself you said for incremental margins is that 50%, 60%, 40% how should we think about incremental margins when we get back to revenue growth.
Probably the best incremental margins that.
The other businesses was the envious cells.
Yes, some level you know it doesn't matter where the business comes.
But we have a lot of.
Trains that have capacity. So obviously in those situations on the merchandise manifest business when we're adding up according to the back of the train existing train there's not a lot of cost you add to it little bit of car hire a little bit of fuel.
But I think you I think the incremental margins will be quite attractive.
Thank you guys.
Chris Wetherbee from Citi Research Your line is open.
Hey, Thanks, good afternoon.
Well the asks about the revenue line, if you take out the 300 million from coal that headwind. So it seems like you're guiding revenues.
Up a little bit to maybe up to and a half percent or so we know we have some headwinds from other revenue with some of the ancillary stuff from earlier in the year last year.
Should we be thinking about maybe that cadence is it merchandise volume that improves as we go through the year. In addition to intermodal volume maybe if you could help sort of bridge some of that gap relative mix might have been a negative too so that any color would be helpful. There.
Sure Chris So we talked to we've talked coal being a significant headwind down sort of mid double digits as Jim move it to.
In intermodal revenue.
We expect a in 2020, we're going to return to.
GDP plus environment, as we lap or lane rationalizations, and as I've been said many times or service product is strong with 95% plus tripling compliance so I.
Thank you very good momentum there.
In merchandise, we exited 2019 really well positioned to grow with strong service product and I think even despite the tough environments.
In the tough comps year over year.
We can see a slight improvement to revenue growth in the first half.
And with a stronger second half.
Okay. So maybe inherently ex coal volume up for the full year does that sound right.
I would say that absolutely.
Dividend again, you know in the in the merchandise business segment, if it hadn't been for the two specific items, which pointed out the refinery explosion and the GM strike.
We would have been close to flat.
This year.
In terms of volumes in merchandise.
Which is.
So.
Significantly different than the rest of the industry.
And so we're reasonably positive as well.
The business.
Environment begins to at what point in time, I don't know when that's going to answer.
This is not this is not the new norm. This is kind of a natural evolution you know things go down and then they go back up when these things start to go back up we would expect to see merchandise volumes begin to increase.
Intermodal.
We've always said, we believe we have the.
Tacit intermodal franchise, we have syntactic intermodal service.
And we had we had to bite the bullet.
Over a two year period to renew engineer the franchise to make it is better.
We go into 2020, we knew that what we're doing and now we're going to see as Mark said hopefully grows.
Two times GDP so.
Those together and 60.
80% of our business.
Should be doing extremely well.
Unfortunately.
All four of those discrete segments of the coal business.
Our getting.
Hit.
The simultaneously, which is difficult for us to overcome.
Okay. Okay. That's very helpful color appreciate the time thank you.
Thank you next Bascome majors from Susquehanna International Your line is open.
Good evening guys.
I wanted to go back to the service levels you improves your trip plan performance from the Carlo business by seven full points in this quarter. It has been pretty steady and mid Seventys before this gap higher can you dig a little more into how you're able to drive such a big improvement in Fourq you. If there's any for you if that's sustainable or.
Something lumpy there and you know as you look forward and yes is the conversation with your customers changing you always are you feeling that that this yields excess carload business growth over some period of time do you just tell us how that that's going on the ground. Thank you.
I'll start off with the the product that we were able to create here and then let mark touch on some of the feedback is getting from the customers but.
Looking at it we've got a fantastic team or Railroaders out there.
X and we've gone through this transition over the past two and a half years almost three years and trip class was it was a difficult piece for us to work on as a group we tackled the to first piece of intermodal, which market just mentioned the team has been knocked it out of the Parker over 95% we still have.
Having achieved.
Internally, what we want to achieve for a trip plan on the merchandise side, but it is day in and Dale grinding discussions talking with.
With the field working inside and out with each and every one of our operators in order to move up each percentage point. So we we have I'd like to see the more stringent trip plan with respect to a two hour buffer and that's it we we measure empties, which I don't believe any other railroad does.
And we work really hard hand in hand, seven days, a week driving that products. So I wouldn't I would I would say that we're going to continue to see that.
That percentage improved.
As we as we continue to prepare and get marks team ready.
To jump out there and make those sales and intermodal we measure to the minute yeah intermodal absolutely within minutes.
Within two hours, so we missed by minutes and it's a tripling failure.
October 1st we rolled out your plans.
As Jim said in his opening remarks to our customers.
Oh and ship CSX in December early December six on the second we rolled a tripling performance so to all our merchandise customers. So the total unprecedented visibility to every car whether it's a low whether it's an empty on the CSX network.
Unprecedented visibility to their plans to what we're doing how were how we're doing every lame every car.
Customers Love the tool.
Something they've never know railroad as ever tight provided this type of visibility listen isn't having an impact I think going back to Jim's comments, a few minutes ago. If you look at our Carlo.
Performance in Q4, we were down 3% industry was down five if you take out the PSC impacted the PS refinery and the GM strength, we were flat.
In merchandise rest of the industry down five.
Clearly.
Customers are responding to.
That type of level of performance and rewarding us with Theyre more of their business and we're winning share every day from trucks and we're going to continue to push and as these there's this performance listen 83% for the quarter. It was great. We're hitting high high Eightys today, and low ninetys with some customers and we're going to continue to.
He is not satisfied the teams not satisfied with that so as we get better continue to push.
And become more truck Lincoln.
Great service, and we're going to be rewarded with more business. The one piece to remember on trip plans for us what markets and his team has taken.
Beyond what I think anyone ever thought for plans, we're going to be triptans are more of an internal metrics. So we could see how we were doing and and look at costs as well as.
Getting hour by hour across the network by by putting this up to the customers puts pressure definitely on the operating team, but yes.
We're we're hitting it and look we've got a little bit more work to go but we've taken this beyond what I think any whenever structure plans could be going from than going from whatever the number was over the last couple of quarters say 75.
To 85 in terms of the carload trip planning compliance.
Two years ago that number was 35.
The reason, we have to give our visibility and tracking mechanisms or customers is so that they will trust us to try our new service product.
Proves to them that it is as reliable today as a truck with a couple of years ago. Your transplant compliance was 35% and you were trying to get a customer tissue switch.
For all the movement is freight in a truck to rail.
Didnt have a lot of confidence that his freight was going to get to his customer fallen time, when you're on time performance was 35%.
So that's why it's so important that we focus on this metric and that we're still confident the number of b.
Reliable and consistent but even more importantly that customer believes that debt product is reliable and consistent so he's willing to shift.
As always been willing to pay the 15% premium to buy the reliability in a truck.
We need to show him through this transparent tool that he can trust us to get as product there. When we said we're going to get it there.
Great idea I appreciated the drop Richardson from everyone. Thank you.
Justin long from Stephens Your line is open.
Thanks, and good afternoon.
So I was wondering if you could give a little bit more color around what the guidance assumes for that quarterly cadence of consolidated volumes is it the right way that to think about it that we should see something like a low to mid single digit decline in the first half and then something like a low single digit.
Growth number in the back half is that as the comps Eve.
Yes.
Clearly we're.
We're lapping some will going up against some tough comps here in the first quarter of late in the second quarter. The first half as I said, we had a pretty good environment.
The first half of 2019.
But.
We got a great service products and we're going to do as much as we can as I said.
I think we're going to be able to do well and intermodal and in the first half and merchandise.
Some of some positive.
Volume growth in merchandise, but you know we will as we sort of get into the back cut back after the year, we think that it'll be a little bit stronger than the first half for sure.
Yes, I think Justin you'll see on throughout the year going first quarter or mark them, the low point from a growth perspective.
No that's probably across all of the not only other revenue, but operating income EPS across the board and then from there.
A lot of just based on the comps as we get in the back half of the year lapping some of the coal and.
Some of the other.
Headwinds that we saw in 2019 the growth should improve.
Okay, but when you put together all the pieces do you think in the second half of this year volumes can be up on year over year basis is that the assumption.
Yes, yes, okay.
Great and then secondly on free cash flow, obviously, that's a highlight of the business right now so I wanted to ask in 2020 M. beyond what's the right framework in your mind to be thinking about for the free AD free cash flow conversion percentage and then also on buybacks Kevin maybe.
You could provide a little color on the magnitude you're expecting and 2020 relative to what we saw last year.
Free cash flow conversion. Our goal is that remain keep that high and we have some headwinds in terms of cash tax rate level.
Over time, that's going to trend higher we're going to do everything we can on the offset that with working capital initiatives and and really taking a look at our capital program.
Efficient we can be on that side the save dollars. There. So a lot of opportunities I don't think we have any plans to go back to the old ways of.
Very low of free cash flow goes version that we saw historically for not only CSX, but the industry. So we have something we pride ourselves then we continue to strive to maintain and have every plan to.
On the buyback we are taking into billion cash as I mentioned ended the year gives us a tremendous amount of flexibility.
There's no reason for us through retained $2 billion of cash on our balance sheet. So that allows us some flexibility going next year to be.
Opportunistic when the.
The markets for the opportunities and we'll do that wall. So.
I got the dividend as well so we.
We've have a history of returning cash to shareholders and we'll continue to do that.
Okay, great. Thanks for the time.
David Vernon from Sanford Bernstein. Your line is open.
Hey.
Mark I, just wanted to dig in a little bit more on the expectation that intermodal going to get better. It sounds like you were thinking like in the front half on we might start to see a return to growth.
Hey, how how are your intermodal partner, it's kind of talking to you about the the outlook for the business in terms of.
Their ability to say, it's actually I track share, we're coming off a year, where domestic intermodal is down call it whatever five 6%.
What's going to flip that switch that's going to get that volume to start.
Coming back on to the network.
Yes.
Let me split it up a little bit and talk.
Both the intermodal.
On the international side and the domestic started.
The international business.
It was down less than domestic.
We're still continuing to see and going into the early bird of 20 to 20 and hopefully for the rest of the year running room.
Continuing to see good growth there on the international so I do with our inland port.
Strategy and some new service offerings with our customers.
But the overall market remains soft, but we are we are doing well with picking up some some business there.
I think.
Or some again customers or.
Our.
You know responding to our reposition network.
It's moving faster and more reliably and more efficiently and.
I'd like to service and.
We are doing well too to grow the intermodal franchise and we're we're lapping those lean rationalizations those are all behind US now and we're growing from there. So again, we think.
Given the environment and given the service product to be garden.
We.
And grow this thing.
Okay, maybe just as I as a follow up as you think about the improved service obviously some business. It's under contract on is that going to give you a better leverage to kind of get some some some some even better than sort of run rate pricing going forward or should we be thinking about that as being kind of that the standard and your.
Going to be using service more to drive growth then that's a really I'm trying to extract more value from the existing book.
We took it from all fronts right.
We're going to.
So.
We have good long term contracts with our customers and there's rate escalators in there and we're going to but we're going to continue to to grow with them and bring on more business and and get price, where we can get price and again, we're not giving away or service.
And.
So so we're going to attack it from all fronts.
All right. Thanks, guys.
Cherilyn Radbourne from TD Securities. Your line is open.
Thanks, very much good afternoon.
Just wanted to ask a question in terms of performance evaluation and then how you differentiate between performance improvements that may be associated with lower traffic volumes on the network.
Versus improvements it would be associated with sustainable process optimization that would remain once volume growth returns.
Yes I.
I think when we look at productivity the way we measure here internally.
It is a lot easier to drive productivity and a growing.
Volume environment, because first you got to.
Declining market you got to offset the decline in revenue before even.
Our any productivity so.
The fact that we're able to offset the headwinds that we.
I've talked about a lot on this call implies a lot of productivity this year and it's a lot of smaller things that are adding up the big numbers across the board when I look at the overtime percentages and I look at a lot of different things those are being driven by lower volumes.
Lot of blocking and tackling.
Even at the DNA side, we're getting a lot more productivity out of our employees than we ever have.
So.
We measure productivity internally certainly harder to.
It would.
I can tell you right now we would realize a lot more productivity this year.
An increasing volume market if that was the outlook for us we can.
We can look at the metrics and.
Kevins point give me a growing environment and it's it's easier to to run the railroad right now were tough conditions to too.
To put up the numbers that were putting but ultimately if you take a look at the metrics on where the metrics are sitting.
How do you know that that things are that were improving even in the environment. We're in the captures falling out if we were hit and metrics and the cash wasn't falling out than.
And there would be a point made hey, it's easier and it's all because of volume base, but I think we've proven that.
Along with our metrics going in the right direction. The cash is falling out in the savings and many of these changes are transformational in nature. There for state sustainable we're not we're not just kicking the can down the road we're fundamentally.
In every respect changing the way we run this company in these changes that are resulting in efficiency gains are to a large degree.
It's going to stay with us.
As we go forward.
Okay all of that makes sense.
Maybe just by way of a quick follow up on.
Operating ratios across the industry start to converge in media and the high Fiftys what metrics do you think that investors should pivot to start focusing on to differentiate between the various franchises, whether its ROIC free cash flow conversion or some other metric.
Cash flow, we talk about a lot around here I think we're pretty proud of our cash flow conversion.
It's not easy to.
Due to both approval, our and generate a lot of cash flow and I think we've proven that.
So thats really to differentiate or that we see out there.
As we as we shift longer term, we were here to drive operating income growth as well those are the two things I think we'll be focused on.
That's all from me thank you.
Jordan allergy from Goldman Sachs. Your line is open.
Yeah, Hi, I'd just a quick question, we talked a lot on the call side about the export front can you touch base, a little bit on the domestic side and how much of that 300 million top line headwind might be tied to that or is it really.
Paul on the export side effects.
Yes, sure on the domestic side.
You know, there's there's some impact I don't think it's going to be as much of a negative impact in 2020 as a as we've seen going forward Nat gas prices. Unfortunately have remained stubbornly low.
Dropping to about two bucks regionally and we didn't know what we did not see the surge in prices that we saw him in the fourth quarter of 2018.
When they hit like Fort box for a couple of weeks.
But for a recall for utility coal to be competitive.
Prices would have to increase from the current levels and total electric demand would need to increase.
Yes, it is well known many locations coals used for where peaking generation. So.
So our upside as always seen there are many many cases seen when we have these extreme weather conditions and cold Unfortunately, or fortunately for the people on the coal in the northern area of the country, you're not seeing much cold weather.
That's bad for utility coal.
So the natural gas.
Pasadena is a has not been stretched so far this year.
But.
For 2020.
We do see and we do expect that our utility tonnage.
We'll be a relatively flat.
As we have had some some wins offsetting some some market declines.
And just a quick follow up.
On the coal pricing does domestic coal revenue per carload, I mean does that stay positive.
Or is it positive I shouldn't say stay I'm not sure.
That's the question.
There's going to be had there on the domestic utility yes.
Well again will be down.
Just given.
Where a where things are.
Those contracts are our multiyear contracts with.
With our customers, but there are price adjustments.
But we have a minimums in the contracts with those these tied to them, but we.
We do expect a little bit of pressure on.
So I mutually ARPU.
Great. Thank you very much.
Okay.
Then hard from from Baird. Your line is open.
Thanks for giving me in here, Kevin just kind of perspective as we.
As we move beyond 2020, and the model evolves one toward one of a growth focus.
As.
As this operating plan takes hold was 59 or target here for the full year for 2020.
And as market said were near trough levels cycle trough levels for readings and and the industrial related activity to what extent do you view 59 or thereabout.
As a representative trough or a floor.
For this models or.
As we as we look ahead of the next decade, or so why would not be the case.
Well I wouldn't say 59 be the floor like couldn't 59 be the cycle floor for dealing with trough levels would be my readings and we're looking out toward growth why why shouldn't this 59 or thereabout be viewed as as a representative draw for a floor for this models or going forward.
You say floor and get your meeting.
I will get better Premier correct.
And we treat this was a cycle trough.
The non below point.
I think on as we look longer term and.
Maybe just hasn't Thomas on as well, we're really going to focus on growing operating income.
And generating EPS growth.
And the most effective way.
We talked about the leverage we have we've built in that model. So.
We think.
Given everything that Jamey and his team have done.
We can drop through revenue at a very high incremental margins so that implies.
Pretty good.
Outcome on the margin side, but we'll have to think about what's the most effective way is to grow operating income in at a very high return. So those are the things that I think as we get further I'll have to.
Contemplated.
But we have a better service, so clearly getting price for services level go after and.
But it's really operating income and cash flow that we will be up striving for and the next few years beyond 2020.
Right and the.
40.
True or so large ones and as Kevin said.
Is your for that number as for our margins to improve or operating ratio to go down with increasing volumes.
You know our long term strategy is to.
Continue to leverage our service regained business that is the loss for the industry.
While maintaining what I consider to the exchange remotely good margins.
And grow our operating income income.
Cash flow.
Earnings per share the company.
Understood. Thank you.
Ravi Shanker from Morgan Stanley Your line is open.
Thanks, meaning you got a just a quick one again on coal.
You said that you probably hit the the worst of it and what Q and then things kind of normalize and there is a benchmark stays where it is given youre a de kind of.
It take or pay as you have in the volume side, we had the contracts we said.
If the benchmark stays where it is for let's say the next three to five year forever.
It's all of the whole impact going to be isolated in 2020 or is there like another leg to come in 2021.
Oh My Gosh Ravi.
Cool benchmark stay here.
I'm not going to be happy, where you're making you do math that be and.
It wasn't I'm not I mean, no position to speculate.
What's going to happen too.
You know coal internationally, whether its thermal Matt I mean again.
Thermals going to be driven internationally by you know the.
Demand for you to occur coal.
The goal.
India and other places Turkey, Pakistan.
It's going down as the next 10 years is probably not going to be we're not going to be shipping anymore to Europe .
And on the Mets side again, its its industrial production worldwide cyclical these things.
I get that I mean, I I get that we'd be don't really have any visibility or bad coal is going to go but my point was if it didn't change starting tomorrow. It would just stayed where it was all your contracts all going to just laugh and kind of compete you resetting 2020 or is there more to come into anyway, no no they would do.
And we'll keep going who left there's not a contract that's going to expire in 2020 that whereas there is another shoe to drop.
So to speak on if the commodity underlying commodity prices to stay the same right I think what the volumes today represent as was the underlying commodity prices are so all else equal.
There's no long term contracts within our export coal business that are.
Set to expire after 2020.
Got it that that's what I was getting out and maybe just one more kind of you guys implied that.
Your your go to see significant incremental margins in the volumes come back.
That kind of implies that you haven't necessarily downsized your operations completely for the cyclical volume and Martin do you're seeing right now.
Maybe somebody other Reals Hobbs.
If one assumes don't come back until the back half of next year at what point do you guys say that hey, maybe beginning a cut some more on the cost side here.
We've watched us.
We watched daily.
You know it was kind of like.
Let's just kind of transition back six months ago, when everybody was saying.
And the second half at 2019 is just going to be gang busters.
And we were saying I don't see it and we were responding accordingly, and making the appropriate steps on the cost side to make sure that we delivered.
Almost double digit earnings growth this year in an extremely difficult environment and we'll do the same this year as we go.
Each and every loan.
In assess where we are and are the volumes.
Better then or worse than what we expect them to be right now and we'll respond accordingly.
Hey, good thanks.
Walter Spracklin from RBC capital markets. Your line is open.
Thanks, very much a thanks for sneaking me in here I I want to go back Jim you were talking a lot about the improvement in operating metrics that you had.
And how that's a how that's improving service and Mercer is certainly echoing that.
You mentioned about how you are using that to convince the truck customer to switch over what evidence are you seeing that they are capitulate in here and and moving over the waiting for some you know some other factor to consider is it you know or are you going to do you do you.
Look at 2020, and and see an opportunity for a notable.
Share gain against truck.
You know pending coming up into into 20 to any any thoughts on the onshore getting opportunity against right.
Oh, yes, well, let me just real briefly.
It took us decades, it took the railroad industry decades of poor service to drive the business off the railroads onto the trucks, we're not going against their business off the highway Vic under the railroad in two weeks.
So we're going to have to earn it as we were talking about earlier, we're going to have to not only put a good metrics, but proved to their customers that these metrics are.
Equal to a truck.
In this business model is sustainable in the past I'm sure that had a lot of railroad guys that have walked in and said Hey Trust me take your business off the truck put it on the railroad all good there a time and the next thing in L. six months later, it wasn't performing as well and that customer lost business as a result of his.
Conversions from truck to rail he is skeptical and rightly so we need to for up to that customer that this is a long term as I said structural fundamental change in the way we do business.
And when we do that we'll continue to see where we grow our merchandise and intermodal volumes at a rate.
That is faster than the industry.
Is that going to be 1% greater than the industry is it going to be 1.5% greater than the industry isn't going to be 12% greater than the industry, it's going to be incremental quarter after quarter after quarter year after year after year, where we have.
Outsized growth.
Relative to the industry, that's going to approve this business model.
Let me turn around it so same question no against your real you your rail competitor.
We've talked to a number of your customers, Steve the confirm the service metric improvement.
Jim you you've had experience of running working with a company that has had a significantly better operating ratio then that it's the than its competitor.
Why is that an opportunity for share gain against rail.
If you're operating metrics as they've shown here continue to improve.
And certainly relative to the two to the competitor or we could we see a a more notable upward shift in your share gain opportunity against your real competitor.
Well it tickets different the.
Our business environment here in the eastern half of the United States as I would say a significantly different than the business environment in Canada.
We have.
Millions of dollars of opportunity available to us from truck.
Customers today that are shipping products with us in a box cars that are also ship of 50% to 60% or product in a truck because the truck is more reliable.
I want data opportunity, which is billions.
It is crazy.
For me to go over there and twice by services, a commodity that try and pick up a couple million Bucks off the other railroad that business Lotto that has run the railroad industry down for decades, and then is not the business law that we are pursuing.
Got it makes a lot of sense I appreciate the time.
Allison Poliniak from Wells Fargo. Your line is open.
Hi, guys. Thanks for taking my call. My question I, just want to talk you made a lot of progress on the operations over the past years, you talked about the levers that you can pull in 2020, if your as you look at those which ones do you feel could be the most challenging particularly in this environment if there's anything.
Well the levers are always challenging.
As we said ill.
If we wanted to just take a and I've been saying this for the last six eight that we have been saying this for the last six eight to 10 months or more.
I know if the business it dropped off 10, 12% at a couple of weeks in a traditional kind of recession scenario.
Would have been easier for us to go in there and find the equivalent amount a cost and taking it out of the company.
When it was a slow drip week after week month after month <unk> percent to Europe was sent a half here and it continue it down down down down down.
It was more difficult for us to respond to that because we were fearful that we would and as we expressed again here today, we would cut service in areas, where we were in an attempt to reduce costs.
And we would perpetuate the downward trend by driving more business also wrote down to the highway.
So then as a channel is where can we caught and where can we and maintain our levels of service.
Uh huh.
If the volumes continued to decline.
It creates opportunities for us and.
Some point in time.
You just get a little more aggressive we have not done that and.
What we have the case, we have the ability.
It was necessary.
Great and then just trying to be optimistic if we do get maybe being a more significant inflection in the back half does any of that it's not very sort of get moderator, well then a little bit.
Well, we're really we are optimistic [laughter] with we'd like to think we're realistic.
We are optimistic we expect the you know we expect a 80% of our business a a merchandising business.
And our intermodal business to do quite well.
This year.
Especially.
As we said in the second half for the year.
For no other reason that we just get easier comps.
And ER.
And yeah, if if the business comes back, which clearly we hold it daus well, it's going to my question is.
Not to new norm business is going to come back. It is all of our businesses are cyclical.
It's just a question of when does it come that we're all we're saying is as of right now we're being a little more pessimistic about ER I don't expect all the sun volumes and jump up 5% you know on May 12, a we're going to wait and see you were going to be cautious we're going to be.
Vigilant in making and we have to do that in order to manage the company.
And and if things come back.
We'll be in a position too.
To handle the volume.
And and grow the business Jamie.
As Jim said this isn't a slash and burn exercise that we've been going through its controlling the cost and on the operating side. We worked very very close with mark and his team.
As the business starts to come back we're gonna be prepared for we're going to be ready for we've got the assets.
We make sure we have the people and we don't leave alone behind. So this is this is purely been a controlling and look at we need to continue to control the cost because of businesses and coming back as quick as we may have thought it.
Does that we'll do that but we will be prepared to grab every car load us that starts to come towards us.
Great. Thank you.
And we have no further questions.
Alright, great. If there's no further questions. Thank you so much for joining us today and I look forward to seeing you a along the road at the next conference or on the next call. Thank you. Thank you.
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