Q1 2020 Earnings Call
Corporation Q1, 2020 earnings call.
As a reminder, today's call is being recorded during this call all participants will be the listen only mode.
Following the presentation, we will conduct a question and answer session.
Good question Press Star one for opening remarks, and introduction I'd like to turn the call overtime Mr. Bill Slater head of Investor Relations for C.
Corporation.
Thank you and good afternoon, everyone. Joining me on todays call our Jim Good President and Chief Executive Officer, Mark Wallace Executive Vice President of sales and marketing, Kevin Boone, Chief Financial Officer, and Jamie Borgia Executive Vice President of operations on slide views are forward looking disclosure followed by a.
Our non-GAAP disclosure on slide three without the did my pleasure to introduce President and Chief Executive Officer Jim.
Thanks, Bill and thank you all for joining our call today.
Before I get into the details of the first quarter I want to say, there watch or would those who had been affected by the virus.
No one ever imagined that we would be dealing with anything like this.
But to see people everywhere respond to the challenge is uplifting.
With the beginning of the transformation of CSX.
Just a few years ago.
We adopted a few tenants by which to operate.
First the safe.
The employee should never be injured while on the job.
Thank you.
Help our customers be successful ROI by providing them with good service and third operate as efficiently as possible.
We knew that if we did those three things we would be a great company and shareholders would be rewarded.
We clearly did not change how we operate with a pandemic in mind.
But because of the intense adoption of those core beliefs.
Second is now a much stronger and resilient company.
And in the best possible position to respond to this all unprecedented and on certain environment.
I am incredibly proud of the men and women of CSX, who are working on the front lines.
They have once again showed what outstanding Railroaders they are.
CSX is running at peak condition.
Keeping the nation supply chain moving and delivering.
Medical products to millions of Americans.
Thousands of customers Trust CSX with their freight.
Every one of them right now is experiencing some degree of disruption.
And we are deeply committed to maintaining the best in class service they have come to expect from us.
I am proud to say that services currently the best it has ever been.
Now, let's go to slide five of the presentation for highlights of the first quarter financial performance.
First quarter EPS declined 2% to a dollar.
Well the operating ratio improved by 80 basis points to 58.7, a new class one railroad first quarter record.
Given the combination of the known headwinds this year from export coal.
And other non core items as well as the initial impact from the pandemic in the final weeks of the quarter. These results are impressive.
Moving to slide six.
First quarter revenue declined 5%.
As merchandise growth was more than offset by declines in coal and other revenue.
Merchandise revenue increased 3%.
2% higher volumes as broad based volume growth across markets was partially offset by declines in automotive and fertilizers.
Excluding automotive merchandise revenue and volume were up 5% and 4% respectively.
Intermodal revenue declined 1% on flat volumes as domestic revenue and volume growth was more than offset by declines in the international business.
Excluding the Colbert 19 impact from the final weeks of the quarter.
International volume would have been positive as well.
Coal revenues increased 25% on 15% lower volumes.
Both domestic and export markets continue to be negatively impacted by natural gas prices.
Weak export demand.
And benchmark prices.
Other revenue declined 40%, representing a 2% headwind the total revenue.
Due to lapping a favorable customer contract settlement last year.
Lower demurrage and intermodal storage revenues.
Turning to slide seven and our safety performance.
Where we again showed improvement.
This quarter was one of the safest NCS seconds history.
The personal injury rate declined 22% in.
And the train accident rate declined 34%.
With both figures approaching all time company records.
Let's now turn to slide eight and review our operating performance.
CSX continued to operate at an extremely high level during what is typically the most seasonally difficult quarter.
Setting first quarter records for velocity.
Well and car miles per day.
Additionally.
CSX continues to lead us class one railroads in fuel efficiency.
Operating at one gallons of fuel per thousand gross ton miles.
Improving fuel efficiency as a top priority for the team and we are proud of our success.
Fuel efficiency initiatives over the last several years have reduced annual diesel consumption by approximately 60 million gallon.
The emissions avoided from this reduction are the equivalent of planting almost 1 million acres of for each year.
And we're challenging ourselves to be even better.
Six recently became the first U. S class one railroad to have its long term emission intensity reduction goal approved by the sites based target initiative.
Reduce reducing emissions is important to us.
Our customers and the communities we serve.
Critically as shown on slide nine.
Our operating performance continues to drive best in class service and reliability for our customers.
Sure plan performance is the best it has ever been.
With 84% of merchandise carloads, and 98% to intermodal containers currently meeting their hourly tripped plans in April so far.
This performance includes the implementation of substantial service design changes in recent weeks.
To adjust our network in response to the current lower volumes.
Let me turn it over now to Kevin for more detail on the quarter.
Thank you Jim good afternoon, everyone.
Have you seen my review of the first quarter financial result.
Second is once again able to drive significant efficiency gains.
Hosting yet another quality operating ratio record.
At the top line headwind Jim described.
This quarter Mark three years since the transformation of sex.
While there remains considerable uncertainty around the severity and duration of the economic impact related to the season.
CSX has never been stronger position.
The challenge.
Our liquidity position is extremely strong.
Nearly 2.5 billion cash and short term investments.
In the March.
This represents multiple what we would consider normal targeted cash level.
You can also imagine we have learned quite a few hundred scenarios over the past several weeks.
Every model we've run has a substantial liquidity.
Emerging in a stronger position from this downturn.
And leveraging the subsequent recovery.
All these scenarios senior yet and adapt our business changing conditions.
And we have already begun to quickly adjust to the current environment.
From a financing perspective.
We have taken many proactive steps to position the company to under the economic downturn.
First we have ensured our cash position.
And available.
Shifting the majority of our cash investment to taper government funds.
Time being.
I would like to be Ernie Warner cash you have taken a very conservative position until we are comfortable conditions have normalized.
We also raised an incremental 500 million of death.
Taking advantage of what our historically low interest rate.
When I look out over the next 36 month.
We have less than 1 billion.
Charities.
Could easily be funded through our annual free cash flow.
We continue to closely monitor our receivable balance.
Any significant change to our aging profile.
Our transportation services remain critical to our customers and their ability to generate cash flow.
Finally, while the current backdrop is challenging.
Realizing opportunities and efficiencies.
We'll be able to leverage we returned to growth.
These environment provide an opportunity to evaluate every call.
The way, we do things.
And I expect the savings to be durable growth return.
Now turning my attention to slide 11.
I'll walk you through the highlight of the summary income statement.
As Jim mentioned total revenue was down 5% in the first quarter.
I significant declines equal lower other revenue.
Favorable mix.
Then offset the benefit of merchandise getting.
Moving to expenses.
Operating expenses were 7% lowering the funny first quarter.
Driven almost entirely by the strong gains in operating efficiency.
Once again delivered.
Labor and fringe expense was 10% lower versus the first quarter of 2019.
The average employee count was down 1600 or 7%.
Notably, even with Boeing roughly flat year over year in the first quarter.
Thank you to find opportunities between.
Third quarter crew starts were down 11% versus the prior year.
This is a year over year average for the quarter reflects efficiency gains we made over the last 12 month.
Starting in the second half of March through April today.
We have reacted to the declining volume environment.
I continue to aggressively reduced train sir.
I'm sure JV will touch on that the Humanaone.
I also talked a lot about our focus in either time.
Last few quarters.
And once again, we saw significant 33% reduction year over year.
The current volume headwinds.
We expect to continue to drive significant improvement in overtime.
In addition to these gain an employee efficiency. We also had 40 million of lower incentive comp expense in the quarter.
Finally, 10 million of other labor cost increases were primarily driven by the cycling the railroad retirement tax refunds.
Prior year.
No nothing no expense improved 4% versus the prior year.
Continued efficiency improvements across the operating support departments, including significant reduction.
Hearing contracts and terminals.
Crude travel through a 32 billion reduction year over year in MST now.
All in minutes in ethanol is traditionally less volume variable than labor costs.
Because we began to work to eliminate discretionary spending across the company.
Most of which will show up on this line item.
Reduction that could locomotive and freight cars also drive MSP no saving.
We expect outsourced terminal costs to adjust down as well.
Well enough to know will not be down one for one big volume. We are clearly focused on cost within this bucket that are traditionally less volume variable.
Real estate and mine sale gains 80 million were 9 million lower in the quarter.
There continues to be a type one of these opportunities.
Sales activity is likely to be lower over the balance of the year getting current economic condition.
That said, we have already close one transaction in April we expect gains in the second quarter to be relatively flat with the first quarter.
You expense was 41 million favorable.
And 80% improvement year over year.
Driven by 12% decrease in the Burgenland right.
Significant efficiency improvement more Boeing.
Our continued focus on utilization distributive power energy management software.
Combined with train handling employing the first quarter record fuel efficiency.
Looking at other expense.
Depreciation.
Increased 14 million or 4% in the quarter.
This reflects a 10 million impact from the fourth quarter 2019 depreciation study.
If you will continue to impact year over year depreciation expense for the next two quarters.
We still expect full year depreciation to be up 50 to 60 million.
According rent expense decreased 8%.
And from network performance has enabled Festers CCAR cycle times.
As measured by merchandise and intermodal Dave Furloughed.
Which improved six person and 30% respectively.
This combined with lower payable volumes drove the majority of the saving and equipment rents.
Going forward, you will see volume related reductions in equipment rennix them.
So these will be partially offset by lower car utilization.
To do some new lower equity earnings from RTT affiliate.
Social equipment right.
Turning below the line.
Interest expense increased primarily due to higher debt balances, partially offset by a lower all in coupon.
Income tax expense increased 30 million as lower pretax earnings more than offset by far bigger benefit related to option exercises investing other equity awards.
Absolutely guidance, we continue expect an effective tax rate of approximately 24.5% for future quarters.
Moving up you know.
As Jim highlighted in his opening remarks, CSX operating income declined 3% year over here.
While the first quarter operating ratio of 60, 87, representing 80 basis points improvement.
Turning to test the side of the equation on slide 12.
The first quarter of 2020.
Investment was up slightly year over year.
We continue to invest in our core track bridge signal infrastructure.
See you to prioritize investment advice safe reliable train operation.
Well, we are evaluating or capital and total even during the downturn in volumes our commitment to invest in the big view of our core infrastructure will not change.
In the first quarter free cash flow before dividend.
812 million Downplay League.
Reflecting higher capital expenditures and lower proceeds from property disposition.
Retested has continued to be a key focus for this team.
We saw free cash conversion exceed 100%.
The company continues to demonstrate our commitment to shareholder distribution, including dividend payment.
Importantly, I mentioned previously our cash and short term investment down during the second quarter is nearly 2.5 billion.
This is listen gives us confidence that combined with efficiency in Mississippi initiatives.
And not only weathered the storm in front of us.
Let's take advantage of opportunities present themselves to create long term value for shareholders.
With that let me turn it back agenda and closing remarks.
Sure.
Great. Thank you Kevin.
Concluding on slide 14.
Due to the uncertain economic environment and this should be of no surprise to anyone.
We are withdrawing our guidance for the year.
The potential range of outcomes for both production and the man.
Well as the potential shape of the recovery are too wide you predict at this time.
We are constantly assessing yannick economics situation and we'll respond like we always do.
By taking appropriate steps to control cost.
Within ever vigilant, hi toward maintaining current but most importantly long term service for our customers.
We have worked too hard to get this right you go backwards.
We're also evaluating our capital expenditure outlooks for the year.
Our first priority is and always will be the reliability and integrity of our railroad.
We will not reduce or defer any spend that impact safety.
We will install about the same amount of rail and more balanced this year then left.
And Kevin and his team are looking for materials buying opportunity.
We are however, identifying potential areas of efficiency within our capital plan.
And the opportunities to defer some non essential spread.
The plan will be fine as the year progressive but currently expect capital expenditures at the low end of our initial 1.6 to 1.7 billion dollar range.
Importantly, CSX entered into this period with a dramatically different cash flow profile than at any point in the company's history.
Over the course of our transformation, we have more than doubled CSX is free cash flow conversion and ended the quarter with almost two and a half billion dollars of cash in short term investments and an untapped revolver.
We will take the necessary steps to ensure sufficient liquidity.
These are on Precedented times.
I've been through a lot in my career.
Black Monday to the great recession, and a lot of other unsettling about.
But nothing like this.
But I can say with certainty.
Strong companies adapt.
They make changes and they get even stronger.
I hope this current situation as pets situation passes soon and we settle into the new normal.
But for sure.
That is yet to come for CSX.
Bill.
Thank you Jim and the interest of time I would ask everyone to please limit themselves to one question.
Also we ask everyone to please bear with us as we work through the logistical challenges presented by joining today's call from different locations with that we will now take questions.
Thank you we will now be conducting a question answer session. Our first question comes from like meat, Amit Malhotra from Deutsche Bank. Please go ahead.
Thanks, operator, thanks, everybody for taking my questions and congrats on the cost performance in the quarter is pretty impressive.
Kevin.
I think it would just be really helpful to get some help on how we can think about decremental margins in the second quarter, we're obviously facing 20% plus volume declines the 25, 26% Decrementals you guys achieved in the first quarter was great, but obviously facing maybe a more benign volume environment and what we're going to get in the sector.
Quarter, So just any way to think about that and since I only get one question. If you can just also comment on how the pricing environment has evolved if at all in the context of volume declines. Thanks a lot.
Yes, I think that qualifies as to what we might give you a pass through the first one going today.
Look I knew the decremental margin question would come up on this call and.
No we talked about a lot and.
I know you want to plug into your models, a certain decremental margin.
Yes.
Given your assumption here I can give you a framework, but I don't think you're going to layout.
And that's certainly what the decremental margin could be because there's a lot of different scenarios that could occur what we're really focused on in this environment, it's taking a structural costs and really on the other side. It has really emerging and quite frankly, a better positioned than maybe we would have.
How does not happen, so well just going through the PNM here, obviously, the depreciation as a cost us more.
Something that in the near term and medium term is more difficult to go after we've done a great job on becoming more capital efficient that will work its way through depreciation over time, but that's something in the near term. That's obviously part of the move we look at our labor costs.
As I described.
In my script, we obviously would be great work, the jamey and his team have done eliminating train starts and other things were seeing head count and reduce labor costs.
Some out pretty significantly with the lower volume environment that we're seeing.
No. That's your your experience I will tell you.
A lot of different items, when I look across.
In us and all and how we look at it internally traditionally we've said.
About 30% is highly variable and then you have the rest of it 25% we.
Generally.
That is less structurally less variable, but those are things that we have to look out in this environment to really go after.
That's where we're going to challenge ourselves.
Clearly the rent expense from a car hire perspective.
Should move with volume, but there are.
Some offsetting relationships, where we wanted to burn as much on our our fleet.
In terms of rents and then the TTX relationship obviously creates some somewhat of a.
Less volume related upside.
We will traditionally see so was there there's a lot of pieces, we're not going to draw the line in the sand on what the decremental margins are I can tell you what we have done as we're taking a review of everything.
Our our challenge here is due in the Variabilize every cost we can.
Reevaluated and been working conditions today, working from home and all those I think you're introducing opportunities for more efficiency for us. So we're driving those will react as the volume plays out here over the next quarter too and I think you'll see additional opportunities I will address.
So when that.
Maybe I'll take.
Maybe I'll take the second part that first question.
He said.
That was cheap but.
You can theme.
Yes, the new here.
Well to me that the pregnant story continues to be very strong.
If you look at the ARPU you results.
The European you.
Nick story, not repeat again, it's not a person story.
Pricing continues to be very good.
Same store sales sequentially year over year, very very good and there are negotiated contracts.
It is our same store sales plays and so the team is doing an exceptional job.
These.
Circumstances.
Q2 extracted value.
Value for the.
For the transportation product.
You are delivering to our customers, which is Jim and both in terms that continues to be standard.
So I'm very very pleased the team has done a phenomenal job and.
Delivered great results on the placing sorry.
Your next question comes from line of Brandon Oglenski from Barclays.
Please go ahead.
Hey, good afternoon, everyone and thanks for taking my question.
Congrats on the quarter, although you know the question I'm going to focus on here as the rate of decline that were seen in the second quarter and Mark maybe if he can speak to that we I think we show your volume down about 20%. So far in April do you have any indications from customers when they plan to reopen sites or no go back higher levels of.
Shipping or have we not even felt potentially the bottom of it yet.
You know Brandon.
I would say.
Well my Crystal ball is probably as good as yours.
It's uncertain environment.
You know things are so we would.
What we're doing is we're continuing to stay very very close to our customers.
I know the team while working remotely.
And is staying very close to customers, reaching out to them on a weekly basis.
Trying to get a feel for their business you guys to their business.
Thanks to supply chain, where we can do to react.
You know what I would say is.
You know these times are very uncertain and customers.
It would seem sort of thing than we are in so.
We are.
Were they are doing what we can control and that's continuing to provider customers with the best possible service.
Watching watching the volumes very closely Jamie Larry talk.
Every day and sometimes the way more than one and our teams doing well and we're doing an exceptional job of staying on top of things what I can tell you.
And our customers.
Welcome and things come back to normal so to speak we're going to be there to provide exceptional service.
For them either for them when when we get back so there's a lot of uncertain as I said clearly the.
The automotive.
No.
Guys are down.
You know we hear the public reports.
Those are pursuing both plants will be open sometime in early may around me board.
Yes, if you do they need push.
Wonderful thing, it's about a week or two.
But we're seeing very very close to them weekly calls with all our customers and especially the automotive gaas.
And we'll just watching.
No what the what happens.
Thank you.
Your next question comes from lineup Allison Landry from credit Suisse.
Please go ahead.
Good afternoon banks.
So you know into passive said that you still had.
Many cost levers to pull us as part of ongoing PSR implementation. So does it does the current downturn in volumes provides an opportunity to beat up some of those remaining initiatives.
So if you could if you could speak to an acceleration of cost takeout and also any other changes in the network that you might be able to pull forward that what potentially put you guys and then even better positioned to benefit from a recovery sooner than you might have otherwise. Thank you.
Thanks Allison.
You know the.
I've talked many times about the difficulties associated with the decline.
On a gradual basis over the last 12 18 months associated with a stagnant industrial economy.
And that if.
We can respond quicker.
When there are downturns.
And you know the job that the team did in Reais banville over the last.
Four weeks in essence.
Not counting the international intermodal it started a little bit earlier, but over the last a short period of time that responding.
To this quick downturn was nothing short of Amazing Jamie why don't you talk about the all of the steps that you guys took.
Sure absolutely.
We.
Obviously over the past few weeks here, we really started to adjust our network.
So as to what we're seeing as occurrence the current environment the way that the man sits so we've we made a lot of changes out there we've reduced over the last couple of weeks.
A number of our assets, but really we've reduced our total road starts by 23% year over year against the 25% decline in volume.
We stored over 400 locomotive since the end of March driving our active locomotive count under 2000 put that in perspective three years ago. When we started schedule railroading at CSX, we had over 4000 locomotives.
We also held our merchandise train length consistent.
Yes, we've been able to eliminate over 500 merchandise trends from our daily plan, which is more than a 20% sorry 15 merchandise trains from our daily plan, which was more than 20% reduction.
Well, we've been doing all that we've been able to reduce our train delays by over 66%.
So I think it's really.
Important to note that these changes are not just volume related that we started.
Really right off the start to are ready for growth working with Mark and his team while they were driving with the cost with customers.
Now, we're really starting to pivot and use the current environment to go after structural opportunities in our operation.
We will continue to adjust their network as demand dictates going forward, but we're also making changes where assets.
Not need to come back in the feature this was really an exercise for us to continue to work close with our marketing team.
Adjuster volumes and network each and every each and every day, but at the same time, we are ready when volume returns.
To go after that volume and not leave a carload behind.
Thank you guys.
Your next question comes from lineup Com walked away from you be Act. Please go ahead.
Hi, good afternoon.
Yeah, right remarkable job on the cost side, you know very impressive how quickly you responded.
Wanted to get your thoughts you know marker jam just in terms of.
How did that.
I guess I'm going to when the market moves so much maybe it's irrelevant, but how do you interact with customers in terms of you got to cut costs. Then is the kind of share gain versus truck story, something you can kind of put on hold him say, we'll revisit in another year or is it something that you kind of it.
Thank you.
You know gauge the way you Youre managed where you cut cost of that you still have that service in kind of.
Dialogue from before I mean, it seems like it's kind of an incremental question in a market that big very macro driven but how do you think about that relative to the obvious success than not cutting a lot of costs.
But Tom as I said in my opening remarks, you know.
We have worked like dogs.
Service levels of this railroad up to where they belong and to win back credibility from our customers and so we are.
First of all embark and follow up on this but mark and Jamie as James said, our constant communication.
With each other and making sure that our customers are aware of what service changes we need to make.
And what the impacts to our customers may be and it also in many circumstances.
The reason you know again the reason that we're reducing train starts is because their volumes are down and all we need to do is having an honest dialogue with our customers about the fact that we don't think we can serve them five days a week, how about three and they go sure let me do make the necessary adjusted.
Vince.
Where it is appropriate but mark and his team are as he said constantly communicating.
With the customers about that Mark why don't you follow up.
Yes or no.
Exactly right now, we're talking with our customers, certainly where theyre seeing volume decline because their own businesses are in their businesses were softer than we have an opportunity to maybe take a day or the service or whatever you know, we're having those conversations and we're seeing coaster, Jamie and making those changes.
I think was around here and our commitment to our customers is important and we took the responsibility very very importantly, and.
Instead, we've worked really really hard over the last three years to put in the reliability and the consistency of service to customers expect limits were doing that we continue to do that and we're not going to just because volumes are declining we're not going to walk away from that strategy then so.
We're continuing to work with everybody listen you know I think he and the weekly carloads are showing that I mean, we with our better service and as I talked many times we.
Repositioned, our marketing team to really get away from just being placing people to really understanding and doing real marketing work.
Equally opportunities for us to to gain share than most other modes of transportation.
And they're going to continue that I'm not sitting in the home where you're just because their volumes are down they're going to continue the work.
We're winning in the marketplace, where uncovering opportunities with our better service product.
You.
We share from other modes of transportation and yours, I think you're seeing it.
In the carloads were having tremendous success, there and that what's going to continue.
Okay, great. Thank you.
Your next question comes from line of Brian Ossenbeck from JP Morgan. Please go ahead.
Hey, good afternoon, Thanks for taking my question.
The two comments on fuel efficiency, you wanted to circle back to that I think going to the 2018 Investor day target was about 0.95 is probably the only target you didnt really from that.
From that outlook, so I just wanted to hear.
Are you still get to that number it sounds like a lot of efficiency gains, you're making now aren't necessarily volume dependent.
So just wanted to see what were the main factors to drive that if that that goal was to potentially on the table.
Jamie you want to take that.
Yes, absolutely.
Look at fuel is something that we talk about consistently here at CSX and.
Everyone on our team money operating team is knows clearly where our targets in our goals are with respect to that.
We are using technology.
Constantly.
To make sure that we hit those targets as we continue to break through New records, each and every quarter as we move forward.
We feel confident that.
We will continue to to show the improvement that we have in the past and we'll continue to move that forward.
Definitely.
As far as we feel our trains we make are trained bigger longer that helps with the efficiency were two locomotives or are pulling more more freight.
Then they were before as we consolidate trains and as we continue to move forward.
Into into volume growth at some point in time, when when the market conditions change, but the yet it.
Key factor I've got an unbelievable operating team.
Who is working on working on this we have created our own.
Small department of a few individuals who are solely comps trigger no fuel efficiency and those people will continue to do what they're doing and driving the the metrics the where we're seeing them.
I guess, we'll take an eight well take on a minus done well taken a minus on one of our one of the category [laughter] [laughter] all right. Thanks, Jamie.
Your next question comes from line of Ken Hoexter from Bank of America. Please go ahead.
Great good afternoon.
I hope all is well im safe.
And Jim you've always provided good insight into kind of the calling the volume outlook, maybe just talk a bit about more about keeping the cost around if you anticipate a quick bounce back given the speed of the decline.
Compared to so suffering with some higher cost near term and I guess I'm more specifically, referring to employees and how you think about furloughing or.
Cutting additional employees.
With the ability to get them back up and running quickly.
Boy can that has been the number one area of concentration for me for the last month with signs to deal with the not only the.
[music].
Making sure that we have the employees.
Ready willing and able when this business the turns around.
To make sure because of the.
A tragic circumstances, both with the disease and the economic followed at the same time to make sure that we were very humanitarian in the way.
We've approached things.
We have been working diligently with the labor unions from day one.
In have come up with some unique arrangements.
To address those concerns.
Recognizing the fact that the future is clearly on node in terms of how long this is going to last.
And so.
With the you know we've done a lot of the interesting and unique is things in conjunction with labor.
Especially in the in the early days to keep the employees working.
And and then to be able to pivot to adjust.
In a manner when volumes.
Really began to decline but to make sure we have access to those employees when things turn back. So we have been we've been thinking way outside the box it try and come up with ideas wherever we can and right now I feel whereas in it is good it position as one could be in that circumstance I wish I wish I hit a.
It Crystal ball in terms of.
Future volumes.
But right now.
We just don't have that.
So I guess just to clarify.
Just on just on paper, but at some points that Jim kind of put out there was.
We have with our with our Union groups, we have set up some agreements.
That will allow our employees to go on what we call the retention board their choice.
Sorry to reserve board at their choice to to get on that board or not.
Most of our employees a large number of them have have decided to go onto that board instead of taking furlough on the t. any side and the you know the benefits for US and of course. These are tough decisions that were making as we continue to work on this downturn and controller costs, but but the benefits is it's a less.
Carrying cost for us, but it allows employees have medical benefits and other benefits along the way that gives us in most cases, a 48 hour recall for one of the volume starts to come back we don't have to wait the the normal period, which is around the 15 day recall cycle, we're able to to jump on volume.
As Mark and his team work on it at the economic conditions change.
Thanks, Jim Thanks, I appreciate that.
Your next question comes from line of Chris Wetherbee from Citi. Please go ahead.
Hey, Thanks, Good afternoon, guys maybe.
Maybe a question on intermodal and I guess, maybe two pieces to it I guess first when you think it out sort of the customer makes on what you guys are moving both on the international and domestic side is there any sense that you can give us the sort of what is maybe more consumer and sort of essential type businesses that could be operating with a floor might be like in that and then secondarily.
In times of disruption like this you tend to see modal shift occur obviously truck spot rates have gone down quite a bit here, but that typically isn't sort of measure that you guys tell us to look to in terms of how to think about share between truck and rail is more contractual so just want to get a sense. It maybe how that kind of plays out when you're in a very disruptive Steve like we're in right.
Now.
Sure Mark.
Sure. Thanks.
So this when we started off.
The quarter intermodal is doing quite well we have the traditional Charlie here on the international side, where where volumes were reduced significantly.
And then because of 19 hopefully get in China.
And that shift around we sort of small pause on the international center for quite some time. Meanwhile, the domestic sort of the business is doing actually pretty well I think as people saw what was happening.
There was a lot of inventory being done.
Listen to what you know two stores.
The anticipation of increased demand and.
So.
So that dynamic and then China opened up a little bit.
Later in the quarter, we saw some international volumes come in and Meanwhile, the domestic side of the business was slowing down considerably so.
No.
We lived through.
You can.
Want to reports out there.
Today, the debate any principally going and clearly the with a lot of the shutdowns and then doesn't retail.
Businesses are close.
There's not a lot of demand for.
The thing so we want to blame ceilings.
International from and we expected our our domestic intermodal business.
Will slow down considerably and is slowing down considerably now and for the foreseeable future. So.
Who knows what sort of a dynamic ships it has been going on.
Service.
His tremendous.
Our on time performance.
Yes.
In the high nines.
90%, 99%.
We're seeing so yes you.
I think it shortens the trucking environment.
Hi.
Loosened up quite significantly and is in Israel.
So.
You know that we have to continue doing what we're doing providing service to our customers.
Clearly competition from the trucks is lot of a lot of trucks over there and.
Where.
We're going to compete harder and try to win some business that.
That's correct.
It's kind of the environment right now.
Okay. That's a that's very helpful color appreciate it thank you.
Your next question comes from minus Scott Group from Wolfe Research. Please go ahead.
Hey, Thanks afternoon, guys. So it's got some Kevin Kevin last quarter, you talked about some specific headwinds I think it was 300 million or so and coal revenue 90 million lower gains 50 million in the other railway revenue I don't know if those are so impacted by by what's going on so maybe just a.
Comment if you think any of those have hasnt materially changed and then Mark for you just quickly what have we seen the full impact to the benchmarks in coal ARPU or is there one more like down to come here.
Yes, I'll cover a few of those headwinds I think we are on the previous comments and real estate sales last year was about 160 million, we guided for the full year 60 million based on my comments.
We'll probably see something a little bit south of that 60 million.
No the market's fluid right now.
Lastly, our fuel sequentially the number will be in line with the first quarter.
Fourth quarter is probably a little bit more uncertain, depending on you know the market conditions.
That exist today, we're certainly not going to fire sale anything and.
We've got plenty of cash and we're going to maximize value.
Of course.
And then on the depreciation as I described the 50 to 60 million headwind.
Primarily related to the group life study.
There.
It is obviously non cash but passing.
Income statement on that side from a coal perspective, I'll, let mark talk little bit more about that but I don't think in aggregate that's not headwind as James.
In the market.
It's probably somewhat similar but I'll, let mark touched on that.
No.
Yes, I would say.
Yeah.
I don't know [laughter].
I'd say.
Benchmarks are are sort of all over the place.
I think from what we told you in Q O Q4 in January I think.
Thanks, Mark perspective, we're still sort of thinking the same thing.
Quarterly little bit of weakness on these two places.
With that level factor now because one logical form a euro.
You know most of our coal all of our coal.
Yes, sorry go on India, India slows down for a month when that reopens anybody's guess.
So no call. This morning right now.
So those were dynamics are happening.
The net benchmark came up a little bit.
Those are those are replaced a quarterly so but clearly this is Jim said in his opening.
Coal has.
Some headwinds.
You know we didn't we didn't foresee any of these cooling and when we were talking to you in January.
Markets of the change dramatically.
So there is always going some headwinds out there and benchmarks or or one but the demand is.
Clearly.
The driving force here.
Okay. Thank you guys.
Your next question comes from line, if David Ross from Stifel. Please go ahead.
Yes, good afternoon, gentlemen, and maybe just a question for Jamie.
Talking about mix, specifically are there any commodity type the U haul that either help or hurt overall network productivity that might be harder to handle or that slowed the network for some reason for example, autos not around is that a good thing.
Or is there any other commodity type that might limit network efficiency.
Sorry.
[laughter] delegate.
On the operating into things of course, we would really only got three different types of commodity our type of.
Trains I guess, we would say so you've got our bulk service, which is easier lower costs.
And most circumstances and cases, and then we have our merchandise which.
As usually handled multiple times throughout the network.
The time against from from online or from customer to customer.
With respect to the auto side of the business.
I would say that it is.
It's heavily on our network. It's it's varied customer base with respect to a lot of work done at the loading facilities and unloading facilities.
So there are number of yards and locals and and we do have some dedicated auto trains that run in certain parts of the network. So.
When it comes to cutting off auto even though it's a it's a revenue.
That we don't want to lose and it's it's a good revenue for us.
Theres you can pull out a lot of cost with respect to auto when the auto network shuts down the way it did.
Thank you.
Your next question comes from the line of Jordan Algea from Goldman Sachs. Please go ahead.
Yes, just a quick question obviously most of the.
Volume environment pretty tough right now but.
Is it some buffer come from agriculture agricultural products is that is that something that might actually not that bad in the grand scheme of things.
Oh, well, it's certainly.
Great commodities got a little different cycle to it.
Thank you know we're looking at.
As an example are reasonably good movement, the fertilizer announced because that's the time of the year to do that.
And I think everybody still plenty of pointing a crop this year.
And then you know in all the various buckets.
A lot of them again as you said agricultural.
He has its own cycle.
Based upon that it's commodity it's not tied to auto production as an example.
So my there there is as you said a different cycle than the rest of the industrial so.
Maybe there could be some some hope on that volumes right.
Yes, yes, there's certainly yes, certainly each element has its its own.
Drivers.
So to speak.
And you know auto as an example, as there is one thing that impacts a lot of different groups within the industrial and merchandise.
Segment and.
But yes, there are certain elements I mean, there's going to still be a you know some some coal is going to move.
Like I said fertilizers, the move brings going to get harvest Bert.
<unk>.
We've always.
We've always relied on you know grains, and one shrinking shape or another could keep the railroad going.
Whether its corn wheat or beer.
Great. Thank you.
Your next question comes from line of Justin Long from Stephens. Please.
Please go ahead.
Thanks, and good afternoon.
So one of the noticeable trends year to date has been outperformance.
Your volumes versus your eastern rails competitor. So I was wondering if you could comment on how much of that outperformance in your opinion is.
As a function of market share gains from that rail competitor market share gains from truck and mix and maybe as you answer that question. You can also addressed by lower fuel price environment, and how you're thinking about the nodal share impact from that going forward as well. Thanks.
Mark.
Sure.
So.
Sure sure.
Sorry.
No.
Well just.
We we are seeing share good share gains across the portfolio.
Well so our strategy. When we started this thing was to put in place the best service product that we could.
Doing though we continue to do that.
Next we will focus on the sales and marketing organization is really focused on.
Three things.
Number one.
Because of the superior service that we have.
Working with our existing customers.
To stand the amount of window with the news.
Number two working with customers who used to have.
Just a move.
Pretty good CSX.
But for some reason over the last couple of years that 3% various reasons might have went away, we're working hard with those customers to bring that back.
Back home I would say.
In the third strategy is working with shippers.
Traditionally never use mill in the past that have always look to truck is easier to do business with and never really wanted to to consider rail as an option because of the working where do you want to make it easier to do business with because of our cost profile, we're able to go into some of those markets now that our marketing team has identified.
Looking ahead, and Eagle and being able to to win share. There for instance, we could very successful in one segment of the business.
Yes.
Continues to be a very strong come on let me first these days with water road construction.
Projects that are going on traditionally along that coming out of like from Georgia entered into middle of Florida.
Less than 300 miles you can buy trial, because and yet the capacity because we have the service.
We're able to play in those markets.
And make a very good.
Turn by doing so and the contribution on that is very good. So so we're very so we're looking at all these different buckets of opportunities or are being very aggressive when I think as you said joining question.
Yes in the results.
On a weekly basis.
Hi, Justin on your comment about the you know the dynamics between rail versus truck in the impact that lower fuel prices might have.
No worse. The you know that's one of one of the reasons why we continue to work so hard to make sure we reduced our fuel efficiency is so that we can the it'd be more competitive with the highway.
But there are been a number of a recent as independent surveys that are out there right now where they ask customers and what you're still I guess plant. What do you think about rail transportation as a reliable yet so that the yes, or you're likely to shift probably a little bit more than I wasn't that bad.
Is there still value to shipping rail versus truck well, maybe it's not 15% when oil is negative 35.
But they still sets.
10% cheaper.
With the same talk like service is extremely compelling into marketplace.
Great. That's helpful. Appreciate their responses.
Right just.
Next question comes from line, if David Vernon from Bernstein. Please go ahead.
Hey, Good afternoon, Kevin question for you on the balance sheet side, you got $2 billion for the cash obviously ample liquidity castle position at business is good for you guys going to get back to.
More aggressive capital returns you buy back are you thinking about changing in the way you're going to be returning some of that capitalism investors look I've said, where the dividend any any changing thoughts on that.
Capital return profile going forward.
Yes. This is clearly it's a dynamic.
Hi, good right now we're very.
Happy and.
Two of <unk> billion and cash on the balance sheet and growing every day.
Generating positive free cash flows of us.
Clearly, we look over the medium term and even long term that's not a customer that we are going to need on the balance sheet and we still feel.
No distributing into your shareholders.
It's something that will prioritize going board when when the buybacks will continue.
You to discuss that over the next you know.
I would expect at some point for us to be.
Still core component of our accounts return to shareholders I mentioned in the opening remarks that we're committed to our dividend is something that we reevaluated every year. We just recently this year.
No increase that and so we'll see what we do next year, but again, we're generating significant free cash flow even in these market conditions and we can we can cover that dividend.
We continue to be committed to shareholder returns.
Alright. Thank you maybe if I could squeeze one quick follow up then Jim or is there anything on the policy side, you're looking at coming out of DC that would be.
Beneficial or game changing beyond obviously, the economy, just restarting anything in infrastructure spending or stuff like that that we should be keeping an eye on that would have that I think in fact I guess.
Nothing that is a game changing what we're clearly interested in any cause of financial stimulus that would involve infrastructure because.
Yeah that would be a benefit to us.
But no so far today.
The government in terms of providing flexibility.
To the rail industry.
To be able to operate in maintain.
All of the safety requirements, especially with the AD hoc nature of the way. Some of this was implemented in the states a we have not really bad been implemented impacted in the government's been very cooperatively with us.
All right. Thanks.
Yes.
Your next question comes from lineup of Walter Spracklin from RBC capital markets. Please go ahead.
Thanks, very much good afternoon, everyone.
I I guess, if we were to look out you'll be on cobot 19 and.
Understanding that there's you know the world.
The future is not going to be nor it we're not going back to normal and then there's it could be some opportunities that emerge in the new normal Jim.
When you look at how the world might develop post cobot 19, how it structurally different is there anything that are railroader CSX and the in particular can do to to capitalize on a new normal that that is just different from the way things operated before and if I could lead to witness for a second you know the the retail.
Ill focus on E commerce from a higher costs that are that are contained in that strategy of ecommerce is a is it new strategy can you benefit that ecommerce either because the the retailers are also looking to two to offset that with a lower cost real option or can you somehow play a role in E commerce.
Chain in a way that you didnt.
The you Didnt before.
Oh, well the yes, there is that the two benefits are well not the call. It benefits I should move that were there there are two opportunities for us that may arise as.
Things overall.
First.
As I sing.
And this is just my own personal thoughts I think that there will be more manufacturing that takes place in this country.
And any kind of business activity like that.
Is good for the railroad.
Secondly.
We now are we now can.
Compete.
With the truck.
In the markets it they become more and more.
Large quantity shippers that well into the rail dynamics because of our service so.
With our service product that we had before and because of the disparate to network.
Away product moved it was difficult for the railroads to compete in ecommerce Arena I think did as we go forward will that will be a big opportunity for us.
Okay. Appreciate the time.
Your next question comes from line, Jason Seidl from Cowen Your line is open.
[noise] Jason Your line is open please limit yourself. Thank you operator age and T. Hope you guys doing well.
It seems like we're going to be coming out of this pandemic.
On a on a state by state basis, so it's going to be a little bit choppy and despair.
I will kind of challenges is that going to present to CSX and the network.
Probably the same kind of challenges that we experienced in the past when I talked about a slow decline.
Is harder to manage that a complete shut off it was easier for us as the to adjust as we've described when the auto industry just completely shut down in a week.
My guess is the audience three won't completely startup in a week.
And so we will be challenged as the traditional logistics chain who.
Is not the same and so we'll have to we'll have to evolve we'll have to work with our customers.
And it will are present.
Sure.
More of a challenge score.
Don't see the fact that once they like come back online in certain areas.
Two weeks before somebody else does Texas, starting up before.
So there is not not that big of a deal it industry.
That will start up across the country based on the comfort level of the population is this they come back.
That makes sense and is this where sort of that flexibility with your head count is going to really come into play and help you out.
Sure Yeah. That's why we're again, we're trying to we're trying to anticipate.
You may be heard a lot of people talking about planning modeling thinking what do we do new norm started out of that listen we spent have spent and continue to spend a lot of time brainstorming about what could happen in how are we going to be in a position to respond.
Sounds good listen everyone be safe out there.
Thank you.
Next question comes from a line of Jon Chappell from Evercore ISI. Please go ahead.
Thank you.
Given the closing comments you mentioned in the prior period assumption, how you've been through obviously you towards the front.
Your former employer or you came in line.
Arguably the best performance, both operationally and financially during the closest thing to what we're dealing with now I know it on nine what are some of that similar each that you see this environmental balco eight or nine in some lessons that you can bring from that period helped a lot to proactively you get the system right sized get still without disrupting the service.
Well, you know I think Oh wait on nine.
[music].
Again, we saw.
Not this.
Saddam shutdown, but we saw clearly a dramatic shutdown and as a result, we looked back to those days to see.
Yeah, because I wasn't that see a sets and pretty much none of us work here.
See what the traffic that clients were what the traffic pattern declines work.
And it was helpful.
For us to try and.
I understand.
What it's like when 20% your business goes away in two weeks.
So.
[music].
So were lessons learned from all of those things.
You know.
I hate the age by itself or yeah, I've been through Oh, just about every modern day financial Calamity plus.
Others.
In my career.
But this one is clearly the most challenging.
No you're implementing similar.
Operationally in the.
North of the border well years ago or is it completely deferral response, given the network that are lucky graphic exposure.
Oh, It's you know again, there's no magic to a a the geography those admitted theres magic to people and the the wind set of the people here in terms of making decisions being quick being nimble and getting things done all while.
Looking forward and not getting at tunnel television.
Is the same.
We have the.
The.
We have a phenomenal team.
That recognizes what needs to get done all work together and execute.
Just the way we did example.
That was it was just good people there too.
Thank you.
Your next question comes from line.
And then a rack Barnes from TD Securities. Please go ahead.
Thanks, very much and good afternoon.
So clearly we're in uncharted territory here and you talked a lot about how you're staying close to your customers, but I wonder if you could just talk a bit about how you're collaborating make your interchange partners to prepare for various downturn and recovery scenarios.
Well you know it's a.
It's a network business, what happens to one of us against all of us.
It wasn't that just the auto plant shutdown at CSX, they sit down across the country.
We work together on a constant basis.
Managing the fleet as it moves across the network open the lines of communication good coordination, making sure that we don't get the a lot of equipment. The stuck in one per a little that could the begin to slow down the network.
And I think over the last couple of years, you've heard that many of its say.
Most of the operating people now at the various railroad.
All think alike.
All kind of working off the same page in terms of moving assets and up and running the network to the maximum levels efficiency and that's been extremely helpful. The coordination and understanding has been extremely helpful.
Thank you that's my one.
Right.
Your last question comes from line of Rodney Soccer from Morgan Stanley. Please go ahead.
Thanks, Jim or Kevin if I could just follow up and lost a response, obviously completely understandable that you put your guidance given the variety of the the spirit of uncertainty out there.
But I'm sure you guys have plan for.
Multiple scenarios is a that can play over the next two or three quarters. So can you share can to some of the like the bull there be escape scenario. If one of what what he was looked like in Twoq to Threeq to Fourq you are going up as far as everybody is that was.
Well, yes, we've certainly.
We certainly.
Looked at.
All of the alphabet.
The V. the you the L. and what I use the W.
As possible.
Recovery.
Scenarios.
And.
And obviously the volumes in each one of those numbers or is.
Significantly different.
So as a result, because there's such a huge difference.
Between now and that's why at this point in time, maybe give me. Another 30 days, we'll have a better visual as to what the real startup plan for the auto is what's going on with steel, what's going on with X y and Z other than that it's just the hypothetical exercise and that's why we didnt want to try to the guests at this point in time and so.
I apologize, but we're just not going to give you some kind of numbers like that.
Okay. Thanks.
Yeah really.
This concludes today's teleconference. Thank you for your participation on today's call you may now disconnect.
[music].