Q3 2023 CSX Corp Earnings Call

Speaker 1: Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2023 CSX Corporation Earnings Conference call.

Good afternoon, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the third quarter 2023 D X Corporation earnings Conference call.

Speaker 1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star, followed by the number one on your telephone keypad. And if you would like to withdraw your question, please press star one. Thank you. Mr. Matt Corn, head of investor relations, you may begin your conference.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad and if you would like to withdraw your question. Please press star one thank you.

Mr. Matt Korn head of Investor Relations you May begin your conference.

Speaker 2: Thank you, Krista. Hello, everyone, and welcome to our third quarter earnings call. Joining me this afternoon are Joe Hendricks, President and Chief Executive Officer, Wright Corey, Executive Vice President and Chief Operating Officer, Kevin Boone, Executive Vice President and Chief Commercial Officer, and Sean Pelkey, Executive Vice President and Chief Financial Officer. Thanks for joining us, and we will be starting shortly.

Thank you Christa Hello, everyone and welcome to our third quarter earnings call. Joining me. This afternoon are Joe Hinrichs, President Chief Executive Officer, Mike Cory Executive Vice President Chief Operating Officer, Kevin Boone Executive Vice President and Chief Commercial Officer, and Sean Pelkey, Executive Vice President and Chief.

Speaker 2: presentation accompanying this call you will find our forward-looking disclosure on slide two by our non gap disclosure on slide three and that is now my pleasure to introduce Mr. Joe Henry.

Central Officer.

A presentation accompanying this call you will find our forward looking disclosure on slide two by our non-GAAP disclosure on slide three.

That it is now my pleasure to introduce Mr. Joe Hinrichs Alright.

Speaker 3: All right, thank you, Matthew, and hello, everyone. Thank you for joining our conference call today.

Alright, Thank you Matthew and Hello, everyone and thank you for joining our conference call today.

Speaker 3: Over this last year, CSX mission and message have remained clear and concise.

Over this last year C. S X mission and message have remain clear and consistent we have seen great progress with our one <unk> initiatives, which are helping to build a focused collaborative culture that enables all of our employees to feel engaged energized and focused on working better together.

Speaker 3: We have seen great progress with our one CSX initiatives, which are helping to build a focused, collaborative culture that enables all of our employees to feel engaged, energized, and focused on working better together. At the same time, our service levels continue to lead the end of the-

Same time, our service levels continuing to lead the industry.

Speaker 3: These successes go hand in hand, and as our customers see that CSX is truly dedicated to providing consistent, reliable service over the long term, they're responding positively. As you look forward to all the opportunities ahead, we are confident that these efforts we are making will drive clear, sustainable, possible growth.

These successes go hand in hand, and as our customers see that C. S. X is truly dedicated to providing consistent reliable service over the long term. They are responding positively and we look forward to all the opportunities ahead. We are confident that these efforts, we are making will drive clear sustainable profitable growth.

Speaker 3: And we took another step forward in this path this quarter. Thanks to the hard work put in by our 1CFX team, our railroad is running well. Our merchandise business remained steady, and our coal shipments were very strong. Our domestic intermodal volumes are growing well compared to last year, while our international intermodal business, though down year over year, has stabilized. Overall, our network continues to perform, and I am pleased with how the team has succeeded in managing the things that we can control.

And we took another step forward on this path this quarter. Thanks to the hard work put in by our <unk> team. Our railroad is running well our merchandise business remained steady and our coal shipments were very strong our domestic intermodal volumes are growing well compared to last year.

Intermodal International intermodal business go down year over year as stabilized overall, our network continues to perform and I am pleased with how the team has succeeded in managing the things that we can control.

Speaker 3: I continued to be very excited about all the potential ahead for CFX.

I continue to be very excited about all the potential ahead for <unk>.

Speaker 3: Now let's turn to slide five to review the highlights for the third quarter. First, we moved over 1.5 million car loads this quarter because down just slightly from a year ago, we've slapped you over your performance in merchandise and 9% growth in coal. Our operating ratio had kicked up into the low 60s as we faced challenges that we had been talking about all year with lower fuel recovery, reduced internal storage revenue, lower export coal prices, and higher cost inflation, most notably with our labor contract.

Now, let's turn to slide five to review the highlights for the third quarter.

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Move to over $1 5 million carloads. This quarter. It was down just slightly from a year ago with flat year over year performance in merchandize and 9% growth in coal our operating ratio ticked up into the low sixties as we faced challenges that we had been talking about all year with lower fuel recovery produced intermodal storage revenue lower export coal pricing.

And higher cost inflation, most notably with our labor contract.

Speaker 3: At in previous quarters, our margin does include the impact of the quality carriers trucking this.

As in previous quarters. Our margin does include the impact of the quality carriers trucking business sector.

Speaker 3: Second, we generated $3.6 billion in revenue, which was 8% lower in the previous year. The last year we benefited from high diesel prices and record export coal benchmarks that were both much lower this quarter. Third, even with the year over your changes we faced, charges, changes we faced, operating income still came in at $1.3 billion for the quarter, compared to a little under $1.6 billion last year. And our earnings for a share were 42 cents down from 50 cents.

Second we generated $3 $6 billion in revenue, which was 8% lower than the previous year. The last year, we benefited from higher diesel prices and record export coal benchmarks that were both much lower this quarter.

Third even with the year over year changes, we faced charges changes we faced operating income still came in at $1 $3 billion for the quarter compared to a little under $1 $6 billion last year and our earnings per share were <unk> 42.

Down from 56.

Speaker 3: I'm proud of what we accomplished this quarter given all the challenges. None of us here are satisfied with these results. We're not sitting back and simply waiting for markets to turn. We're looking throughout the entire network to see where we can operate more efficiently. We continue to work closely with our customers to build our business pipeline and drive more volume onto the railroad. And we're emphasizing the importance of cost discipline to every team in every one of our locations.

I am proud of what we accomplished this quarter given all the challenges none of US here are satisfied with these results, we're not sitting back and simply waiting for markets to turn we're looking throughout the entire network to see what we can operate more efficiently. We continue to work closely with our customers to build our business pipeline and drive more volume onto the railroad and we are emphasizing.

The importance of cost discipline to every team and every one of our locations.

Speaker 3: One of the reasons I am so confident about what is ahead for CSX is the great literature team that we have in place. As you all saw last month, we were very pleased to announce that Mike Corey has joined our railroad as Chief Operating Officer. Mike brings great experience and a thorough understanding of federal railroading, and he also shares our deep dedication and appreciation for customer service and the employees who provide that service day in and day out.

One of the reasons I'm. So confident about what is ahead for C. S. X is a great leadership team that we have in place as you. All saw last month. We are very pleased to announce that Mike Cory has joined our railroad as Chief operating officer, Mike brings great experience and a thorough understanding of scheduled railroading and he also shares our deep dedication and appreciation for customer service and the MP.

<unk> can provide that service day in and day out.

Speaker 3: A mic arrived in Jacksonville a few weeks ago and is now here throwing us on this call and so I will now turn over to Mike to say a few words and cover our operational performance over the quarter.

Well, Mike arrived in Jacksonville, a few weeks ago and is now here joining us on this call and so I will now turn it over to Mike to say, a few words and cover our operational performance over the quarter.

Speaker 4: Well, thank you very much, Joe, and I truly appreciate the words. And I'm extremely thankful for the opportunity to work with such a committed team of people with so much potential to lead this industry with great customer service.

Well, thank you very much Joe and I truly appreciate the words and I am extremely thankful for the opportunity to work with such a committed team of people with so much potential to lead this industry with great customer service.

Speaker 4: safety, service, efficiency, and along with engagement with each other, customers and stakeholders is how we're going to leverage this great franchise to be besting.

Safety service efficiency, along with engagement with each other our customers and stakeholders is how we're going to leverage this great franchise to be best in class.

Speaker 4: I've been here short time, you know, pretty much less than a month, but I've been really busy. I visited major yards, coal exports facilities, and I've spent time in headquarters meeting with an array of people from different functions of the rail.

Been here short time pretty much less than a month, but I've been really busy I visited major yards coal export facilities and I've spent time in headquarters meeting with an array of people from different functions of the railroad.

Speaker 4: When I'm in person, I've listened to and I've spoken with employees from all across the company. From people on the ground executing the plan, from people developing the plan, to sales and marketing, finance, field and network ops, I keep facilities and the list goes on.

In person I've listened to and I've spoken with employees from all across the company from people on the ground executing the plan for people developing the plan to sales and marketing finance the network ops.

Facilities and the list goes on but what really resonates with me as their collective desire to be the best they can be for our <unk> team and our customers.

Speaker 4: But what really resonates with me is their collective desire to be the best they can be for our one CSX team and our customers. And we've got great talent in all our functions. And our job is to connect the talent and maximize the value of their efforts.

Got great talent in all of our functions and our job is to connect the talent and maximize the value of their efforts. We're doing this in order for our team to be the best at providing what our customers need in the safest and most efficient way.

Speaker 4: We're doing this in order for our team to be the best at providing what our customers need in the safest and most efficient way. We're doing this because decision-making, acting on what they see and know, must be quick and done as close to where the opportunity is taking place. That said, I see opportunities, one of which, and to me, the most important at this stage is to create and share a robust and visible flow of information that will derive improvement through the continuation of the lean principles of the defined schedule.

Doing this because decision, making acting on what they see and no let's be quick and Dennis close to where the opportunities taking place that said I see opportunities one of which and to me. The most important at this stage is to create and share a robust and visible flow of information that will drive improvements through the continuation of the lean principles to define scheduled railroad.

We all need to see the effects of a collective decisions as fast as possible to be more nimble and responsive to our customers' needs as well collectively we will learn and share best practices throughout the organization from this and other available data as it gives us a platform to learn as it happens this will create the speed and the trust that we need to move together as one team.

So let's go over to the slides and we'll start looking at our safety metrics I think quarter injury and accident rates increased as we saw track caused in human factor incidents trend upward.

Speaker 4: A third quarter injury in accident rates increased as we saw a track caused and human factor incidents trend up.

Speaker 4: These aren't acceptable outcomes for us. And we're taking action.

And aren't acceptable outcomes for us and we're taking action to continuously improve the environment our employees operate in as well as the overall safety culture human factor incidents, especially with newly hired employees within one of the trends this year that have driven the increase.

Speaker 4: to continuously improve the environment our employees operate in, as well as the overall safety code.

Q3, the team added additional time for initial training for our new conductors that are ready center in Atlanta. We also looked at the length of training when new hires graduate from Atlanta and report back to their home terminals and increased the length of that training as well.

Speaker 4: We also looked at the length of training when new hires graduate from Atlanta and report back to their home terminals. And we increased the length of that training as well.

Speaker 4: Increased training gives us more time to develop skills with our new hires, but we also determined we needed to place resources to spend that time with them So we train unionized mentors and now we have them across the property with the new hires

Increased training and gives us more time to develop skills with their new hires but we also determined we needed to place resources to spend that time with them. So we train unionized mentors and now we have them across the property with the new hires he.

Speaker 4: As mentors are available to teach and answer questions, reinforcing the one CSX culture by being part of developing and coaching their newly hired peers.

He mentors are available to teach and answer questions reinforcing the ones just ex culture by being part of developing and coaching their newly hired tiers.

Speaker 4: Lastly, on safety, we're not taking our focus off life changing events. We've partnered with DECRA, especially risk management group, a rollout training to help employees self-identify risk in a never changing environment.

Lastly on safety, we're not taking our focus off life changing events with partnered with Jackrabbit, especially risk management group for rollout training to help employees self identify risk in an ever changing environment.

Speaker 4: Now traditionally, railroads train on operating rules, but we can't write a rule for everything or test our way to a positive safety culture. Both identification of risk and eliminating that risk when possible is one of our major goals moving into Q4 and beyond. So let's go over to the next slide.

So traditionally railroads train on operating rules, but we can't read a rule for everything or test our way to a positive safety culture, both identification of risks and eliminating that risk when possible as one of our major goals moving into Q4 and beyond.

So let's go over to the next slide on our operating highlights our end to end train velocity averaged $17 six miles an hour in the third quarter slightly lower than last quarter, but still up substantially from the same period in 2020 to dwell averaged 9.6 hours and improvement of nearly 20% compared to the same period last year.

Speaker 4: Our M to N tune velocity average 17.6 miles an hour in the third quarter. Slightly lower than last quarter, but still up substantially from the save period in 2022. Duel average 9.6 hours in improvement of nearly 20% compared to the same period last year.

Speaker 4: In the model trip plan performance was 94%, and increased by 4% each point to year over year, while car load trip plan performance was 82% and improved by 25% each point. Our service performance remains fluid, and though we did see a slight seasonal dip during the middle of the quarter during peak vacation and holiday season, our metrics are rebounding into the fourth quarter.

Intermodal trip plan performance was 94% and increased by four percentage points year over year, while carload trip plan performance was 82% and improved by 25 percentage points. Our service performance remains fluid and though we did see a slight seasonal dip during the middle of the quarter during peak vacation and holiday season, our metrics are rebounding into the fourth quarter.

Speaker 4: We all know and we will. We all know we will and we're all working together to improve these results.

We all know and we will but we all know we will and we're all working together to improve these results our ability to leverage this great franchise by connecting the people and the vast talent. They bring will allow us to improve all key aspects of our business with a strong focus on those lean management principles that drive reliable consistent service I'm really confident.

Speaker 4: Our ability to leverage is great franchise by connecting the people and the vast talent they bring will allow us to improve all key aspects of our business with a strong focus on those lean management principles that drive reliable consistent service. I'm really confident that connecting all of these dots together is going to result in a strong team now and more importantly, bend strings for the future. This is really our one CSX goal. And so with that, over to you, Kevin.

The connecting all these dots together is going to result in a strong team now and more importantly bench strength for the future. This is really our one C S exco and so with that over to you Kevin.

Speaker 5: Thank you. Mike and I have been spending a lot of time together and it is really great to have you on the team. To start, I'm pleased to say that our improving service levels are a key differentiator in the marketplace. I can't think the entire team enough for all of the hard work. These improvements are being recognized by our customers in our leading to new initiatives and discussions around how CSX can partner with our customers for growth.

Thank you, Mike and I have been spending a lot of time together and it was really great to have you on the team.

To start I'm pleased to say that our improving service levels are a key differentiator in the marketplace.

Thank the entire team enough for all the hard work.

These improvements are being recognized by our customers and are leading to new initiatives and discussions around how C. S X can partner with our customers for growth.

Speaker 5: Our ability to grow profitably requires us to be proactive, quickly adapt to changing markets and think differently. I'm proud of how well we have been able to coordinate with operations to drive both growth and efficiencies. With Mike in his role, we have only seen these efforts accelerate.

Our ability to grow profitably requires us to be proactive quickly adapt to changing markets and think differently.

I am proud of how well we have been able to coordinate with operations to drive both growth and efficiencies with Mike in his role we have only seen these efforts accelerate.

Speaker 5: It's no surprise that overall economic conditions remain uncertain. But it has been encouraging to see gradually improving sequential trends across several of our end markets over this past quarter.

It's no surprise that overall economic conditions remain uncertain.

It has been encouraging to see gradually improving sequential trends across several of our end markets over this past quarter.

Speaker 5: We see many, many reasons to be optimistic as we continue to build our business pipeline with an eye toward 2024 and beyond.

You see many many reasons to be optimistic as we continue to build our business pipeline with an eye towards 2024 and beyond.

Speaker 5: Turning to slide 10 to look at our merchandise performance for the quarter.

Turning to slide 10 to look at our merchandise performance for the quarter.

Speaker 5: Our revenues were down modestly compared to last year on flat volumes as solid core pricing gains were all said by lower fuel surcharge and negative mixed effects in certain markets.

While revenues were down modestly compared to last year on flat volumes as solid core pricing gains were offset by lower fuel surcharge and negative mix effects in certain markets.

Speaker 5: Automotive business continue to show strength with higher production and business wins driving a 19% increase in volume year over year.

Our automotive business continued to show strength with higher production and business wins, driving a 19% increase in volume year over year.

Speaker 5: The federal's continues to perform very well, sustained by infrastructure activity that is supporting new cement facilities and healthy demand for aggregate.

Minerals continues to perform very well sustained by infrastructure activity that is supporting new cement facilities and healthy demand for aggregates metals.

Speaker 5: Metals performance has also benefited from our service levels, leading to competitive wins and solid demands.

Metals performance has also benefited from our service levels, leading to competitive wins and solid demand.

Speaker 5: Our chemical franchise, while challenged, had begun to stabilize and even showed some promising improvement in domestic plastics over the quarter.

Our chemical franchise, while challenged has begun to stabilize and even showed some promising improvement in domestic plastics over the quarter.

Speaker 5: The fertilizer revenue growth was strong in the quarter, despite volumes that were impacted by weaker short haul movements, with production challenges in Florida.

Fertilizer revenue growth was strong in the quarter. Despite volumes that were impacted by weaker short haul movements with production challenges in Florida.

Speaker 5: As we expected, the strong, soft, eastern corn crop and less rail volume for grain. And forest products remains one of the most challenged areas with many mills still taking meaningful downtime.

As we expected the strong south eastern corn crop than less rail volume for grain.

In forest products remains one of the most challenged areas with many mills still taking meaningful downtime.

Speaker 5: As we start the fourth quarter, we are encouraged by the early October volume trends, but most markets showing sequential momentum.

As we start the fourth quarter, we are encouraged by the early October volume trends, but most markets showing sequential momentum.

Speaker 5: anticipate a strong rebound for Agon Food as a strong Midwest harvest kicks in. In across other markets, we expect our service improvements to drive opportunities to in the marketplace as we focus on modal conversion.

We anticipate a strong rebound for Aegean food as a strong Midwest Midwest harvest kicks in.

And across other markets, we expect our service improvements to drive opportunities to win in the marketplace as we focus on modal conversion.

Speaker 5: Turning to slide 11, third quarter call revenue declined 5%, even though volumes were very strong, growing 9% compared to last year. Export demand continued to be a major volume driver, growing 26% with a hot summer also supporting solid domestic demand.

Turning to slide 11 third quarter coal revenue declined 5%, even though volumes were very strong.

Growing 9% compared to last year.

Demand continued to be a major volume driver growing 26% with the hot summer also supporting solid domestic demand.

Speaker 5: Strong coal volumes minimized the effects of lower international benchmark prices, which were setting all time records this time last year. The key difference was met coal pricing for global benchmarks were much lower than in the same period last year.

Strong coal volumes minimize the effects of lower international benchmark prices, which were setting all time records. This time last year.

The key difference was met coal pricing for global Mitch benchmarks were much lower than in the same period last year.

Speaker 5: Sequentially, our whole RPU declined 11% compared to our guidance of mid-teens decline, which stronger than expected shipments to longer length of haul southern utility customers, driving the moderate outperformance.

Sequentially, our KOL RP, you declined 11% compared to our guidance of mid teens decline.

With stronger than expected shipments to longer length of haul southern utility customers driving the moderate outperformance.

Speaker 5: Looking ahead to the last quarter of the year, we expect export markets to remain strong. And please, with the increases in international benchmarks that we've seen over the last several weeks.

Looking ahead to the last quarter of the year, we expect export markets to remain strong.

We're pleased with the increases in international benchmarks that we've seen over the last several weeks.

Speaker 5: Under domestic side, we have seen stock tiles normalize. And demand in the 2024 will be driven by winter weather and related demand needs.

On the domestic side, we have seen stockpiles normalize and demand in the 'twenty 'twenty four will be driven by winter weather related demand needs.

Speaker 5: Increasing global benchmark prices should benefit our cold yield next quarter. So I would remind you that we have a diverse portfolio of met customers. We have seen US-based met coal benchmarks and those in other regions, lag spot prices in Australia.

The increase in global benchmark prices should benefit our cold yields next quarter.

I would remind you that we have a diverse portfolio of met customers and we have seen U S base met coal benchmarks and those in other regions lagged spot prices in Australia.

Speaker 5: Turning to Intermodal on slides 12. As a whole, the business remained challenged with revenue declining by 14% and total volume decreasing by seven.

Turning to intermodal on slide 12.

Hold the business remained challenged with revenue declining by 14% and total volume decreasing by seven.

Speaker 5: Overall, RPU declined by 8% year-over-year with the impact of lower fuel search charge accounting for the decline partially offset by positive price.

Overall, <unk> declined by 8% year over year with the impact of lower fuel surcharge accounting for the decline partially offset by positive price.

Speaker 5: That said, we're seeing encouraging trends from our domestic business, our volume-turn positive on a year-to-year basis early in the summer. And that's continued to improve since then. We offer a diverse mix of transportation solutions within domestic intermodal. And we've seen great results from our strong channel partnerships and our direct relationships with major retailers.

That said, we are seeing encouraging trends from our domestic business, where volume turned positive on a year over year basis early in the summer.

And that has continued to improve since then.

We offer a diverse mix of transportation solutions within domestic intermodal and we've seen great.

Results from our strong channel partnerships and our direct relationships with major retailers.

Speaker 5: Our team has been successful under converting traffic off the highway in a market-facing, wonderful truck capacity, which is a testament to the team in the market-leading service product.

Our team has been successful in converting traffic off the highway.

Market facing plentiful truck capacity, which is a testament to the team and the market leading service product.

Speaker 5: Meanwhile, International Intermodal Activity has stabilized, but we remain weak. Have you ever seen any clear signs of a positive...

Meanwhile, International intermodal activity has stabilized, but we remains weak.

Haven't seen any clear signs of a positive inflection yet.

Speaker 5: Retailers remain concerned about the help of the consumer. And though destocking may have slowed, we haven't seen this turn into sustained increases in order rates or import.

Retailers remain concerned about the health of the consumer.

Though destocking may have slowed we haven't seen this turn into sustained increases in order rates or imports.

Speaker 5: For the rest of the year, we expect trends to largely continue as they were over the third quarter, with the most of the gradually strengthening supported by our team's strong sales effort.

For the rest of the year, we expect trends to largely continue as they were over the third quarter with domestic gradually strengthening supported by our team's strong sales efforts.

Speaker 5: While we prepare, prepare for the churning point for international. Call that we saw meaningful drop-offs in our intermodal volume in the back half of the fourth quarter in 2022, as Marcus loads substantially, which will benefit our reported growth rate for the current quarter.

While we repair prepare for the turning point for international.

Called out we saw meaningful dropped almost in our intermodal volume in the back half of the fourth quarter in 2022 as markets slowed substantially.

Which will benefit our reported growth rate for the current quarter.

Speaker 5: Slide 13 provides a clear illustration of the encouraging signs we're seeing within our intermodal business. On a year-to-year basis, domestic intermodal has shown a favorable trend since the beginning of 2023. 20 positive around mid-year, instead of improving sun.

Slide 13 provides a clear illustration of the encouraging signs we're seeing within our intermodal business on.

On a year over year basis domestic intermodal has shown a favorable trend since the beginning of 2023 training.

So any positive around mid year and steadily improving sense.

Speaker 5: While international volumes remain lower, compared to 2022, we've seen stability in the past few months.

While international volumes remained lower compared to 2022, we've seen stability in the past few months.

Speaker 5: All together, across all of our businesses, our team continues to push forward across multiple initiatives and that winning wallet share, converting truck traffic and bringing new customers to the railroad.

Altogether across all of our businesses. Our team continues to push forward across multiple initiatives aimed at winning wallet share converting truck traffic and bringing new customers to the railroad.

Speaker 5: remain confident that our leading service performance will continue to provide opportunities to win business. And we know that we have the resources and capacity in place to deliver growth when the market environment inflates.

We remain confident that our leading service performance will continue to provide opportunities to win business and we know that we have the resources and capacity in place to deliver growth when the market environment and flex I'm.

Speaker 5: I'm proud of what the electives, the FX team, has accomplished this quarter, and I'm excited about all the potential ahead. Now, we're turned it over to Sean to discuss financials.

I am proud of what the collective <unk> team has accomplished this quarter I'm excited about all of the potential ahead.

Now I'll turn it over to Sean to discuss financials.

Speaker 4: Thank you, Kevin, and good afternoon. The third quarter operating income of $1.3 billion was lower by 18% or 284 million.

Thank you, Kevin and good afternoon third quarter operating income of $1 $3 billion was lower by 18% or 284 million.

Speaker 2: These results include nearly $350 million of year-of-year impacts from lower intermodal storage revenue, export coal benchmark prices, and fuel recovery. Partly offset by 42 million of favorability related to last year's labor agreement adjustment.

These results include nearly $350 million of year over year impacts from lower intermodal storage revenue export coal benchmark prices and fuel recovery.

Partly offset by 42 million of favorability related to last year's Labor agreement adjustment.

Speaker 2: So, if I said to say this, quarters should represent the peak year-rear impact from these discrete items.

Suffice it to say this quarter should represent the peak year over year impact from these discrete items.

Speaker 2: revenue fell by 8% or 323 million despite strong pricing across many merchandise portfolio along with positive volume trends across many merchandise markets as well as domestic domestic in total. All spectacularand a huge person has the strengths of the f Chili

Revenue fell by 8% or $323 million, despite strong pricing across many march the merchandise portfolio, along with positive volume trends across many merchandise markets as well as domestic intermodal.

Speaker 2: The operating team also worked tirelessly to meet customer needs and deliver a 9% increase in coal lolly.

The operating team also worked tirelessly to meet customer needs and deliver a 9% increase in coal volume.

Speaker 2: Across merchandise, coal and intermodal, revenue excluding fuel recovery increased 2% in the quarter and was up mid-single digits, excluding the impacts of coal RPU head.

Across merchandise coal and intermodal.

Revenue, excluding fuel recovery increased 2% in the quarter and was up mid single digits, excluding the impacts of coal RP you headwinds.

Speaker 2: Expenses were lowered by 2% and I will discuss the line items in more detail on the next slide.

Expenses were lower by 2% and I will discuss the line items in more detail on the next slide.

Speaker 2: Interest in other expense with $13 million higher compared to the prior year. Income tax expense decreased $32 million as the impact of lower pre-tax earnings more than offset a prior year favorable state tax item. And this quarter's effective tax rate came in at 24.9%.

Interest and other expense was $13 million higher compared to the prior year.

Income tax expense decreased $32 million as the impact of lower pretax earnings more than offset a prior year favorable state tax item.

And this quarter's effective tax rate came in at 24, 9%.

Speaker 2: As a result, earnings per share fell by 10 cents, including nearly 12 cents of impact, from the previously mentioned discrete items. Let's now turn to the next slide and take a closer look at expenses. Total...

As a result earnings per share fell by 10 cents, including nearly 12 cents of impact from the previously mentioned discrete items.

Let's now turn to the next slide and take a closer look at expenses.

Total third quarter expense decreased by $39 million.

Speaker 2: Overfuel prices and cycling the prior year labor true up were mostly offset by the impacts of inflation and higher depreciation.

Lower fuel prices and cycling the prior year labor true up were mostly offset by the impacts of inflation and higher depreciation.

Speaker 2: Turning to the individual line items, labor and fringe expense decreased $7 million, as the prior year union labor adjustment was largely offset by inflation and increased headcount.

Turning to the individual line items labor and fringe expense decreased $7 million as the prior year Union labor adjustment was largely offset by inflation and increased head count.

Speaker 2: Titan detention to overtime benefited cost per employee. Particularly in our mechanical workforce where overtime ratios are now running at multi-year low.

Heightened attention to overtime benefited costs per employee, particularly in our mechanical workforce, where overtime ratios are now running at multi year lows.

Speaker 2: The job to services and other expense increased $25 million versus last year, including $16 million associated with higher casualty expense.

Services and other expense increased $25 million versus last year, including $16 million associated with higher casualty expense.

Speaker 2: Starting to sequential performance versus Q2 on the right-hand side of the page, network performance, and numerous cost control initiatives in the quarter, drove a nearly $20 million reduction in PS&O across our operating department.

Turning to sequential performance versus Q2 on the right hand side of the page network performance and numerous cost control initiatives in the quarter drove a nearly $20 million reduction in P. S N L across our operating departments.

Speaker 2: We expect these savings to remain in the fourth quarter, aside from normal seasonality.

We expect these savings to remain in the fourth quarter aside from normal seasonality.

Speaker 2: Depreciation was up $21 million as a result of last year's equipment study as well as a larger asset base.

Depreciation was up $21 million as a result of last year's equipment study as well as the larger asset base.

Speaker 2: Fuel cost was down 89 million, mostly driven by a lower gallon price.

Cost was down 89 million, mostly driven by a lower gallon price.

Speaker 2: This was partially offset by higher consumption, including approximately 2.5 million gallons recognized from prior periods.

This was partially offset by higher consumption, including approximately $2 5 million gallons recognized from prior periods.

Speaker 2: Adjusting for this fuel efficiency was still unfavorable versus the prior year. And Mike has brought an increased focus on this critical measure.

Adjusting for this fuel efficiency was still unfavorable versus the prior year.

And Mike has brought an increased focus on this critical measure.

Speaker 2: and seasonality will impact fuel efficiency in Q4. We slowly expect to get back on trend.

Seasonality will impact fuel efficiency in Q4, we fully expect to get back on trend.

Speaker 2: Equipment and rents was $10 million dollars favorable, driven by faster freight car cycle times across all markets.

Equipment in rents was $10 million favorable driven by faster freight car cycle times across all markets.

Speaker 2: These benefits were partly offset by costs related to higher automotive volume.

These benefits were partly offset by costs related to higher automotive volumes.

Speaker 2: Finally, property gains were 21 million unfavorable in the quarter. As a reminder, we are cycling over $50 million of prior year gains in Q4 and expect sales this year to be minimum.

Finally property gains were 21 million unfavorable in the quarter.

As a reminder, we are cycling over $50 million of prior year gains in Q4 and expect sales this year to be minimal.

Speaker 2: Now turning to cash flow and distributions on slide 17.

Now turning to cash flow and distributions on slide 17.

Speaker 2: Reflecting the discrete factors I discussed earlier, free cash flow is down from the prior year, but remain strong supporting investments in the safety and reliability of our network, as well as an increased level of high return strategic invest.

Reflecting the discrete factors I discussed earlier free cash flow is down from the prior year, but remains strong supporting investments in the safety and reliability of our network as well as an increased level of high return strategic investments.

Speaker 2: The West Cash Flow has also supported over $3.5 billion in shareholder returns so far this year, including $2.9 billion in share repurchases and over $650 million of dividend.

<unk> cash flow has also supported over $3 $5 billion in shareholder returns so far this year.

Excluding $2 9 billion in share repurchases and over $650 million of dividends.

Speaker 2: Economic profit as measured by CSX cash earnings is about $160 million lower year to date Impacted again by intermodal storage revenue and export coal prices

Economic profit as measured by C. S X cash earnings is about $160 million lower year to date impacted again by intermodal storage revenue and export coal pricing.

Speaker 2: Nevertheless, the focus on economic profit is helping to incent a pipeline of high return initiatives that will deliver growth and ongoing efficiency gains. Now with that, let me turn it back to Joe for his closing remarks.

Nevertheless, the focus on economic profit is helping to incentive pipeline of high return initiatives that will deliver growth and ongoing efficiency gains now with that let me turn it back to Joe for his closing remarks.

Speaker 3: All right, thank you Sean. Now, as Sean slide 19, we will finish with some updated comments on our outlook as the approach to the final quarter of 2023.

Thank you Sean now as shown on slide 19, we will finish with some updated comments on our outlook as we approach the final quarter of 2023.

Speaker 3: We continue to expect low single-digit growth and revenue ton miles for the full year, supported by our consistent performance in merchandise and export of coal. Automotive and minerals are main important growth areas. Though obviously we're watching developments with the 23 automakers in the UW very closely.

We continue to expect low single digit growth in revenue ton miles for the full year supported by our consistent performance in merchandize and export coal.

Automotive and minerals remain important growth areas. So obviously, we are watching developments Detroit three automakers in the UAW very closely at.

Speaker 3: As Kevin mentioned, we also look for a substantial rebound in our ag and food business over the fourth quarter. Expert whole volumes remain strong as global demand stays high for US met and thermal coal. For domestic coal, we anticipate some slow down from the third quarter, which benefit from hot summer weather. So for this quarter, we continue to be pleased with our shipment levels. For Intermodal, as we mentioned, we expect domestic activity to keep gaining minus momentum through the fourth quarter. For now, our international business looks largely stable.

As Kevin mentioned, we also look for a substantial rebound in our AG and food business over the fourth quarter export coal volumes remained strong as global demand stays high for U S met and thermal coal for domestic coal, we anticipate some slowdown from the third quarter, which benefited from hot summer weather, though so far this quarter, we continue to be pleased with our shipment levels for <unk>.

Intermodal as we mentioned, we expect domestic activity to keep gaining modest momentum through the fourth quarter, while for now our international business looks largely stable.

Speaker 3: Overall, a vine growth rate and intermodal will reflect favorable year-over-year comparison.

Overall, our volume growth rate in intermodal will reflect favorable year over year comparisons.

Speaker 3: As we've said all year, the pricing environment remains supported. And we have been encouraged by the agreement they've already reached for 2024. Note that with the slowdown in our in our modal story revenue that we have seen over the course of this year, we are now expecting supplemental revenue, excluding trucking to decline by $325 million for the full year.

As we've said all year the pricing environment remains supportive and we have been encouraged by the agreements that you've already reached for 2024.

Note that with the slowdown in interim intermodal storage revenue that we've seen over the course of this year.

We are now expecting supplemental revenue, excluding trucking to decline by $325 million for the full year.

Speaker 3: I'll commitment to efficiency and cost control remains in place as the keep our eye on service performance not just in the near term, but also as you look ahead to improve mark conditions and greater demand for real capacity. Finally, our estimate of $2.3 billion in capital expenditures remains unchanged, along with our strong focus on innovation and growth.

Our commitment to efficiency and cost control remains in place as we keep our eye on service performance not just in the near term, but also as you look ahead to improved market conditions and greater demand for rail capacity finally, our estimate of $2 $3 billion in capital expenditures remains unchanged along with our strong focus on innovation and growth.

Krista: Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2023 CSX Corporation earnings conference call.

Speaker 3: I will close by saying that I'm very proud of what we've accomplished as one CSX team and they finished my first year with CSX.

I will close by saying that I'm very proud of what we've accomplished as one C. S X team as I finished my first year with C. S X.

Speaker 3: When I spoke to all of you last fall, we talked about our belief that CSX could accomplish great things and create so much value by working better together as one team to serve our customers. We have made very good progress. And all of us know that there remains so much more we can do.

When I spoke to all of you last fall, we talked about our belief that <unk> could accomplish great things and create so much value by working better together as one team to serve our customers. We have made very good progress and all of US know that there remains so much more we can do.

Krista: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, please press star one.

Speaker 3: I mean, even more enthusiastic about our opportunities than I was last year. We all appreciate your support and support in our company. And we keep moving forward. All right, thank you. And Matthew, we're now ready for questions.

I'm, even more enthusiastic about our opportunities than it was last year. We all appreciate your support and interest in our company and we keep if we keep moving forward.

Matthew Korn: Thank you, Mr. Matt Korn, head of investor relations, you may begin your conference. Thank you, Krista. Hello, everyone, and welcome to our third quarter earnings call.

Alright, Thank you and Matthew we're now ready for questions. Thank.

Speaker 6: Thank you, Joe. We'll now move to our question and answer session. May we enter the time and make sure that everyone on this call has an opportunity. We ask you to please limit yourselves to one question. Christa, let me start the process.

Thank you Joe.

We'll now move to our question and answer session.

The interest of time and to make sure that everyone. On this call has an opportunity to ask you to please limit yourselves to one question Christa I'm going to start the process.

Matthew Korn: Do you want to meet this afternoon, our Joe Hinrichs president, Chief Executive Officer, Mike Cory, Executive Vice President, Chief Operating Officer, Kevin Boone, Executive Vice President, and Chief Commercial Officer, and Sean Pelkey. Executive Vice President, and Chief Financial Officer.

Speaker 1: As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad.

As a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad. Your first question comes from the line of Chris Wetherbee from Citigroup. Please go ahead.

Speaker 7: Your first question comes from the line of Chris Weatherby from City Group. Please go ahead. Yeah, hey, thanks. Good afternoon, guys.

Matthew Korn: In the presentation accompanying this call, you will find our program is looking disclosure on slide two by our non-gap disclosure on slide three.

Yeah, Hey, thanks, good afternoon guys.

Joe Hinrichs: And that is now my pleasure to introduce Mr. Joe Hinrichs. All right, thank you, Matthew and hello, everyone. Thank you for joining our conference call today. Over this last year, CSX Mission and Message have remained clear and consistent. We have seen great progress with our one CSX initiatives, which are helping to build a focused collaborative culture that enables all of our employees to feel engaged, energized, and focused on working better together.

Maybe Joe or Mike kind of wanted to start with your sense of where you are in terms of resources and services relative to the volume environment. So head count moved up again, maybe even if you can give us a sense of where you think you need to take that or if youre at reasonable staffing levels and maybe how we think about like I said that resource base relative.

Move to the volume environment, you have the ability to do more at these current levels or are we still in a little bit of the recovery phase.

Joe Hinrichs: At the same time, our service levels continue to lead the industry. These successes go hand in hand, and as our customers see that CSX is truly dedicated to providing consistent, reliable service over the long term, they're responding positively. As you look forward to all the opportunities ahead, we are confident that these efforts we are making will drive clear, sustainable, possible growth. And we took another step forward on this path this quarter.

Speaker 4: Oh, hey Chris, it's Mike. Look, again, I'm going to preface every probably most of my answers with that been here last you you we are a

Oh, Hey, Chris It's Mike.

Look and again I'm going to preface every probably most of my answers with they've been here less than a month, but we.

Speaker 4: We still have a training pipeline. We still have people that we need to get into position that I spoke of earlier. But overall, I'm comfortable that we have enough to improve.

We still have the training pipeline, we still have people that that we need to get into position that I spoke of earlier, but overall you know I am comfortable that we have enough to improve.

Speaker 4: The size of train, the amount of trains, the velocity with the people we have.

The size of train the amount of trains that the velocity with the people we have but however, there are areas, where we're probably getting affected us somewhat on the flow of the goods and so its constant we're working not just Kevin and I, but our teams together so they really get the ground floor view of what we can do and not having been.

Joe Hinrichs: Thanks to the hard work put in by our one CSX team, our railroad is running well. Our merchandise business remains steady and our coal shipments were very strong. Our domestic intermodal volumes are growing well compared to last year, our international intermodal business, no down year over year has stabilized. Overall, our network continues to perform and I am pleased with how the team has succeeded in managing the things that we can control. I continue to be very excited about all the potential ahead for CSX.

Speaker 4: But however, there are areas where we're probably getting affected somewhat on the floor of the goods.

Speaker 4: It's constant. You know, we're working in the not just Kevin and I, but our teams together. So they really get the ground floor view of what we can do and not having been here for that long. I haven't really stretched the stretch of the opportunities out there yet. So I say to answer your question, we're, we're where we need.

For that long I, havent really stretch the stretchy opportunities out there yet so I'd say to answer your question, where we're where we need to be we have people that are are being trained that are going to be positioned and you remember we have attrition, whether it's retirement or whatever the case, so we're showing that and with the people we have.

Speaker 4: We have people that are being trained, that are going to be positioned. And remember, we have attrition, whether it's retirement or whatever the case. So we're filling that. And with the people we have, we're in good shape. We have to get in better shape. And a lot of that's going to come from self-help and how we utilize the asset.

Joe Hinrichs: Now, let's turn to slide five to review the highlights for the third quarter. First, we moved over 1.5 million carloads this quarter, which was down just slightly from a year ago, with flat, you have your performance in merchandise and 9% growth in coal. Our operating ratio had kicked up into the low 60s as we face challenges that we have been talking about all year, with lower fuel recovery, reduced intermodal storage revenue, lower export coal prices, and higher cost inflation.

We're in good shape, we have to you have to get in better shape and a lot of that is going to come from self help and how we utilize the assets.

Speaker 3: Yeah, Craig, the last thing I'll add is, as Mike mentioned, we're still hiring in a few key locations. That's down to a little more than a handful.

Yes, Craig it's the last thing I'll add is as Mike mentioned, and we're still hiring in a few key locations.

<unk>, you know a little more than a handful.

Speaker 3: and largely we're in pretty good shape in most other spots. And with the natural attrition we have, we're still higher-ender place, some of that, because we are still, you know, our merchandise volume's up this year. So we're still seeing some growth in volume. But we feel pretty good about our ability to manage that. And Mike's really challenged the team and come with a new freshness set of eyes to look at how we can do some self-help, to free up some of our crews, help us, you know, even be more efficient. Thanks.

And largely we're in pretty good shape in most other spots and with the natural attrition. We have we're still hiring to replace some of that because we are still you know our merchandise volumes up this year, so where we're still seeing some growth in volume but.

Joe Hinrichs: Most notably, with our labor contract. At in previous quarters, our margin does include the impact of the quality carriers trucking business. Second, we generated $3.6 billion in revenue, which was 8% lower in the previous year. The last year we benefited from high diesel prices and record export coal benchmarks that were both much lower this quarter. Third, even with the year-over-year changes we face, changes we face, operating income still came in at $1.3 billion for the quarter to produce a little under $1.6 billion last year.

But we feel pretty good about our ability to manage that and Mike's really challenge the team and come with a new set of new fresh set of eyes to look at how we can do some self help to free up some of our crews to help us even be more efficient. Thanks.

Speaker 8: Your next question comes from the line of Brian Ossonback from JP Morgan. Please go ahead. Thanks, big in the question and Mike.

Your next question comes from the line of Brian Austin back from J P. Morgan. Please go ahead.

Joe Hinrichs: And our earning per share were 42 cents down from 50 cents. Well, I'm proud of what we accomplished this quarter and given all the challenges. None of us here are satisfied with these results. We're not sitting back and simply waiting for markets to turn. We're looking throughout the entire network to see where we can operate more efficiently. We continue to work closely with our customers to build our business pipeline and drive more volume onto the railroad.

Hey, Thanks for taking the question and Mike will come back to the industry Congrats.

Just wanted to ask more about the.

Speaker 8: on the service side maybe for Kevin. You think some conversion you mentioned off of areas that have it.

Excuse me on the service side, maybe for Kevin.

You're seeing some conversion you mentioned off of areas that have excess truck capacity. So.

Speaker 8: stuff that you thought you lost before and was going to come back or is the service been so good for so long that people actually going to convert and stay there just running.

This stuff that you thought you've asked before I was going to come back or has the service been so good for so long that people actually going to convert and stay there just trying to get a sense of of the stickiness of that and then Sean If you can just give us some comments on the cost per employee for the fourth quarter. It looks like overtimes coming down quite a bit there's always mix and training is involved.

Joe Hinrichs: And we're emphasizing the importance of cost discipline to every team in every one of our locations. One of the reasons I am so confident about what is ahead for CFX is a great literature team that we have in place.

Joe Hinrichs: As you all saw last month, we are very pleased to announce that Mike Cory has joined our railroad as sheep operating officer. Mike brings great experience and a thorough understanding of civil railroading. And he also shares our deep dedication and appreciation for customer service and the employees who provide that service day in and day out. A micro ride in Jacksonville a few weeks ago and is now here, throwing us on this call.

Speaker 8: quarter looks like over time it's coming down quite a bit there's always mix and trees and valves

So any color on that would be helpful.

<unk>.

Speaker 5: Yeah, I would say on the truck conversion side, we're really, really early into this thing. The good news is customers are willing to start to have those conversations that quite frankly we just couldn't have a year ago, given where we were. And so we're building momentum. I expect this to build on itself in the next year. The great thing is, I think as an industry of starting to become aligned.

Yes.

Say on the truck conversion side, where we're really really early into this thing.

The good news is customers are willing to start to have those conversations quite frankly, we just couldnt have a year ago, given where we were.

Mike Cory: And so I will now turn over to Mike to say a few words and cover our operational performance over the quarter. Well, thank you very much, Joe. And I truly appreciate the words.

And so we're you know we're building momentum I expect this to build on itself into next year. The great thing is I think as an industry are starting to become aligned.

Mike Cory: And I'm extremely thankful for the opportunity to work with such a committed team of people with so much potential to lead this industry with great customer service safety service efficiency. And along with engagement with each other, customers and stakeholders is how we're going to leverage this great franchise to be best in class. And I've been here short time, you know, pretty much less than a month, but I've been really busy. I visited major yards, coal exports facilities.

Speaker 5: in terms of going after growth, going after some of the opportunities that exist out there collectively as an industry. And I think that's very encouraging as well. But it's a mixture. It's a mixture of going after new customers. Clearly you pointed out the trucking market is not very supportive right now. But even in this market, we're finding customers that with ESG and with other things are wanting to have that discussion. There's still value that we can drive.

In terms of going after growth going out through some of the opportunities that exist out there collectively as an industry and I think that's that's very encouraging as well but.

It's a mixture it's a mixture of going after new customers clearly you pointed out the trucking market is not very supportive right now, but even in this market. We're finding customers that are with ESG and with other things are wanting to have that discussion there's still value that we can drive them, but I only expect that trucking market that firms up into next year and the years ahead that this one.

Mike Cory: And I've spent time in headquarters meeting with an array of people from different functions of the railroad in person. I've listened to and I've spoken with employees from all across the company from people on the ground executing the plan from people developing the plan to sales and marketing finance, field and network ops, I keep facilities and the list goes on. But what really resonates with me is their collective desire to be the best they can be for our one CSX team and our customers.

Speaker 5: But I only expect as the trucking market it firms up in the next year in the years ahead that this will accelerate on itself and see a lot of momentum coming.

We'll accelerate on itself and see a lot of momentum coming.

Speaker 2: Brian , on your follow-up question around cost per employee, we did made a lot of progress on the overtime front in the third quarter. You know, that's an area that Mike's been focused on right from the very beginning trying to figure out ways we can restructure the work and eliminate waste in certain locations. So that's going to help. I will say those sequentially Q3 to Q4, you probably will see still an uptick in cost per employee like we normally do. That's driven by some capital work labor that'll go over to OE in the fourth quarter. We also have some seasonal vacation and some accruals that'll hit in the fourth quarter. So I would say sequentially Q3 to Q4, you'll probably see comp employee up a few percent.

Brian on your follow up question around cost per employee we did made a lot of progress on the overtime front in the third quarter.

That's an area that Mike's been focused on right from the very beginning trying to figure out ways, where we can restructure the work and eliminate waste in certain locations. So that's going to help I will say, though sequentially Q3 to Q4, you probably will see still an uptick in cost per employee like we normally do that's driven by some capital work labor.

Mike Cory: And we've got great talent and all our functions and our job is to connect the talent and maximize the value of their efforts. We're doing this in order for our team to be the best at providing what our customers need in the safest and most efficient way. We're doing this because decision making acting on what they see and know must be quick and done as close to where the opportunity is taking place.

That'll go over to OE in the fourth quarter. We also had some seasonal vacation and some accruals that will hit in the fourth quarter. So I would say.

Mike Cory: That said, I see opportunities, one of which, and to me, the most important at this stage is to create and share a robust and visible flow of information that will derive improvement through the continuation of the lean principles of the defined schedule railroad. We all need to see the effects of a collective decisions as fast as possible, a more nimble and responsive to our customers needs. As well, collectively we'll learn and share best practices throughout the organization from this and other available data as it gives us a platform to learn as it happens. This will create the speed and the trust that we need to move together as one team.

Sequentially Q3 to Q4, you'll probably see a comp per employee up a few percent.

Okay.

Speaker 1: Your next question comes from the line of Brandon Oglinski from Barkley. Please go ahead.

Your next question comes from the line of Brandon <unk> Glen Ski from Barclays. Please go ahead.

Speaker 9: Hey, good evening and thanks for taking my question and Mike, welcome back as well. And I guess Mike, can I just ask you, the US roads historically just haven't had a great track record of organic growth and we know things like coal have been a long-term headwind. But what have you seen in your first month or so that you like to see at the CSX plan or changes you want to make that will help with this idea that CSX can outgrow the market looking ahead?

Hey, good evening and thanks for taking my question and Mike Welcome back as well and I guess, Mike can I. Just ask you you know the U S. Roads historically, just haven't had a great track record of organic growth and we know things like cough and a long term headwind, but what have you seen in your first month or so that you like to see at the CSI.

Mike Cory: So let's go over to the slides and we'll start looking at our safety metrics. Our third quarter injury and accident rates increased as we saw a track caused and human factor incidents trend upward. These aren't acceptable outcomes for us. And we're taking action to continuously improve the environment our employees operate in as well as the overall safety culture. Human factor incidents, especially with newly hired employees, within one of the trends this year that have driven the increase.

Next plant or changes you want to make that.

Will help with this idea that CSI can outgrow the market looking at.

Yeah, Hey, Brandon and thank you.

Speaker 4: Well, you know, I mentioned in my remarks the visibility of information, and it just creates this connection for people.

Wow.

I mentioned in my remarks, the visibility of information and it just it creates this connection.

Mike Cory: In Q3, the team added additional time for initial training for our new conductors at our ready center in Atlanta. We also looked at the length of training when new hires graduate from Atlanta and report back to their home terminals and increase the length of that training as well. Increased training gives us more time to develop skills with our new hires, but we also determined we needed to place resources to spend that time with them.

Where people see.

Speaker 4: You know, we have people that manage terminals, that manage the dispatch on the road, we have people that manage people from a crew management perspective, we manage the look, and we do all these things individually.

We have with people that manage terminals that manage the dispatch on the road we have people that manage people from our crew management perspective, we manage locomote, we do all these things individually and to see that all together and.

Speaker 4: and to see that all together. And then again, back to being understanding of what it is you can do, whether it's from a capacity or a service perspective, but then cutting in with Kevin's team, we can get sticky because we can really understand all the work we're doing is really to get that business, to keep that business.

And then again back to being understanding of what it is you can do whether it's from a capacity or a service perspective, but then cutting in with Kevin's team. We can get sticky because we can really understand all the work. We're doing is really to get that business is keep that business.

Mike Cory: So we trained unionized mentors and now we have them across the property with the new hires. As mentors are available to teach and answer questions, reinforcing the one-siase-sex culture by being part of developing and coaching their newly hired peers.

Speaker 4: And I see that here, the opportunity here is, you know, look, the real way I came from, you got the business, you went 1,000, 1,500 miles, and then there was more business here, it's everywhere.

And I see that here the opportunity here is.

You know look the railway I came from you you got the business. You went 12 1500 miles and then there was more business here it's everywhere.

Mike Cory: Lastly, on safety, we're not taking our focus off life-changing events. We've partnered with Gakra, especially Risk Management Group, for roll out training to help employees self-identify risk in a never-changing environment. Now traditionally, railroads train on operating rules, but we can't write a rule for everything, or test our way to a positive safety culture. Both identification of risk and eliminating that risk when possible is one of our major goals moving into Q4 and beyond.

Speaker 4: And it's not, it's competitive, but there's lots of it. In Kevin, we're not talking so much about the truck. Obviously, we're going to grow with the market and what it gives us. But I just, I think the opportunity here when we connect our people, we are everywhere. We serve us, you know, but is it two thirds of the US market? And that's just opportunity.

And it's not it's competitive but theres lots of that and Kevin we're not talking so much about the truck obviously, we're gonna grow with the market and what it gives us but I just I think the opportunity here when we connect our people.

We are everywhere. We service you know what is it two thirds of the U S market.

And that that's just opportunity in itself so.

Mike Cory: So let's go over to the next slide on our operating highlights. Our end-to-end turn velocity average 17.6 miles an hour in the third quarter, slightly lower than last quarter, but still up substantially from the save period in 2022. Blow average 9.6 hours in improvement of nearly 20% compared to the same period last year. In the model trip plan performance was 94%, and increased by 4%age points year over year while carload trip plan performance was 82% and improved by 25%age points.

Speaker 4: So, you know, I don't know if I'm answering your question again. I've been here a month, but I see that that's really what our goal is. We want to grow properly. We want it to be readable. We want to make sure that we're in position for it. And we're going to make sure that we rid ourselves of waste. So we're not getting rid of the assets that we need when it does come.

I don't know if I'm answering your question again I've been here a month, but I I see that that's really what our goal is we want to grow properly. We wanted to be ratable, we want to make sure that we're in position for it and we're going to make sure that we rid ourselves of waste. So we're not getting rid of the assets that we need when it does come.

Speaker 1: Your next question comes from the line of Jonathan Sheppell from Evercore ISI. Please go ahead.

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

Mike Cory: Our service performance remains fluid, and though we did see a slight seasonal dip during the middle of the quarter during peak vacation and holiday season, our metrics are rebounding into the fourth quarter. We all know, and we all know we will, and we're all working together to improve these results. Our ability to leverage is great franchise by connecting the people in the vast talent they bring will allow us to improve all key aspects of our business, with a strong focus on those lean management principles that drive reliable consistent service. I'm really confident that connecting all these dots together is going to result in a strong team now, and more importantly, bend strength for the future.

Speaker 10: Thank you, good afternoon. Like I kind of wanted to build on that and you kind of brought up your formal role as well. You transitioned there from a PSR railroad to a growth railroad. And maybe that didn't go smoothly as you would have hoped. So you're not joining a fixed rougher here. So the SXS is serviced much.

Thank you good afternoon.

Mike I kind of want to build on that and you kind of brought up your former role as well you transition there from a <unk> railroad to a growth railroad and maybe that didn't go as smoothly as you would've hoped so youre not joining a fixer upper here <unk> service metrics have improved.

Speaker 10: improve vastly over the last year or two, and now you're pivoting the growth. So what are some of the lessons that you've learned from that transition to the last role, and some of the dangers to avoid, and how you manage capacity as you're trying to fill the network without clogging up the networking causing.

Improved vastly over the last year or two and now you're pivoting to growth. So what are some of the lessons that you've learned.

From that transition that the last roll on some of the dangerous to avoid and how you manage capacity as youre trying to fill the network without clogging up the network and causing service issues.

Kevin Boone: This is really our one CSX goal, and so with that, over to you, Kevin. Thank you. Mike and I have been spending a lot of time together, and it is really great to have you on the team.

Speaker 4: Thanks Jonathan, one of the wounds just opened up. Look, it's so different. We have to be really aligned. First of all, we have to understand what our assets and our people can do for us and expand on that obviously. But I just don't see the market, the commodities we move being the same as the growth is where I came from.

Well, thanks, Jonathan one of the wounds just opened up.

Look the.

No different we have to we have to be really.

Kevin Boone: To start, I'm pleased to say that our improving service levels are a key differentiator in the marketplace. I can't think the entire team enough for all of the hard work. These improvements are being recognized by our customers in our leading to new initiatives and discussions around how CSX can partner with our customers for growth. Our ability to grow profitably requires us to be proactive, quickly adapt to changing markets and think differently. I'm proud of how well we have been able to coordinate with operations to drive both growth and efficiencies. With Mike in his role, we have only seen these efforts accelerate.

And first of all we have to understand what what our assets and our people can do for US and then expand on that obviously, but I.

I just don't see the market.

The commodities, we move being the same as the growth is where it came from.

Speaker 4: And so again, I have a long way to go to understand the market and I'm working extremely hard with Kevin to understand it. But look, the principles are the same. We sell a service.

And so again I I have a long way to go to understand the market and I'm working extremely hard with Kevin understand it but the principles are the same.

We sell a service we deliver a service and.

Speaker 4: And how fast we recover from any service disruptions is key to keeping the customer knowing that our goal is to be the reliable provider for them. So I don't see any difference. And you can go back and take a look at the hockey stick recovery and all that great history, but I'm looking forward.

And how fast we recover from any service.

Disruptions is key to keeping the customer knowing that our our goal is to be the reliable provider for them. So I don't see any difference and you can go back and take a look at.

Kevin Boone: It's no surprise that overall economic conditions remain uncertain, but it has been encouraging to see gradually improving sequential trends across several of our end markets over this past quarter. We see many, many reasons to be optimistic as we continue to build our business pipeline with an eye toward 2024 and beyond.

The hockey stick recovering all of that great history, but I'm looking forward and I don't I don't think anything changes in my view as to how we approach this.

Speaker 4: And I don't think anything changes in my view as to how we approach this. We know what we can do, and we continue to really stay close. And again, the teams being together from the ground floor up, there shouldn't be surprises. And if there are, we're gonna build our resiliency so that we can attack it again and again be reliable for the customer.

We know what we can do and we continue to really stay close and again the teams being together from the ground floor up.

Kevin Boone: Turning to slide 10 to look at our merchandise performance for the quarter. Our revenues were down modestly compared to last year on flat volumes as solid core pricing gains were all set by lower fuel surcharge and negative mix effects in certain markets. Automotive business continued to show strength with higher production and business wins, driving a 19% increase in volume year over year. The minerals continues to perform very well sustained by infrastructure activity that is supporting new cement facilities and healthy demand for aggregate.

They shouldn't be surprises and if there are you know we're going to build our resiliency. So that we can we can attack it again and again be reliable for the customer. So I don't see that big of a difference in terms of the model that we have year or where we have wherever we have that we had had before.

Speaker 4: I don't see that big of a difference in terms of the model that we have here or where we have, wherever we have, what I had before. It's a cell the service, deliver the service, and Kevin is really working hard with this team on rateability. So there shouldn't be surprises.

Sell the service deliver the service and Kevin is really working hard with his team on readability. So there shouldnt be surprises.

Speaker 1: Your next question comes from the line of Scott Group from Wolf Research. Please go ahead.

Your next question comes from the line of Scott Group from Wolfe Research. Please go ahead.

Kevin Boone: Metals performance has also benefited from our service levels, leading to competitive wins and solid demand. Our chemical franchise, while challenged, has begun to stabilize and even showed some promising improvement in domestic plastics over the quarter. Protolizer revenue growth was strong in the quarter, despite volumes that were impacted by weaker short haul movements, with production challenges in Florida. As we expected, the strong South Eastern corn crop meant less real volume for grain, and forest products remains one of the most challenged areas, with many mills still taking meaningful downtime.

Speaker 11: Hey, thanks. Good afternoon. Maybe Kevin any just any color on how much of a uptick in the Cole Yale, we should expect in Q4 and into Q1. And then maybe just Shawn just help us think about some of the puts and takes for Q4. It just sounds like better volume, less of a fuel headwind, maybe some met.

Hey, Thanks, Good afternoon, maybe Kevin any just any color on how much of a uptick in the coal yield we should expect in Q4 and into Q1 and then maybe just Shawn just help us think about some of the puts and takes for Q4 to sounds like better volume less of a fuel headwind maybe some net.

Speaker 11: uplift, but maybe some continued cost pressure. So you put it all together. Does you think operating ratio gets better or worse from Q3? Any, any directional call you want to get?

Uplift, but maybe some continued cost pressure so you put it altogether.

Operating ratio gets better or worse from Q3, any any directional color you want to give us.

Kevin Boone: As we start the fourth quarter, we are encouraged by the early October volume trends, but most markets showing sequential momentum, and anticipate a strong rebound for agon food, as a strong Midwest harvest kicks in. And across other markets, we expect our service improvements to drive opportunities to win in the marketplace, as we focus on modal conversion.

Speaker 5: Yeah, you know, oh, God, there can be a lot of mixed issues within our our coal business. You know, when you think about other utilities, longer like the hall, higher RPU versus northern utilities, export coal, very, very good business can be shorter haul. So it can sometimes be a little bit lower RPU as well. But we're just giving some of the benchmark strength that we've seen. You know, I would look for something in the low, low single digits, maybe mid single digits, depending on mix.

Yeah, you know Scott there can be a lot of mix issues within our coal business. You know when you think about southern utilities longer length of haul higher ARPA you versus northern utilities export coal are very very good business can be shorter hall. So it can sometimes be a little bit.

Lower our view as well but.

Given some of the benchmark strength that we've seen you know I would look for something in the low single digits, maybe mid single digits depending on mix.

Kevin Boone: Turning to slide 11, third quarter call revenue declined 5%, even though volumes were very strong, growing 9% compared to last year. Export demand continued to be a major volume driver, growing 26%, with the hot summer also supporting solid domestic demand. Strong coal volumes minimized the effects of lower international benchmark prices, which were setting all time records this time last year.

Speaker 2: It's got on your question around Q4. I think you did a good job of kind of summarizing the factors. We're off to a good start in terms of the volume, and that's obviously one of the most important factors in terms of...

And Scott on your question around Q4, I think you did a good job of kind of summarizing the factors we're off to a good start in terms of the volume and that's obviously one of the most important factors in terms of.

Speaker 2: not only seeing OR, you know, stay stable to improve.

It not only seeing or stay stable to improve but also more importantly, growing our earnings as you mentioned fuel should be a little bit less of a negative hearing in Q4 than it was in Q3, we'll see what the direction of fuel prices is but we had $30 million of lag in the third quarter that we don't expect to repeat.

Speaker 2: but also more importantly growing our earnings. As you mentioned, fuel should be a little bit less of a negative here in Q4 than it was in Q3. We'll see what the direction of fuel prices is, but we have 30 million a lag in the third quarter that we don't expect to repeat.

Kevin Boone: The key difference was met coal pricing for global benchmarks were much lower than in the same period last year. Sequentially, our coal RPU declined 11%, compared to our guidance of mid-teens decline, with stronger than expected shipments to longer length of haul southern utility customers. Driving the moderate outperformance. Looking ahead to the last quarter of the year, we expect export markets to remain strong, and are pleased with the increases in international benchmarks that we've seen over the last several weeks.

Speaker 2: And then, you know, in terms of the cost seasonally, we typically do see higher costs in Q4 than Q3. So if you were to look over the last five years.

And then in terms of the cost seasonally we typically do see higher costs in Q4 than Q3. So if you were to look over the last five years.

Speaker 2: Each and every one of those years, the OR has been worse in Q4 than Q3. Everything except for 2020, the COVID year operating income has been down sequentially from the third quarter. Now, we're off to a good start, like I said, and we've got our eyes fixed on places that we can eliminate waste and control costs. So I think we've got a good shot of a bucking that seasonal trend and doing a little bit better than that.

Each and every one of those years the or's been worse in Q4 than Q3 and everything except for 2020. The Covid. Your operating income has been down sequentially from the third quarter now.

We're off to a good start like I said and we've got our eyes fixed on places that we can eliminate waste and control costs. So I think we've got a good shot.

Kevin Boone: Under domestic side, we have seen stock tiles normalize, and demand in the 2024 will be driven by winter weather and related demand needs. Increasing global benchmark prices should benefit our coal yield next quarter, so I would remind you that we have a diverse portfolio of met customers, and we have seen US-based met coal benchmarks, and those in other regions lag spot prices in Australia.

Backing that seasonal trend and doing a little bit better than that.

Okay.

Speaker 1: Your next question comes from the line of Justin Long from Steven. Please go ahead.

Your next question comes from the line of Justin Long from Stephens. Please go ahead.

Speaker 12: Thanks and good afternoon. Kevin, it sounds like you've recently had some early success with market share gains, both truck and rail, but could you expand a little bit more on the commodity groups where you're seeing the most meaningful tailwinds on that front and as we move into 2024, where you see the most opportunity to keep that momentum going.

Thanks, and good afternoon, Kevin It sounds like you've recently had some early success with market share gains both truck and rail, but could you expand a little bit more on the commodity groups, where youre seeing the most meaningful tailwind on that front and as we move into 2024, where you.

Kevin Boone: Turning to Intermodal on slide 12. As a whole, the business remained challenged with revenue declining by 14%, and total volume decreasing by 7%. Overall, RPU declined by 8% year-over-year, with the impact of lower fuel surcharge accounting for the decline partially offset by positive price.

See the most opportunity to keep that momentum going.

Speaker 5: Yeah, I think it's really within our merchandise portfolio and it's it's broad-based. There's different initiatives.

Yeah, I think it's really within our merchandise portfolio and it's broad based there's different initiatives.

Kevin Boone: That said, we are seeing encouraging trends from our domestic business, where volume-turn positive on a year-over-year basis early in the summer. And that's continued to improve since then. We offer a diverse mix of transportation solutions within domestic Intermodal, and we've seen great results from our strong channel partnerships and our direct relationships with major retailers. Our team has been successful in converting traffic off the highway in a market-facing, wonderful truck capacity, which is a testament to the team in the market-leading service product.

Speaker 5: across the board, you know, from our metal side of the business which I highlighted, automotive has been a good strength for us and it's all on the back of.

Across the board from our metals side of the business, which I highlighted automotive has been a good strength of for us and it's all in the back of.

Speaker 5: You know, service that's differentiated in the market and we've really been able to capitalize on that with a customer.

Service is differentiated in the market and we've really been able to capitalize on that with the customer the customers are looking for reliable service and I think we've been a stand out in the market here year to date and our team has been selling it and it's been incredibly helpful. In outside I will say you know you're going to start to see some benefits of these industrial development side.

Speaker 5: Customers are looking for reliable service and I think we've been staying out in the market here year to date and our team has been selling it and it's been incredibly helpful on that side. I won't say you're gonna start to see some benefits of the industrial development side.

Speaker 5: You know, more than probably the 25, 26, but you'll start to see that layer in on late 24.

More in probably the 25% 26, but youll start to see that layer in late 'twenty, four and got a lot of momentum there and again it goes back to the service.

Kevin Boone: Meanwhile, international intermodal activity has stabilized, but we remain weak. We haven't seen any clear signs of a positive inflection yet. Retailers remain concerned about the help of the consumer, and though destocking may have slowed, we haven't seen this trend in its sustained increases in order rates or imports. For the rest of the year, we expect trends to largely continue as they were over the third quarter, with domestic gradually strengthening supported by our teams strong sales efforts.

Speaker 5: and got a lot of momentum there. And again, it goes back to the service product that we've been able to deliver and getting the confidence as these industries build new plants.

The product that we've been able to deliver and getting the confidence as these industries build nuance that they're locating on our our our railroad. So I actually just sat down with Christina This afternoon, and we were going through all the industrial projects that have been taking place throughout the U S. And it's interesting you look at a map holistically throughout the U S and it's.

Speaker 5: that they're locating on our railroad. So I actually just sat down with Christina this afternoon and we're going through all the industrial projects that have been taking place throughout the US. And it's interesting you look at a map holistically throughout the US and it's almost focused in the east. And that's our railroad.

I'll focus on the east and that's all railroad, that's where we operate in.

Kevin Boone: While we prepare for the turning point for international, we call that we saw meaningful drop off in our intermodal volume in the back half of the fourth quarter in 2022, as Marcus loads substantially, which will benefit our reported growth rates for the current quarter.

Speaker 5: That's where our team is really going after it today and very, very optimistic on what's happening in that side. So a lot of opportunities that there are mixed across different industries and every industry created a little bit different, but we are being able to lean into those conversations in quite different environment than what was occurring last year, but very, very optimistic here.

That's where our team is really going after it today and I'm very very optimistic on what's happening in that side. So.

A lot of opportunities that they're mixed.

Different industries in every industry has created a little bit different, but we are being able to lean into those conversations.

Kevin Boone: Slide 13 provides a clear illustration of the encouraging signs we're seeing within our intermodal business. On a year-ever-year basis, domestic intermodal has shown a favorable trend since the beginning of 2023, 20 positive around mid-year, and steadily improving since. While international volumes remain lower, compared to 2022, we've seen stability in the past few months.

Quite in quite a different environment than what well what was occurring last year, but very very optimistic here.

Speaker 1: Your next question comes from the line of Amit Mahairatra from Deutsche Bank. Please go ahead.

Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Please go ahead.

Speaker 13: Thanks a lot. Hi, everyone. Sean, I wanted to just follow up on that question around 3Q to 4Q, but maybe ask it as a relates to 2024. I mean, obviously we're...

Thanks, a lot hi, everyone Sean.

Sean I wanted to.

Just follow up on that question around <unk> to <unk>, but maybe ask it as it relates to 2024, I mean, obviously, where we're moving from a very inflationary environment until a less inflationary environment, you've got a little bit of labor another uptick in labor in the middle of next year, but then also look at like P. S O.

Kevin Boone: Altogether, across all of our businesses, our team continues to push forward across multiple initiatives, and that winning wallet share, converting truck traffic, and bringing new customers to the railroad. We remain confident that our leading service performance will continue to provide opportunities to win business, and we know that we have the resources and capacity in place to deliver growth when the market environment inflicts.

Speaker 13: We're moving from a very inflationary environment to a less inflationary environment. You've got a little bit of labor, another uptick in labor in the middle of next year. But then I also look at like PSNO, you know, is that, you know, 19% of revenue several years ago, with as low as 14%, 15% of revenue. But there's obviously some opportunity to get more leverage.

You know is at.

19% of revenue several years ago was as low as 14% 15% of revenue. So there's obviously some opportunity to get more leverage on the cost structure, especially on that big P. S. N O items. So I don't know if you can kind of.

Kevin Boone: I'm proud of what the elective CFX team has accomplished this quarter, and I'm excited about all the potential ahead.

Speaker 13: on the cost structure, especially on that big PF and no item. So I don't know if you can kind of...

Sean Pelkey: Now, we're turned it over to Sean to discuss financials.

Speaker 13: help us enter your brain a little bit and think what is the cost structure look like in 24 because obviously we're still in an inflationary environment. You still got maybe these chunky, idiotic and credit opportunities to kind of leverage them.

Sean Pelkey: Thank you, Kevin, and good afternoon. The third quarter operating income of $1.3 billion was lower by 18% or 284 million. These results include nearly $350 million of year-over-year impacts from lower intermodal storage revenue, export coal benchmark prices, and fuel recovery. Partly offset by 42 million of favorability related to last year's labor agreement adjustment. Suffice it to say this quarter should represent the peak year-over-year impact from these discrete items. Revenue fell by 8% or 323 million despite strong pricing across many merchandise portfolio, along with positive volume trends across many merchandise markets, as well as domestic intermodal.

Help us enter your brain, a little bit and think what what is the cost structure look like in 'twenty four because obviously, we're still in an inflationary environment, but you still got maybe these chunky idiosyncratic opportunities to kind of leverage some parts of the cost structure.

Speaker 2: Yeah, I mean, obviously we're still in the planning phases for 2024. So I don't want to get too far ahead of ourselves here, but, um, you know, you know, the story on labor and just to make sure everybody understands and its level set, we're going to have a four and a half percent wage increase mid year next year. That's the last year of the contract with the union employees.

Yeah, I mean, obviously, we're still in the planning phases for 2024, so I don't get too far ahead of ourselves here, but.

You know the story on labor and just to make sure everybody understands and it's levels that we're going to have a four 5% wage increase mid year next year. That's the last year of the contract with the Union employees.

Speaker 2: That's a step up from the 4% increase that we had made here this year.

That's a step up from the 4% increase that we had mid year this year.

Speaker 2: In terms of PSNO, at least on the inflationary side, it's early, but I think it's fair to say that we'll start to see some normalization of the inflationary pressures from this year. So we admit single-digit inflation this year. It'll probably be a little bit less than that.

In terms of P. S N O at least on the inflationary side, it's early but I think it's fair to say that we'll start to see.

Sean Pelkey: The operating team also worked tirelessly to meet customer needs and deliver a 9% increase in coal volume. Across merchandise, coal and intermodal revenue, excluding fuel recovery increased 2% in the quarter, and was up mid-single digits, excluding the impacts of coal RPU headwinds. Expenses were lower by 2%, and I will discuss the line items in more detail on the next slide. Interest in other expense with $13 million higher compared to the prior year.

Some normalization of the inflationary pressures from this year. So we had mid single digit inflation. This year, it'll probably be a little bit less than that but certainly higher than the five year average is as some of those outside service contracts are based on lagging indicators or labor indices that are going to reset so.

Speaker 2: But certainly higher than the five-year average as some of those

Speaker 2: outside service contracts are based on lagging indicators or labor indices that are going to reset. So suffice it to say I do.

Suffice it to say I do think we've got fewer headwinds overall going into next year than we did going into this year and that sets us up well, we've got cost and efficiency opportunities, but I think more importantly.

Speaker 2: We've got fewer headwinds, overall going into next year than we did going into this year. And that sets us up well. We've got cost and efficiency opportunities, but I think more importantly, Kevin and the team are building a really nice pipeline of growth that really stems from the way that we've been serving the customer over the last year. And that sustained service level as well as some of the initiatives the team's been working on.

Sean Pelkey: Income tax expense decreased 32 million as the impact of lower pre-tax earnings, more than offset a prior year favorable state tax item, and this quarter's effective tax rate came in at 24.9%. As a result, earnings per share fell by 10 cents including nearly 12 cents of impact from the previously mentioned discrete items. Williams, let's now turn to the next slide and take a closer look at expenses. Total third quarter expense decreased by $39 million.

Kevin and the team are building, a really nice pipeline of growth that really stems from the way that we've been serving the customer over the last year and that sustained service level as well as some of the initiatives. The team has been working on.

Speaker 2: That's really what's gonna drive growth as we get into next year and beyond.

That's really what's going to drive growth as we get into next year and beyond.

Okay.

Speaker 1: Your next question comes from the line of calm water width from UBS. Please go ahead.

Your next question comes from the line of Tom Waterworks from UBS. Please go ahead.

Sean Pelkey: Lower fuel prices and cycling the prior year labor true up were mostly offset by the impacts of inflation and higher depreciation. Turning to the individual line items, labor and fringe expense decreased $7 million as the prior year union labor adjustment was largely offset by inflation and increased debt count. Heightened attention to overtime benefited costs for employee, particularly in our mechanical workforce where overtime ratios are now running at multi year lows. Which is services and other expense increased $25 million versus last year, including $16 million associated with higher casualty expense.

Speaker 14: Yeah, good afternoon. I wanted to see, I guess it's kind of seen the same topic, Sean, but if you think about 2024 and volume sensitivity in terms of how the O.R. performs

Yeah good afternoon.

Wanted to see I guess, it's kind of thing on the same topic, Sean but if you think about 2024 and volume sensitivity in terms of how the hour or performs do you think that there is a chance that you could see improvement in the or if you don't see volume growth.

Speaker 14: I think that there's a chance that you can see improvement in the OR if you don't see volume growth and perhaps related to that from a pricing perspective. I think sometimes people think that there is a time delay on some of the pricing with multi-year contracts and there might be...

And perhaps related to that from a pricing perspective, I think sometimes people think that there is a time delay on some of the pricing with multiyear contracts and there might be catch up on pricing related to inflation. So.

Speaker 14: catch up on pricing related to inflation. So I guess, you know, it's kind of two things within that just, you know, OR sensitivity to volume and also potential catch up on pricing.

Sean Pelkey: Turning to sequential performance versus Q2 on the right hand side of the page, network performance and numerous cost control initiatives in the quarter drove a nearly $20 million reduction. Production in PSNL across our operating departments. We expect these savings to remain in the fourth quarter aside from normal seasonality. Depreciation was up $21 million as a result of last year's equipment study as well as a larger asset base. Fuel cost was down $89 million, mostly driven by a lower gallon price.

It's kind of two things within that just you know or sensitivity to volume and also potential catch up on pricing. Thank you.

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Speaker 2: Yeah, Tom. So I mean, our plan is going to be to grow grow volume ahead of the economy. That's that's what we're going to shoot for. That's what we're going to plan for. So I mean, if we were to have no growth next year, I think it would be tough to improve the OR with the continued inflationary pressures that we're seeing, you know, your cycling. We had that insurance settlement earlier in the year. So there's a few things there. The appreciation will continue to go up things like that. So we need growth. That's that's what the model requires. And that's what we're building into the plan.

Yes, Tom So I mean, our plan is going to be to grow grow volume ahead of the economy. That's that's what we're going to shoot for and that's what we're going to plan for it. So I think if we were to have no growth next year I think it would be tough to improve DLR with the continued inflationary pressures that we're seeing you're cycling we had that insurance settlement earlier in the year. So there's a few things there.

Sean Pelkey: This was partially offset by higher consumption, including approximately 2.5 million gallons recognized from prior periods. Adjusting for this fuel efficiency was still unfavorable versus the prior year, and Mike has brought an increased focus on this critical measure. Seasonality will impact fuel efficiency in Q4. We fully expect to get back on trend. Equipment and rents was $10 million favorable driven by faster freight car cycle times across all markets. These benefits were partly offset by costs related to higher automotive volumes. Finally, property gains were $21 million unfavorable in the quarter.

Depreciation will continue to go up things like that so we need growth that that that's what the model requires and that's what we're building into the plan.

Speaker 5: Kevin, I don't know if you want to address the price piece. Yeah, on the price thing, you know, roughly 60% of our business reprices every year and 30% of that is kind of carry over of what we've already touched this year. So we'll touch the other half going into next year and the environment is still supportive and it certainly helps when the service product is vastly improved.

Kevin I don't know if you want to address the price based on the pricing.

Roughly 60% of our probably our business re prices every year and now 30% of that is kind of carryover of what we've already touched.

This year, so we'll touch the other half going into next year and the environment is still supportive and it certainly helps when the service product is vastly improved and will continue to price to our service levels.

Speaker 5: I will continue to price to our service levels and those are up. And so it's a conversation that customers expect. They are labor inflation is very visible to the world. And we have those discussions. They don't, they're not unexpected from the customer.

Those are up and so it's Conor.

Sean Pelkey: As a reminder, we are cycling over $50 million of prior year gains in Q4 and expect sales this year to be minimal.

Conversations with customers expect they are our labor inflation is very visible to the world, where we have those discussions.

Sean Pelkey: Now turning to cash flow and distributions on slide 17. Reflecting the discrete factors I discussed earlier, free cash flow is down from the prior year, but remains strong. Supporting investments in the safety and reliability of our network, as well as an increased level of high return strategic investments.

They don't they're not unexpected from the customer.

Speaker 15: Your next question comes from the line of Allison Poliniak from Wells Fargo. Please go ahead. Hi, thanks for taking me question. Just want to go back to the domestic intermodal side. You're starting to see some conversion from truck here. When you're talking to customers, what's really starting, holding them back from converting at this point? Is there something in the service product that you have to evolve or is it just simply building that trust with the reliability that you guys have had over the past few months?

Your next question comes from the line of Allison Pollinia from Wells Fargo. Please go ahead.

Hi, Thanks for taking the question just wanted to go back to the domestic intermodal side, you're starting to see some conversion from truck here when you're talking to customers, what's really starting in holding them back from converting at this point is there something in the service product that you have to evolve or is it just simply building that trust with the reliability that you guys have had over the past few months.

Sean Pelkey: The West cash flow has also supported over $3.5 billion in shareholder returns so far this year, including $2.9 billion in share repurchases and over $650 million of dividends. Economic profit, as measured by CSX cash earnings, is about $160 million lower year to date, impacted again by intermodal storage revenue and export co-pricing. Nevertheless, the focus on economic profit is helping to incent a pipeline of high return initiatives that will deliver growth and ongoing efficiency gains.

Just any thoughts there.

Speaker 5: Yeah, to reflect on the pandemic, and the domestic and our modal franchise performed very, very well. It really was.

Yeah, you know to reflect on the <unk>.

Pandemic in that.

The domestic intermodal.

Our intermodal franchise performed very very well it really was.

Speaker 5: I'll shine the industry in a lot of ways. What minimized our growth opportunity was really the chassis and some of the equipment limitations that existed. So obviously we're in a very, very different world today and so those limitations don't exist on a year of your basis. And we're really...

Joe Hinrichs: Now with that, let me turn it back to Joe for his closing remarks. All right, thank you, Sean.

Shine the industry and a lot of ways.

The Ah <unk>.

Emitted minimized our growth opportunity it was really the chassis and some of the equipment limitations that existed so.

Joe Hinrichs: Now, as Sean's slide 19, we will finish with some updated comments on our outlook as we approach the final quarter of 2023. We continue to expect low single-digit growth in revenue 10 miles for the full year, supported by our consistent performance in merchandise and export coal. Automotive and minerals are main important growth areas, though obviously we are watching developments with the 23 automakers in the UW very closely. As Kevin mentioned, we also look for a substantial rebound in our ag and food business over the fourth quarter.

We're in a very very different world today, and so those limitations don't exist on a year over year basis, and we're really.

Speaker 5: seeing the team able to capitalize on that and the strength of our service product is really coming through when you see.

<unk> seen the team able to capitalize on that and the strength of our service product is really coming through when you see what.

Speaker 5: What we talked about in the chart that we mentioned previously is, I think all those things are coming together, service, leading in the East and then allowing our customers to grow with us with our service product.

What we talked about in the chart that we mentioned previously as I think all those things are coming together.

Service, leading in the east and then allowing our customers to grow with us with our service product.

Joe Hinrichs: Export coal volumes remain strong as global demand stays high for US Met and Thermal Coal. For domestic coal, we anticipate some slowdown from the third quarter, which benefit from hot summer weather. So, so far this quarter, we continue to be pleased with our shipment levels. For Intermodal, as we mentioned, we expect domestic activity to keep gaining minus momentum through the fourth quarter. While for now, our international business looks largely stable. Overall, our buying growth rate and intermodal will reflect favorable year-over-year comparisons.

Speaker 1: Your next question comes from the line of 10 Hexter from Bank of America. Please go ahead.

Your next question comes from the line of Ken <unk> from Bank of America. Please go ahead.

Speaker 16: Hey, great good afternoon. Mike, welcome back to the sector and happy to have you here.

Hey, great. Good afternoon, Mike welcome back to the sector and happy to heavier.

Speaker 16: Joe or Mike, I guess just operation seemed pretty solid, right? In terms of how well you're operating and obviously you still want to improve. And maybe Mike just talk about what, you know, you've been there for a month, but what do you see is, I know if it's low-hanging fruit or opportunities on operations, you know, it sounds like Sean saying, or Kevin saying, you need the volume in order to get that operating leverage. But are there things you can do on the cross side from what you see that can aid that leverage opportunity? If I do that, ...

Joe or Mike I guess, just operations seem pretty solid right in terms of how well your operating and obviously you still want to improve and maybe Mike just talk about what I know <unk> been there for a month, but what do you see is I don't know if it's low hanging fruit opportunities on operations.

Joe Hinrichs: As we've said all year, the pricing environment remains supported, and we have been encouraged by the agreement that we've already reached for 2024. Note that with the slowdown intermodal story revenue that we have seen over the course of this year, we are now expecting supplemental revenue, excluding trucking, to decline by $325 million for the full year. Our commitment to efficiency and cost control remains in place as we keep our eye on service performance, not just in the near term, but also as we look ahead to improve marked conditions and greater demand for real capacity. Finally, our estimate of $2.3 billion in capital expenditures remains unchanged, along with our strong focus on innovation and growth.

It sounds like Sean, saying, Kevin, saying, you need the volumes in order to get that operating leverage but are there things you can do on the cost side from what you see that can can aid that that leverage opportunity.

Yeah, Hi, Ken Thanks look visibility of waste.

Speaker 4: and getting it and collating that information so that I can, you know, what I do is I try to teach and learn, learn and teach. That's really what it's about. So we have a good group of people. Many of them, you know, younger, haven't been experienced in the positions they're in. So that's really where I've been focusing. First of all, to get a temperature read, but we really start to share with them how to go about getting it that way. And it's not easy in a network like this. And, you know,

And getting it in collating that that information so that I can what I do is I tried to teach and learn learn and teach that's really what it's about so we have.

A good group of people many of them younger havent been experienced in the positions. They're in so that's really where I have been focusing first of all to get a temperature read but really start to share with them how to go about getting at that waste and it's not easy in a network like this.

Joe Hinrichs: I will close by saying that I'm very proud of what we've accomplished as one CSX team that I finished my first year with CSX. When I spoke to all of you last fall, we talked about our belief that CSX could accomplish great things and create so much value by working better together as one team to serve our customers. We have made very good progress, and all of us know that there remains so much more we can do. I mean, we've been more enthusiastic about our opportunities than I was last year. We all appreciate your support into our company and we keep moving forward. All right, thank you.

Speaker 4: It's something that we'll do as a team, but I'm not big on the next day looking at a report. I want it visible right away, so they see their actions. So I see great opportunity in that. They're hungry to do it. They're more than motivated. And it's up to me to teach them and help them get there.

It's something that we will do as a team, but I'm not big on you know the next day looking at a report I wanted visible right away. So they see their actions and so I see great opportunity in that they are hungry to do it there more than motivated and it's up to me that teach them and help them get there and I have all the content.

Speaker 4: And I have all the confidence in what that's where we'll get. But we'll see just through the waste exercise at first. And then it starts to allow you to get into understanding how to devise the network to Kevin's point to keep and even get better service and get the businesses out there.

Well, that's where we'll get but we'll see just just through the waste exercise at first and then it starts to allow you to get into understanding how to divide the network to Kevin's point to keep and even get better service and get the businesses out there.

Matthew Korn: Matthew, we're now ready for questions. Thank you, Joe. We'll now move to our question and answer session. Maybe the interest of time and we'll make sure that everyone on this call has an opportunity. We ask you to please move with yourselves to one question.

Speaker 3: Yeah, Ken, I'm just going to add a little thing. I think the timing of Mike joining us is, you know, is perfect because we've had a year of taking advantage of the operating model that we have engaging with our employees.

Yes, Ken I assume there's a little thing I think the timing of Mike joining us as you know is perfect. Because we've had a year of taking advantage of the operating model that we have engaging with our employees.

Matthew Korn: Christa, let me start the process. As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad.

Speaker 3: You know, do a lot of things around culture and or one T.S.X.

A lot of things around culture and or <unk>.

Speaker 3: We've made tremendous progress, especially on the service metrics as you've seen. And we have, you know, core fitness-relating metrics across the board on the operating side. Now we have might coming in with an experience, best set of eyes.

Chris Weatherby: Your first question comes from the line of Chris Weatherby from City Group. Please go ahead. Hey, thanks. Good afternoon, guys. Maybe Joe or Mike, kind of want to start with your sense of where you are in terms of resources and services relative to the volume environment. So I can't move up again, maybe if you can give us a sense of where you think you need to take that or if you're at reasonable staffing levels.

We've made tremendous progress, especially on the service metrics as you've seen and we have.

You know close to industry, leading metrics across the board on the operating side now we have might coming in with his experience fresh set of eyes.

Chris Weatherby: And maybe how we think about, like I said, that resource-based relative to the volume environment. The ability to do more of these current levels are we still in a little bit of the recovery phase. Oh, hey, Chris, it's Mike.

Speaker 3: and all the opportunities that can now allow us to step back and say, okay, we've come this far.

And all the opportunities that can now allow us to step back and say, okay. We've come this far.

Speaker 3: Great work. Proud of the team's work. Now.

Great work proud of the team's work now here's the opportunity we have to advance even further and so the timing is perfect I think for US works out very nicely. Our team is excited and motivated.

Speaker 3: Here's the opportunity that we have to advance even further. And so the timing's perfect, I think, for us. Works out very nicely. Our team's excited.

Speaker 3: and motivated. You've seen now as Kevin has highlighted many times in his comments tonight regarding the customers that acknowledge that with me all the time, the service levels that we've sustained, almost reliably now and repeatedly for 12 months. Thank you.

You've seen now as Kevin has highlighted many times in his comments Tonight regarding this the customers have acknowledged acknowledged that with me all the time the service levels that we've sustained.

Mike Cory: Look, again, I'm going to preface every probably most of my answers with I've been here last sort of month. But we still have a training pipeline. We still have people that we need to get into position that I spoke of earlier. But overall, you know, I'm comfortable that we have enough to improve the size of training, the amount of trains, the velocity with the people we have. But however, there are areas where we're probably getting affected somewhat on the floor of the goods.

Most reliably now and repeatedly for over 12 months.

Speaker 3: And now we have the opportunity to get more efficient and to get even better. And Mike's come in with a great attitude and excited about how we can take it to the next level and still focus, of course, on improving our service metrics, but also teaching our team, which is a relatively young team.

And now we have the opportunity to get more efficient and to get even better and it might come in with a great attitude and excited about about how we can take it to the next level.

And still focus of course on the great start improving our service metrics, but also teaching our team which is a relatively young team.

Speaker 3: to understand what it takes now to take a next step forward. So we're excited about it. I'm excited about it. And I think we can continue to outpace the industry when it comes to progress on our efficiency metrics.

Two to understand what it takes now to take the next step forward. So we're excited about it I'm excited about it and I think we can continue to outpace the industry when it comes to progress on our efficiency metrics.

Mike Cory: And so it's constant. You know, we're working not just Kevin and I, but our teams together. So they really get the ground floor view of what we can do and not having been here for that long. I haven't really stretched the stretch of the opportunities out there yet. So I say to answer your question, we're where we need to be. We have people that are being trained that are going to be positioned.

Speaker 1: Your next question comes from the line of Basquim's majors from Susquehanna. Please go ahead.

Your next question comes from the line of Baskins majors from Susquehanna. Please go ahead.

Speaker 17: Thank you. Default up on that earlier question. Can you roll that out a little bit further? Not just on the service side, but Mike, your role in the man that you've been given to focus on culture, fails the integration of Kevin's department with yours. What way can we see different from CSX over the next three to five years versus what we've seen over the last three to five?

Thank you.

To follow up on that earlier question can you roll that out a little bit further.

Mike Cory: And remember, we have a tuition, whether it's retirement or whatever the case. So we're filling that. And with the people we have, we're in good shape. We have to get in better shape. And a lot of that's going to come from self-help and how we utilize the asset.

Not just on the service side, but but but.

Like your role from the mandate you've been given to focus on culture.

The integration of Kevin's Department with Yours, what where can we see different from C. S X over the next three to five years versus what we've seen over the last three to five thank you.

Kevin Boone: Yeah, Craig, the last thing I'll add is, as Mike mentioned, we're still hiring in a few key locations, that's down to, you know, a little more than a handful, and largely we're in pretty good shape in most other spots, and with the natural attrition we have, we're still hiring to replace some of that because we are still, you know, our merchandise volume's up this year, so we're still seeing some growth and volume, but we feel pretty good about our ability to manage that, and Mike's really challenged the team and come with a new fresh new set of eyes to look at how we can do some self-help, the free up some of our crews, help us, you know, even be more efficient. Thanks.

Yeah.

Speaker 4: That's a tough one, Vaskam. I'm still out there trying to learn. And that's important to me because I don't want to block anybody or make them feel they can't come forward with an idea. And that's number one. Going forward, I want to share the experience I have.

Hum.

That's a tough one basket still.

I'm still out there trying to learn and that's important to me because I I don't want to block anybody or make them feel they can come forward with an idea that's number one but.

Going forward I want I want to share the experience I have.

Speaker 4: so that they're incorporating that into the things they do today.

So that they are incorporating that into the into the things they do today.

Speaker 4: And you know, to me, we'll see improvements in all our met.

And you know to me, we'll see improvements in all our metrics a.

Brian Ossenbeck: Your next question comes from the line of Brian Ossenbeck from JP Morgan, please go ahead. Hey, thanks for begging the question, and Mike, welcome back to the industry, congrats. I just wanted to ask more about the, excuse me, on the service side, maybe for Kevin, you think some conversion, you mentioned off of areas that have excess drug capacity, so is this stuff that you thought you've lost before, and was going to come back, or is the service been so good for so long that people are actually going to convert and stay up.

Speaker 4: a bigger focus on, you know, when I say velocity, I'm talking both trains and cars, but fluidity. And we run a pretty condensed network here. Everything is really close. We don't have, in many cases, a lot of time to recover. So it's the plan we put into effect in the discipline about executing it. And so what I'm trying to share with them is the availability of data and how to use

A bigger focus on you know when I say velocity I'm talking both trains and cars, but fluidity and we run a pretty condensed network here everything is really close we don't have in many cases, a lot of time to recover. So it's it's the plan we put into effect in the disciplined about executing it and so what I'm what I'm trying.

To share with them is the availability of data and how to use it.

Speaker 4: um... it hasn't i i i don't see that they've had you know enough time they've gone through a pretty tough period here over the last couple years they rebounded extremely nicely in the jose point this is the to get to the next level so where they're self-sufficient

It Hasnt I I don't see that they've had.

<unk> time, they've gone through a pretty tough period here over the last couple of years, they've rebounded extremely nicely and to Joe's point. This this is to get to the next level, so where they are self sufficient and I know they can be they know they can be but I'm here to <unk>.

Brian Ossenbeck: I think they're just trying to get a sense of of the stickiness of that, and then Sean, if you can just give us some comments on the cost per employee for the fourth quarter, it looks like over times coming down quite a bit. There's always mixed and trees involved, so any color on that would be helpful. Thank you. Yeah, I would say on the truck conversion side, we're really, really early into this thing.

Speaker 5: And I know they can be, they know they can be, but I'm here to show them that way. And maybe Kevin, if you have something add. Yeah, I would just, I would highlight that the teams, Mike team and my team, they coordinate daily. They're speaking better than they ever have to each other. It's important from a sales and marketing perspective. You talked about, can we handle an up?

Show them that way and maybe Kevin if you have something that yes, I would just I would highlight that the teams.

Mike's team and my team.

Nate daily they're speaking better.

And they ever have to each other it's important from a sales and marketing perspective, you talked about can we handle the surge in volume demand, while it's up to us to communicate that real time. So the team can work.

Brian Ossenbeck: The good news is customers are willing to start to have those conversations that quite frankly we just couldn't have a year ago given where we were. And so we're, you know, we're building momentum. I expect this to build on itself in the next year. The great thing is, I think as an industry we're starting to become aligned in terms of going after growth, going after some of the opportunities that exist out there collectively as an industry, and I think that's very encouraging as well, but it's a mixture.

Speaker 5: that surge in volume demand. Well, it's up to us to communicate that real time. So the team can work, you know, make sure we're prepared. But I volume communicate with a customer and, you know, make sure it's readable and that we have the people in place to handle it. And I think.

Make sure we're prepared but I volume communicate with the customer and make sure. It's ratable and that we have the people in place to handle it and I think a lot of the discussions we're having right now are around that and it's I don't think is rocket science to figure out where things can come back very very quickly and we're having those discussed discussions around.

Speaker 5: A lot of the discussions we're having right now are around that. And it's, you know, I don't think is rocket science to figure out where things could come back very, very quickly. And we're having those discussions around, you know, creating resiliency in this network. And we're going to get together in a couple of weeks, our teams, again, go through it, market by market. Where do we see for next year? What do we see over the next three years? And how are we going to prepare for that? And those conversations are better than they ever have been.

Brian Ossenbeck: It's a mixture of going after new customers, clearly you pointed out, the trucking market's not very supportive right now, but even in this market, we're finding customers that with the USG and with other things are wanting to have that discussion. There's still value that we can drive, but I only expect as the trucking market to thumbs up in the next year in the years ahead, that this will accelerate on itself and see a lot of momentum coming.

Creating resiliency in this network and we're going to get together in a couple of weeks our teams again go through it market by market.

What do we see for next year, what do we see over the next three years and how are we going to prepare for that and so those conversations are better than they ever had been.

Speaker 4: Yeah, yeah, not just finished up fast, but like I've been like I said pretty much to well, I'm not pretty much everywhere, but a lot of locations and I really focus on bringing everybody that has a role in servicing the customer.

Yeah, Yeah, and I'll, just finish up basket with like I've been like I said pretty much not pretty much everywhere, but a lot of locations and I really focus on bringing everybody that has a role in servicing the customer.

Brian Ossenbeck: Brian, on your follow-up question around cost per employee, we did made a lot of progress on the overtime front in the third quarter. You know, that's an area that might spend focus on right from the very beginning, trying to figure out ways we can restructure the work and eliminate waste in certain locations. So that's going to help.

Speaker 4: You know, I was up in Baltimore Curtis Bay. I had everybody from facilities to...

I was up in Baltimore Curtis Bay, everybody fruit facilities.

Speaker 4: to Kevin and his marketing team to the people that run the plan

Kevin and his marketing team to the people that run the plant.

Sean Pelkey: I will say though, sequentially Q3 to Q4, you probably will see still an uptick in cost per employee like we normally do. That's driven by some capital work labor that'll go over to OE in the fourth quarter. We also have some seasonal vacation and some accruals that'll hit in the fourth quarter. So I would say sequentially Q3 to Q4, you'll probably see compa employee up a few percent.

Speaker 4: you know to our engineering mechanical everybody has a role to plan when they see their actions actually doing it together they become they become

Two our engineering mechanical everybody has a role to play in when they see their actions actually doing it together.

They become they become.

Speaker 4: more than customer advocates, they know and can respond to the customer much faster because they know exactly what they can offer. Going forward, this is not operations and marketing. No, this is CSX. This is how we approach this. This is how we build the business and keep it and drive it even better for the customer. That's what I see in three to five years.

More than customer advocates they know and can and can.

Can respond to the customer much faster because they know exactly they they know exactly what they can offer and so going forward. This is this is not operations and marketing no. This is C. S. X. This is how we approach. This is how we build the business and keep it in and drive it even better for the customer that's what I see in three to five years.

Brandon Oglinski: Your next question comes from the line of Brandon Oglinski from Barkley. Please go ahead.

Speaker 3: you guys can't see it but Mike has the shirt on. It's one CSX.

Mike Cory: Hey, good evening and thanks for taking my question and Mike welcome back as well and I guess Mike can I just ask you you know the US roads historically just haven't had a great track record of organic growth and we know things like coal have been a long-term headwind but what have you seen in your first month or so you know that you like to see at the CSX plan or you know changes you want to make that you know will help with this idea that CSX can outgrow the market looking ahead. Hey Brandon thank you well you know I mentioned in my remarks the visibility of information and it just it creates this connection where people see you know we have people that manage terminals that you know manage the dispatch on the road we have people that manage people from a crew management perspective we manage look and we do all these things individually and to see that all together.

You guys can see it but Mike has the shirt on it's one C. S X.

Speaker 3: That's what we're talking about here and that's the vision that

That's what we're talking about here and that's the vision that.

Speaker 3: Our teams are seen with enough that people CCFX has one entity, not a bunch of different functions and silos. All focused on, of course, safety first of our employees in the communities we live in and serve. But ultimately, the service we provide our customers, which leads to the growth potential that we've all talked about. And it doesn't take a rocket scientist to figure out in this business what incremental margins come with growth in this business. And, but from my, you know, year plus experience here now,

Our teams are seamless enough that people see see FX as one entity not a bunch of different functions in silos.

All focused on of course safety first of our employees and the communities, we live in and serve but ultimately the service we provide our customers which leads to the growth potential that we've all talked about and it doesn't take a rocket scientist to figure out in this business with what incremental margins come with it with growth in this business.

But for my year plus experience here now.

Speaker 3: We will realize the most potential when we have operations and marketing sales.

We will realize the most potential when we have operations in marketing and sales as prescribed by both Kevin and Mike as one team looking at every opportunity together with a can do let's find a way to make sure. It's profitable, let's find a way to be able to serve the customer and do it efficiently.

Speaker 3: as described by both Kevin and Mike as one team, looking at every opportunity together with a can do, let's find a way to make sure it's profitable. Let's find a way to be able to serve the customer and do it efficiently. And that's the spirit of one CSX focus on how on teaching and training our employees to be part of that team and to get excited by that opportunity and do it in a way that we're proud of how we work together in service of the customer. That's one CSX is what everyone's talking about.

Mike Cory: And then again back to being understanding of what it is you can do whether it's from a capacity or a service perspective but then cutting in with Kevin's team we can get sticky because we can really understand all the work we're doing is really to get that business to keep that business and I see that here the opportunity here is you know look where the railway I came from you you got the business you went 12 1500 miles you and then you know there was more business here it's everywhere and it's not it's competitive but there's lots of it and Kevin we're not talking so much about the truck obviously we're going to grow with the market and what it gives us but I just I think the opportunity here when we connect our people we are everywhere we service you know what is it two thirds of the US market and that that's just opportunity in itself so you know I don't know if I'm answering a question again I've been here a month but I see that that's really what our goal is we want to grow properly we want to be readable we want to make sure that we're in position for it and we're going to make sure that we rid ourselves of waste so we're not getting rid of the assets that we need when it does come.

That's the spirit of <unk> focus on how on teaching and training our employees to be part of that team and to get excited by that opportunity and do it in a way that we're proud of how we work together in service of the customer that's one C S, Texas, where everyone's talking about.

Okay.

Speaker 1: Your next question comes from the line of Jason Zedell from TD Cowan. Please go ahead.

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

Speaker 18: Thank you, operator Joe and the team. Good afternoon. Mike, welcome back.

Thank you operator, Joe and the team good afternoon, Mike Welcome back.

Speaker 18: It must be pretty exciting coming, hitting the ground, running in a railroad, showing you the proofing service number. So...

Must be pretty exciting coming hitting the ground running a railroad shown including service numbers. So we look forward to soon which you can do.

Speaker 18: My question actually is gonna be to Kevin. Kevin, you know, you had some comments you said you had many, many reasons to be optimistic. So noted the too many's there. You sort of touched on domestic plastics, improving, like to get some meat on the bone there with those commentaries. And then you talked a little bit about some industrial development project with Christina. Can you give us some numbers and what you're seeing now in terms of total projects and maybe what you had a year ago and maybe pre-tune.

In 2020 for my question I actually was going to be to Kevin Kevin.

You had some comments you said you had many many reasons to be optimistic. So noted the too. Many there you sort of touched on domestic plastics, improving I would like to get some meat on the bone there with those commentaries and then you talked a little bit about some industrial development project with Christina can you give us some numbers on what youre seeing.

Now in terms of total projects and maybe what you had a year ago and maybe pre pandemic.

Brandon Oglinski: Your next question comes from the line of Jonathan Sheppell from Evercore ISI please go ahead. Thank you good afternoon I'm like I kind of want to build on that and you kind of brought up your former role as well you transition there from a PSR railroad to a growth railroad and maybe that didn't go smoothly as you would have hoped so you're not joining a fixed rougher here so the aspects of service metrics have improved vastly over the last year or two and now you're pivoting the growth so what are some of the lessons that you've learned from that transition at the last roll on some of the dangers to avoid and how you manage capacity as you're trying to fill the network without clogging up the network and causing service issues.

Speaker 5: Yeah, you know, on, you know, we're exposed to a lot of cyclical businesses and, you know, we're talking about everybody's talking about a looming recession. Well, in my opinion, you know, a lot of the businesses we touch have been in recession for the last year and

Yeah, you know on.

We're exposed to a lot of cyclical businesses and we're talking about everybody is talking about a looming recession well in my opinion.

The businesses, we talks have been in recession for the last year.

Speaker 5: and many of them are at cyclical lows. And maybe we went beyond that with the destocking that occurred. So when we talk about some of the plastics and we talk about forest products and some of these other markets, there's significant destocking headwinds that we've been dealing with for the past three, four quarters. And so just based on that, obviously the comparison get much easier from here as we look into 2024. On the tests be $50,anting that the trailer will have a bridge left of 1Allah for $27, Dobri 2 million with different vehicles, compared to the PL Ant far off the plane can be?? Parking at $36 million.

And many of them are at cyclical lows and.

Maybe we've got it went beyond that with the.

With the Destocking that occurred so when we talk about some of the plastics when we talk about in forest products in some of these other markets. There is significant destocking headwinds that we've been dealing with for the past three four quarters.

And so just just based on that you know obviously the comparisons get much easier from here as we look into 2024 and hopefully in a world where demand is relatively stable that it would implies hopefully some growth beyond just having the economy snapped back a bit here. So that gives me a little bit of optimism. Obviously, if you turn the TV on right.

Speaker 5: Hopefully in a world where the man is relatively stable that would imply hopefully some growth beyond just having the economy snap back a bit here. So that gives me a little bit of optimism. Obviously, if you turn the TV on right now, it can make you a little bit hesitant to be bullish. But you know, the things that we can control at the moment before.

Brandon Oglinski: Thanks Jonathan that one of the wounds just opened up look it's so different we have to we have to be really aligned. First of all we have to understand what what our assets and our people can do for us and expand on that obviously but I just don't see the market that the commodities we move being the same as the growth is where I came from. And so again I have a long way to go to understand the market and I'm working extremely hard with Kevin understand it but look the principles are the same.

Now it can make you a little bit hesitant to.

Be bullish, but the things that we can control as I mentioned before.

Speaker 5: That pipeline has never been bigger. I don't think I've only been here for about six, seven years, but talking to the my colleagues that have been around a lot longer, the things that we're doing from an industrial development side, the things we're doing working with other class ones, the things, you know, you have the Western class ones going after the Mexico business, we can participate in that. We're really happy to work with them. There's a lot of things, a lot of momentum, just around us all working together to create opportunities for ourselves, where I think,

That pipeline has never been bigger.

I don't think I've only been here for about six seven years, but talking to my colleagues that have been around a lot longer the things that we're doing from an industrial development side of things, we're doing working with other class ones things yes.

Jonathan Sheppell: We sell a service. We deliver a service. And how fast we recover from, you know, any service disruptions is key to keeping the customer knowing that our goal is to be the reliable provider for them. I don't see any difference. And you can go back and take a look at, you know, the hockey stick recovery and all that great history, but I'm looking forward. And I don't, I don't think anything changes in my view as to how we approach this.

Yes, the western class ones going out to the Mexico business. We can participate in that we're really happy to work with them. There's a lot of things a lot of momentum just around us all working together to.

To create opportunities for ourselves where I think.

Speaker 5: For decades, we've been pushing volume quite frankly off the railroad on the truck, and now we're all gonna work collectively to really change that trend, and that's exciting. Forget the second part of that question.

For decades, we've been pushing volume quite frankly off the railroad on the truck and now we're all going to work collectively to.

Really change that trend in and Thats exciting.

I forget the second part of that question.

Speaker 5: The industrial projects, you know, we did highlight a number of those. I think we'll put a fighter. We'll come back probably at the end of as we look in the next year and kind of put up more numbers around that, but the activity levels are just tremendous. And then we haven't seen any slowdown. And like I said before, the biggest challenge is to create the inventory of, you know, readily available industrial sites that are shovel ready.

Jonathan Sheppell: We know what we can do. And we continue to really stay close. And again, the teams being together from the ground floor up, there shouldn't be surprises. And if there are, you know, we're going to build our resiliency so that we can, we can attack it again and again, be reliable for the customer. So I don't see that big of a difference in terms of the model that we have here or where we have wherever we have what we had what I had before. It's a cell the service, deliver the service. And Kevin is really working hard with this team on rateability. So there, there shouldn't be surprises.

And the industrial projects, we did highlight a number of those I think will put a fighter.

We will come back probably at the end of as we look into next year and kind of put a more numbers around that but the activity levels are just tremendous and we haven't seen any slowdown and like I've said before the biggest challenge is to create the inventory of <unk>.

You know readily available industrial sites that are shovel ready.

Speaker 5: tomorrow, basically. As these companies, as we're seeing more on-shoring, we're seeing more industrial development. They want to go quickly, and we've got to be ready to serve their needs. So that's the focus of this team, is how can create more opportunities throughout our network to react to where they need to go and create a service that they can reach their customers. But...

Tomorrow basically as these companies as we're seeing more onshoring, we're seeing more industrial development. They want to go quickly and we've got to be ready to serve their needs. So that's the focus of this team is how can we create more opportunities throughout our network <unk>.

Scott Group: Your next question comes from the line of Scott group from Wolf Research. Please go ahead. Hey, thanks.

To react to where they need to go in and create a service so they can reach their customers but.

Speaker 5: We'll put some more numbers around that as we develop it, but the team's done a great job and we've got a lot of momentum.

Sean Pelkey: Good afternoon. Maybe Kevin any just any color on on how much of a uptake in the coal yield we should expect in Q4 and into Q1. And then maybe just Sean just help us think about some of the puts and takes for Q4 to sound like better volume less of a fuel headwind, maybe some net uplift, but maybe some continued cost pressure. So you put it all together. Does anything operating ratio gets better worse from Q3 any any directional car you want to give us.

Some more numbers around that as we develop it but the team's done a great job and we've got a lot of momentum there.

Speaker 18: Here next question comes from the line of Jordan Alliger from Goldman Sachs. Please go ahead. Yeah, I was wondering if he could maybe give some color or thoughts around the auto.

Your next question comes from the line of Jordan <unk> from Goldman Sachs. Please go ahead.

Yeah, Hi, I was wondering if you could maybe.

Give some color or thoughts around the auto sector, obviously its been a area of a lot of strength.

Speaker 18: Strikes, work stoppages are going on. How much cushion do you guys have relative?

Strikes work stoppages are going on and how much cushion do you guys have relative to.

Speaker 18: you know the inventory that's out there versus how long this drags on before it really starts to impact carlos.

The inventory Thats out there versus how long this drags on before it really starts to impact carloads. Thanks.

Sean Pelkey: Yeah, you know, Scott, there can be a lot of mixed issues within our coal business. You know, when you think about southern utilities longer like the whole higher RPU versus northern utilities. It's very, very good business can be shorter haul. So can sometimes be a little bit lower RPU as well. But in other words, given some of the benchmark strength that we've seen, you know, I would look for something in the low, low single digits, maybe mid single digits, depending on mix.

Speaker 5: Yeah, I mean, obviously we want it a quick resolution, the quicker the better.

Yeah I mean.

Obviously, we want quick resolution the quicker the better.

Speaker 5: As you're probably aware of the industry, as a whole, has been short on car supplies. So to some degree, that's probably helping us or helping the industry to a certain degree. There's certainly some impacts to us. We're seeing strong demand in other areas.

As youre, probably aware of the industry as a whole has been short on car supply. So to some degree that's probably helping us are helping the industry to a certain degree theres certainly some impacts to us we're seeing strong demand in other areas.

Speaker 5: We have a diverse portfolio, so we're able to probably supply more cars to those customers that have been wanting more cars here recently and diverting some of those as we've seen some impact. My boss here knows that industry more than anybody else and I keep on asking them every day what thoughts are, but we'll manage through it. I think more of...

We have a diverse portfolio so we're able to.

Sean Pelkey: And Scott on your question around Q4. I think you did a good job of kind of summarizing the factors. We're off to a good start in terms of the volume. And that's obviously one of the most important factors in terms of not only seeing or are, you know, stay stable to improve, but also more importantly growing our earnings. As you mentioned, fuel should be a little bit less of a negative here in Q4 than it was in Q3.

Probably supply more cars to those customers that had been wanting more cars here recently and diverting some of those as we've seen some impact.

But my boss here knows that industry more than more than anybody else and I keep on asking every day, what his thoughts are but.

That's through it I think more.

Speaker 5: This is the FOD revenue. And we think the demand still remains out there. So as we move in the next year, we expect the capture of the demand that exists.

This is deferred revenue.

And we think the demand still remains out there. So as we move into next year, we expect to capture all the demand that exists.

Sean Pelkey: We'll see what the direction of fuel prices is, but we have 30 million a lag in the third quarter that we don't expect to repeat. And then, you know, in terms of the cost seasonally, we typically do see higher costs in Q4 than Q3. So if you were to look over the last five years each and every one of those years, the OR has been worse in Q4 than Q3. And everything except for 2020, the COVID year operating income has been down sequentially from the third quarter.

Speaker 1: Your next question comes from the line of David Vernon from Bernstein. Please go ahead.

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

Speaker 19: Hey, good afternoon guys. Um, so Kevin, I wanted to ask you about the drivers of that domestic intermodal growth from a channel.

Hey, good afternoon guys.

So Kevin I wanted to ask you about the drivers of that domestic intermodal growth from a channel perspective.

Speaker 19: You know, the numbers sort of turned around in week 17 and it's been pretty straight and up to the right. Is this just general stuff you're getting through traditional IMCs or is it, you know, a parcel company that's doing a little bit more over the rails, is it a retailer that you've got a direct relationship with? Is there any one single driver of what's looking like a pretty big divergence from industry and our modal performance that we should be thinking about there and domestic in our modal?

So I turned around in 17 and its been pretty straightened up to the right is this just general stuff you're getting through traditional amcs or is it a parcel company that's doing a little bit more over the rails as a retailer that you've got a direct relationship with is there any one single driver of what's looking like a pretty big divergence from industry intermodal PERC.

Sean Pelkey: Now, we're off to a good start. Like I said, and you know, we've got our eyes fixed on places that we can eliminate waste and control costs. So I think we've got a good shot of a bucking that seasonal trend and doing a little bit better than that.

Justin Long: Your next question comes from the line of Justin Long from Steven's. Please go ahead. Thanks and good afternoon. Kevin, it sounds like you've recently had some early success with market share gains, both truck and rail, but could you expand a little bit more on the commodity groups where you're seeing the most meaningful pale winds on that front? And as we move into 2024, where you see the most opportunity to keep that momentum going?

Formats that we should be thinking about there in domestic intermodal.

Speaker 5: I think there's not one single driver. It's the team's working together on the operating side and the sales and marketing side. They're going after every opportunity there is. And they're...

Well I think.

There's not one single driver it's the teams working together on the operating side and the sales and marketing side Theyre going after every opportunity there is in there.

Speaker 5: Whether it's identifying new lanes, other things that are profitable, we're going after it right now, really being able to lean in and I have to commend the team for their creativity, their ability to work with our partners and operations and really go after things and adapt quickly and react quickly to market demand out there.

It's identifying new lanes. The other things that are profitable we're going after it right now and really being able to lean in and I have to commend the.

The team for their creativity.

Their ability to work with.

Our partners in operations and really go after things and adapt quickly and react quickly to market demand out there. So we'll still have a significant value proposition even with the truck as weak as it is today and that will only accelerate once the truck.

Justin Long: Yeah, I think it's really within our merchandise portfolio and it's it's broad based. There's different initiatives across the board, you know, from our metal side of the business, which I highlighted automotive has been a good strength of for us. And it's all on the back of, you know, service that's differentiated in the market. And we've really been able to capitalize on that with a customer. The customers were looking for reliable service.

Speaker 5: We still have a significant value proposition even with the truck as we go to today and that will only accelerate once the truck.

Speaker 5: from his up a little bit here and in the next year, but really really proud of what they've been able to accomplish and we've got a lot of momentum around it.

Firmed up a little bit here in the next year, but.

Really really are proud of what they've been able to accomplish and we've got a lot of momentum around it.

Okay.

Speaker 1: Your next question comes from the line of Walter Sprocklin from RBC Capital Markets. Please go in.

Your next question comes from the line of Walter <unk> from RBC capital markets. Please go ahead.

Justin Long: And I think we've been staying out in the market here year to date and our team has been selling it. And it's been incredibly helpful on that side. I won't say, you know, you're going to start to see some benefits of the industrial development side. More and probably the 25 26, but you'll start to see the layer in in late 24 and got a lot of momentum there. And again, it goes back to the service product that we've been able to deliver and getting the confidence as these industries build new plants. That they're locating on our railroads.

Speaker 20: This is James McGarrel. I'm on for a Walter today. Thanks for having me on

This is James Mcgarrigle I'm on for Walter today, Thanks for having me on.

Speaker 20: I wanted to ask a question on US port share ship toward the US East Coast and away from the US West Coast over the past number of years. I give you the agreements with the unions on the West Coast. I'd you expect this share ship to trend to toward the East Coast to continue. And any early indication you can share from your conversations with the shipping lines and your strategy to capitalize on these trends longer term. Thanks.

But I wanted to ask a question on U S port share shift towards the U S East coast and away from the U S West coast over the past number of years.

Given the agreements with the unions on the West coast.

Do you expect this share shift to trend to towards the east coast to continue.

Early indication you can share from your conversations with the shipping lines and your strategy to capitalize on these trends longer term. Thanks.

Kevin Boone: So I actually just sat down with Christina this afternoon and we're going through all the industrial projects that have been taking place throughout the US. And it's interesting. You look at a map holistically throughout the US. And it's all focused in the east. And that's our railroad. That's where we operate. And that's where our team is really going after it today and very, very optimistic on what's happening in that side. So a lot of opportunities that they're mixed across different industries and every industries created a little bit different, but we are being able to lean into those conversations. You know, quite quite different environment than what was occurring last year, but you know, very, very optimistic here.

Speaker 5: I think you've heard it over and over again, the West Coast are challenged in terms of being able to add capacity. And so there's been tremendous investments that continue to be made on the East Coast and where the beneficiary of that. And...

I think you know you've heard it over and over again, the west coast are challenged in terms of being able to add capacity and so theres been tremendous investments that continue to be made on the east coast and we're the beneficiary of that.

Speaker 5: So we'll continue to work with our East Coast ports and expect that trend to continue going forward. You also see a migration out of China and other markets, and that's also helpful for what we're seeing in terms of imports coming off from a new locations that can go that are more likely to go to the East Coast than maybe the West Coast previously. So a lot of good momentum, a lot of significant investments being made. We're making investments alongside of them.

We will continue to work with our east coast ports.

And expect that trend to continue going forward you also see a migration out of China and the other other markets and that's also helpful for what we're seeing in terms of imports coming out from the new locations that can go that are more likely to go to the east coast than maybe the west coast previously so a lot of good momentum a lot of significant inverse.

Amit Mehrotra: Your next question comes from the line of admit, may her from Deutsche Bank. Please go ahead. Thanks a lot.

<unk> being made we're making investments alongside of them.

Speaker 5: to make sure we're prepared for the growth, but it's been a great story. I don't see any reason that that won't continue going forward.

To make sure we're prepared for the growth, but it's been a great story that I don't see any.

Sean Pelkey: Hi, everyone. Sean, I wanted to just follow up on that question around 3, Q to 4, Q, but maybe ask it as it relates to 2024. I mean, obviously we're moving from a very inflationary environment, kill a less inflationary environment. You've got a little bit of labor, another uptick in labor in the middle of next year. But then I also look at like PSNO, you know, that 19% of revenue several years ago was as low as 14, 15% of revenue.

Isn't that that won't continue going forward.

Speaker 1: Your next question comes from the line of Ravi Shankar from Morgan's Ghandli.

Your next question comes from the line of Ravi Shanker.

From Morgan Stanley . Please go ahead.

Speaker 21: Thanks greenery one. There's a couple questions here one one follow up. Sorry if I missed this but I was a little surprised to see the The headwind on the asses cereals get a little bit worse because I felt like you guys had a pretty good handle on that

Thanks, Good evening, everyone just.

Just a couple of questions here, one follow up sorry, if I missed this but I was little surprised to see the.

The headwind on the accessorial, just get a little bit worse.

Sounds like you guys had a pretty good handle on that can you just kind of unpack that for us.

Sean Pelkey: So there's obviously some opportunity to get more leverage on the cost structure, especially on that big PSNO item. So I don't know if you can kind of help us enter your brain a little bit and think what what is the cost structure look like in 24 because obviously we're still in an inflationary environment. You still got maybe these chunky ideas and credit opportunities to kind of leverage some parts of the cost.

Speaker 21: can you just kind of unpack that for us and kind of uh... if if if that's now uh... uh... final number uh... also maybe for joe bigger picture another real there are a kind of pivot uh... very heavily towards growth which is historically been challenging to come by uh... what do you think about in organic growth potential opportunities maybe short-lands maybe trucking like is that something i was looking at as well

If thats now a final number and also maybe for Joe a bigger picture I know the rail there are trying to pivot very heavily towards growth, which has historically been challenged you to come by what do you think about inorganic growth potential opportunity maybe short lines. Maybe trucking is that something you guys are looking at as well. Thank you.

Speaker 2: Robbie, this is Sean, I'll start with the question around the assessorial. So it's been trending down all year long. I would say we took our kind of last sequential step down from Q2 to Q3.

Ravi This is John I'll start with the question around the asset Sorial. So it's been trending down all year long I would say, we took our kind of last sequential step down from Q2 to Q3.

Sean Pelkey: Yeah, I mean, obviously we're still in the planning phases for 2024. So I don't get too far ahead of ourselves here, but, you know, you know, the story on labor and just to make sure everybody understands in its levels that we're going to have a 4.5% wage increase mid year next year. That's the last year of the contract with the union employees. That's a step up from the 4% increase that we had mid year this year.

Speaker 2: a little bit more than we expected, but it wasn't just intermodal storage. There were some other components of other revenue that were down slightly. There's a lot of different things in there from subsidiary revenue to switching charges to lots of different factors. So this is probably a good run rate to use going forward. It is also impacted by volume to a degree. So it'll trend to a little bit higher when the intermodal volumes recover likely, but the level that we're at right now, we do think is kind of the bottom and that's why.

Bit more than we expected, but it wasn't just intermodal storage there were some other components of other revenue that were down slightly there is a lot of different things in there from subsidiary revenue to switching charges to lots and lots of different factors. So this is probably a good run rate to use going forward. It is also impacted by volume.

Sean Pelkey: In terms of PSNO, at least on the inflationary side, it's early, but I think it's fair to say that we'll start to see some normalization of the inflationary pressures from this year. So we admit single digit inflation this year to probably be a little bit less than that, but certainly higher than the 5-year average as some of those outside service contracts are based on lagging indicators or labor indices that are going to reset.

To a degree so.

It'll trend too little.

A little bit a little bit higher when the intermodal volumes recover likely but.

The level that we're at right now we do think as kind of the bottom and that's why we just didn't want to we wanted to make sure everybody understood where we were headed for the fourth quarter on that line.

Speaker 2: We just didn't want to make sure everybody understood where we were headed for the fourth quarter on that line.

Speaker 3: Thanks Sean and Robbie just a couple of other comments from your second part of your question.

Thanks, Sean and Ravi just a couple of other comments from your second part of your question I mean at the highest level I wouldn't.

Sean Pelkey: So suffice it to say, I do think we've got fewer headwinds overall going into next year than we did going into this year and that sets us up well. We've got cost and efficiency opportunities, but I think more importantly, you know, Kevin and the team are building a really nice pipeline of growth that really stems from the way that we've been serving the customer over the last year. And that sustained service level as well as some of the initiatives the team's been working on. That's really what's going to drive growth as we get into next year and beyond.

Speaker 3: I mean, at the highest level, I wouldn't think that, you know, trucking is where we would see...

I think that trucking is where we would see growth we're proud of that.

Speaker 3: growth were proud of the acquisition of quality carriers and how that progressed with us at CSX, where that was very specialized, to serve our chemical customers were.

Acquisition of quality carriers, and how that's progressed with us at <unk>.

But that was a very specialized disturb our chemical customers were very strong franchise and a very important business to us, we'll always be opportunistic, but I wouldn't see that trucking is where the growth comes from but just a couple of areas to highlight that we have met so far tonight, but first and foremost I'll start with the fact that you know I think you get the sense from this team, but we eat.

Speaker 3: very strong franchise and very important business to us. We'll always be opportunistic, but I wouldn't say that trucking is where the growth comes from. But just a couple areas to highlight that we have in the highlight so far tonight. First and foremost, I'll start with the fact that, you know, I think you get the sense from this team.

Speaker 3: but we firmly believe that the best way to provide opportunity for growth is to continue to provide class best insulating service for our customers. And when we do that, it gives us more and more opportunities to win business with customers. So that is the foundation of where we see growth. But yeah, you have to remember, we've been investing in the New England region, which is the old Pan Am network that we purchased. And that's going to be an opportunity for growth. We're excited about that.

Normally believed that the best way to provide opportunity for growth is to continue to provide class best industry, leading service to our customers and when we do that it gives us more and more opportunities to win business with customers. So that is the foundation of where we see growth, but yet you have to remember we've been investing in the new England region, which is L. Panam network.

Tom Waterwitz: Here next question comes from the line of Tom Waterwitz from UBS. Please go ahead. Yeah, good afternoon.

Sean Pelkey: I wanted to see, I guess it's kind of seen in the same topic, Sean, but if you think about 2024 and volume sensitivity in terms of how the OR performs, do you think that there's a chance that you could see improvement in the OR if you don't see volume growth and perhaps related to that from a pricing perspective. I think sometimes people think that there is a time delay on some of the pricing with multi-year contracts and there might be catch up on pricing related to inflation. So if you know it's kind of two things within that just, you know, OR sensitivity to volume and also potential catch up on pricing. Thank you.

There'll be purchased and that's going to be an opportunity for growth. We're excited about that we're going to start a new interchange point with C. P Casey and Myrtle with Alabama, we're very excited about that opportunity.

Speaker 3: We're going to start a new interchange point with CPC in Mertlewood, Alabama. We're very excited about that opportunity. And Kevin referenced it, but I want to highlight it, in order for this industry to see significant growth, we have to work better together.

Kevin referenced it but I want to highlight it in order for this industry to see significant growth we have to work better together to be motivated to serve customers in new and better ways and we're starting to have some good conversations with other class one railroad to be able to talk and think differently about how do we serve the customer and how do we get excited about that opportunity.

Speaker 3: to be motivated to serve customers in new and better ways. And we're starting to have some of good conversations with other class one.

Speaker 3: railroads to be able to talk and think differently about how do we start the customer and how do we get excited about that opportunity. So there are a number of incremental steps we can take to grow the business beyond just getting better and all the work they were doing and a cynical nature of our business, which will be some things that should help us going into 24 as both Kevin and Sean mentioned. But those are some incremental areas that we have opportunities.

There are number of incremental steps, we can take to grow the business beyond just getting better and all the work they were doing them and critical nature of our business, which will be some there are some things that should help us going into 'twenty four as both Kevin and Shawn mentioned, but those are some incremental areas, where we have opportunities.

Kevin Boone: Yeah, Tom, so I mean, our plan is going to be the grow grow volume ahead of the economy. That's that's what we're going to shoot for. That's what we're going to plan for. So I mean, if we were to have no growth next year, I think it would be tough to improve the OR with the continued inflationary pressures that we're seeing, you know, your cycling. We had that insurance settlement earlier in the year. So there's a few things there. The appreciation will continue to go up things like that. So we need growth. That that's what the model requires and that's what we're building into the plan.

Speaker 3: And then as our intermodal product continues to get better and we continue to be in the 95 plus percent triple-end compliance reliably, repeatedly and get to the high 90s, as the truck market starts.

And then as our intermodal product continues to get better and we continue to be in the 95 plus percent trip plan compliance reliably repeatedly and get to the high Ninety's as the truck market starts to rebound and as costs continue to increase there and we can be more competitive versus truck and get some more business off the road there so.

Speaker 3: you know rebound and its cost continue to increase there. We can be even more competitive versus truck and get some more business off the road there. So.

Kevin Boone: Kevin, I don't know if you want to address the price piece. Yeah, on the pricing, you know, roughly 60% of our price are business reprises every year and know 30% of that is kind of carry over what we've already touched this year. So we'll touch the other half going into next year and the environment is still supportive and it certainly helps when the service product is vastly improved and we'll continue to price to our service levels and those are up. And so it's this conversation that customers expect, you know, our labor inflation is very visible to the world. And we have those discussions. They they don't they're not unexpected from the customer.

Speaker 3: A lot of opportunity for us. We have to continue down the path we're on.

Lots of opportunity for us we have to continue down the path we're on.

Speaker 3: I've continued to provide that reliable service, but there's some exciting developments going on in addition to

And to provide that reliable service, but there's some exciting developments going on in addition to all the projects that are going on industrial development side that this Kevin referenced earlier, we will provide more guidance, maybe it's more information on that that guidance that information on the context of that but there are hundreds and hundreds of projects in the works in that space.

Speaker 3: All the projects that are going on industrial developments by this Kevin referenced earlier will provide more guy, maybe more information on that, not guidance, but information on the context of that. But there are hundreds and hundreds of projects.

Speaker 3: in the works in that space. So I'm a lot to be excited about and really excited about the capability of our network to take advantage of that.

Not to be excited about.

And really excited about the capability of our network to take advantage of that.

Speaker 1: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

This concludes today's conference call. Thank you for your participation and you may now disconnect.

Allison Poliniak: Here next question comes from the line of Allison Poliniak from Wells Fargo. Please go ahead. Hi. Thanks for taking the question. And just want to go back to the domestic intermodal side. You know, you're starting to see some conversion from truck here. We were talking to customers.

Speaker 22: Please wait, the conference will begin shortly.

Please wait the conference will begin shortly.

[music].

Kevin Boone: What's really starting holding them back from converting at this point is there's something in the service product that you have to evolve or is it just simply building that trust with the reliability that you guys have had over the past few months. Just any thoughts there. Yeah, you know, to reflect on, you know, the pandemic and that's, you know, the domestic intermodal in our intermodal franchise performed very, very well. It really was outshine the industry in a lot of ways.

Okay.

Yeah.

Yes.

Yes.

Sure.

[music].

Kevin Boone: What minimize our growth opportunity was really the chassis and some of the equipment limitations that existed. So obviously we're in a very, very different world today. And so those limitations don't exist on a year of your basis. And we're really seeing the team able to capitalize on that and the strength of our service product is really coming through when you see what we talked about in the chart that we mentioned previously as I think all those things are coming together service leading in the east and then allowing our customers to grow with us with our service product.

Ken Hexter: Here next comes from the line of Ken Hexter from Bank of America. Please go ahead. Hey, great, good afternoon.

Joe Hinrichs: Mike, welcome back to the sector and happy to have you here. Joe or Mike, I guess just operation seemed pretty solid, right? In terms of how well you're operating and obviously you still want to improve and maybe Mike just talk about what, you know, you've been there for a month, but what do you see is, I don't know if it's well hanging fruit or opportunities on operations, you know, it sounds like Sean saying or Kevin saying you need the volumes in order to get that operating leverage, but are there things you can do on the cross side from what you see that can, can aid that leverage opportunity.

Okay.

Yeah.

Yes.

Okay.

Yes.

[music].

Joe Hinrichs: Yeah, I can thanks look visibility of waste and getting it and collating that information so that I can, you know, what I do is I try to teach and learn learn and teach that's really what it's about so we have a good group of people, many of them, you know, younger, haven't been experienced in the positions are in so that's really where I've been focusing, first of all, to get a temperature read, but really start to share with them. How to go about getting at that waste and it's not easy in a network like this and you know, it's something that we will do as a team, but I'm not big on, you know, the next day looking at a report I wanted visible right away so they see their actions and so I see great opportunity in that they're hungry to do it they're more than motivated and it's up to me to teach them and help them get there.

Joe Hinrichs: And I have all the confidence that that's where we'll get but we'll see just just through the waste exercise at first and then it starts to allow you to get into understanding how to devise the network to Kevin's point to keep and even get better service and get the businesses out there. Yeah, I can answer that a little thing. I think the timing of Mike joining us is, you know, it's perfect because we've had a year of taking advantage of the operating model that we have engaging with our employees, you know, do a lot of things around culture and or one CSX.

Joe Hinrichs: We've made tremendous progress, especially on the service metrics as you've seen and we have, you know, you know, close industry leading metrics across the board on the operating side. Now we have Mike coming in with the experience, best set of eyes and all the opportunities that can now allow us to step back and say, OK, we've come this far, great work, proud of the team's work. Now, here's the opportunity that we have to advance even further.

Joe Hinrichs: And so the timing's perfect, I think for us works out very nicely. Our team's excited and motivated. You've seen now as Kevin has highlighted many times in his comments tonight regarding the customers that acknowledge they acknowledge that with me all the time, the service levels that we've sustained, you know, almost reliably now and repeatedly for 12 months. And now we have the opportunity to get more efficient and to get even better.

Joe Hinrichs: And Mike's come in with a great attitude and excited about about how we can take it to the next level and still focus, of course, on this great and proving our service metrics, but also teaching our team, which is a relatively young team to understand what it takes now to take a next step forward. So excited about it. I'm excited about it. And I think we can continue to outpace the industry when it comes to progress on our efficiency metrics.

Bascome Majors: Your next question comes from the line of Bascom's majors from Susquehanna. Please go ahead. Thank you. To follow up on that earlier question, can you roll that out a little bit further? Not just on the service side, but Mike, your role in the man that you've been given to focus on culture, fails the integration of Kevin's department with yours. What way do we see different from CSX over the next three to five years versus what we've seen over the last three to five? Thank you.

Mike Cory: That's a tough one, Bascome. I'm still out there trying to learn, and that's important to me because I don't want to block anybody or make them feel they can't come forward with an idea. That's number one, but going forward, I want to share the experience I have. So that they're incorporating that into the things they do today. And you know, to me, we'll see improvements in all our metrics. A bigger focus on, you know, when I say velocity, I'm talking both trains and cars, but fluidity, and we run a pretty condensed network here.

Mike Cory: Everything is really close. We don't have in many cases a lot of time to recover. So it's, it's the plan we put into effect in the discipline about executing it. And so what I'm trying to share with them is the availability of data and how to use it. It hasn't, I don't see that they've had enough time. It gone through a pretty tough period here over the last couple of years. They rebounded extremely nicely into Joe's point.

Mike Cory: This is to get to the next level, so where they're self sufficient. And I know they can be, they know they can be, but I'm here to show them that way. And maybe Kevin, if you have something add. Yeah, I would just, I would highlight that the teams, Mike team and my team, they coordinate daily. They're speaking better than they ever have to each other. It's important from a sales and marketing perspective.

Mike Cory: You talked about can we handle an up surge and volume demand? Well, it's up to us to communicate that real time. So the team can work, you know, make sure we're prepared. But I volume communicate with a customer and, you know, make sure it's readable and that we have the people in place to handle it. And I think a lot of the discussions we're having right now are around that. And it's, you know, I don't think is rocket science to figure out where things could come back very, very quickly.

Mike Cory: And we're having those discussions around, you know, creating resiliency in this network. And we're going to get together in a couple of weeks, our teams again, go through it, market by market. What do we see for next year? What do we see over the next three years? And how are we going to prepare for that? And those conversations are better than they ever have been. Yeah, yeah, not just finished up fast.

Mike Cory: Like I've been, like I said, pretty much to, well, I'm not pretty much everywhere, but a lot of locations and I really focus on bringing everybody that has a role in servicing the customer. You know, I was up in Baltimore Curtis Bay. I had everybody from facilities to Kevin and his marketing team to the people that run the plant, you know, to our engineering mechanical everybody has a role to plan when they see their actions actually doing it together.

Mike Cory: They become, they become cut more than customer advocates. They know and can, and can, you know, can respond to the customer much faster because they know exactly, they know exactly what they can offer. And so going forward, this is, this is not operations and marketing. No, this is CSX. This is how we approach this. This is how we build the business and keep it and drive it even better for the customer.

Mike Cory: That's what I see in three to five years. You guys can see it, but Mike has the shirt on. It's one CSX. That's what we're talking about here. And that's the vision that our teams are seen with enough that people see CSX as one entity, not a bunch of different functions and silos. All focused on, of course, safety first of our employees in the communities we live in and serve, but ultimately the service we provide our customers, which leads to the growth potential that we've all talked about.

Mike Cory: And doesn't take a rocket scientist to figure out in this business with what incremental margins come with it with growth in this business. And, but from my, you know, year plus experience here now, we will realize the most potential when we have operations and marketing sales as described by both Kevin and Mike as one team looking at every opportunity together with a can do let's find a way to make sure it's profitable.

Mike Cory: Let's find a way to be able to serve the customer and do it efficiently and that's the spirit of one CSX focus on how on teaching and training our employees to be part of that team and to get excited by that opportunity and do it in a way that we're proud of how we work together in service of the customer. That's one CSX is what everyone's talking about.

Joe Hinrichs: Bill.

Jason Seidl: Your next question comes from the line of Jason Seidl from TD Cowan. Please go ahead. Thank you, operator. Joe and the team, good afternoon. Mike, welcome back. It must be pretty exciting coming and hitting the ground, running in a railroad, showing you including service numbers. So we look forward to seeing what you could do in 2024.

Kevin Boone: My question actually is going to be to Kevin. Kevin, you had some comments you said you had many, many reasons to be optimistic. So noted the two many's there.

Kevin Boone: You sort of touched on domestic plastics, improving, would like to get some meat on the bone there with those commentaries. And then you talked a little bit about some industrial development project with Christina. Can you give us some numbers and what you're seeing now in terms of total projects and maybe what you had a year ago and maybe pre-pandemic? Yeah, you know, on, you know, we're exposed to a lot of cyclical businesses and you know, we're talking about everybody's talking about a looming recession.

Kevin Boone: Well, in my opinion, you know, a lot of the businesses we touched have been in recession for the last year and many of them are at cyclical lows. And maybe we went beyond that with the with the de-talking that occurred. So when we talk about, you know, some of the plastics and we talk about forest products and some of these other markets, there's significant de-talking Edwin's that we've been dealing with for the past three or four quarters.

Kevin Boone: And so just just based on that, you know, obviously the comparison to get much easier from here as we look in the 2024. And hopefully in a world where demand is relatively stable, that would imply hopefully some growth beyond just having the economy snap back a bit here. So that gives me a little bit of optimism. Obviously, if you turn a TV on right now, it can make you a little bit hesitant to be bullish.

Kevin Boone: But, you know, the things that we can control, as I mentioned before, that pipeline has never been bigger. I'll think, you know, I've only been here for about six, seven years, but, you know, talking to the my colleagues that have been around a lot longer, the things that we're doing from an industrial development side, the things we're doing working with other class ones, the things, you know, yeah, the Western class ones going after the Mexico business, we can participate in that.

Kevin Boone: We're really happy to work with them. There's a lot of things, a lot of momentum just around us all working together to create opportunities for ourselves where I think for decades, we've been pushing volume quite frankly off the railroad on the truck. And now we're all going to work collectively to really change that trend.

Kevin Boone: And that's exciting.

Kevin Boone: Forget the second part of that question. The industrial projects, you know, we did highlight a number of those. I think we'll put a fighter, we'll come back probably at the end of as we look in the next year and kind of put up more numbers around that, but the activity levels are just tremendous. And then we haven't seen any slowdown. And like I said before, the biggest challenge is to create the inventory of, you know, readily available industrial sites that are shovel ready tomorrow, basically, as these companies, as we're seeing more on-shoreing, we're seeing more industrial development, they want to go quickly.

Kevin Boone: And we've got to be ready to serve their needs. So that's the focus of this team is how can create more opportunities throughout our network to react to where they need to go and create a service that they can reach their customers. But we'll put some more numbers around that as we develop. But the team's done a great job and we've got a lot of momentum, from there.

Jordan Alliger: Here next question comes from the line of Jordan Alliger from Goldman Sachs, please go ahead. Yeah, I was wondering if he could maybe give some color or thoughts around the auto sector. Obviously it's been a area of a lot of strength, the strikes, work stoppages are going on.

Kevin Boone: How much cushion do you guys have relative to, you know, the inventory that's out there versus how long this drags on before it really starts to impact Carlos. Thanks. Yeah, I mean, obviously we want a quick resolution, the quicker the better. As you're probably aware of the industry as a whole has been short on car supplies. To some degree, that's probably helping us are helping the industry to a certain degree. There's certainly some impacts to us.

Kevin Boone: We're seeing strong demand in other areas, where we have a diverse portfolio, so we're able to, you know, probably supply more cars to those cars. Customers that have been wanting more cars here recently and diverting some of those as we've seen some impact. But, you know, my boss here knows that industry more than more than anybody else, and I keep on asking every day what thoughts are, but managed through it. I think more of this is deferred revenue. And we think the demand still remains out there. So as we move in the next year, we expect to capture all the demand that exists.

David Vernon: Your next question comes from the line of David Vernon from Bernstein. Please go ahead. Hey, good afternoon, guys. So Kevin, I wanted to ask you about the drivers of that domestic intermodal growth from a channel perspective. You know, the numbers sort of turned around in week 17 and it's been pretty straight and up to the right. Is this just general stuff you're getting through traditional IMCs or is it, you know, a parcel company that's doing a little bit more over the rails? Is it a retailer that you've got a direct relationship with?

Kevin Boone: Is there any one single driver of what's looking like a pretty big divergence from industry intermodal performance that we should be thinking about there domestic intermodal? Well, I think it's not there's not one single driver. It's the teams working together on the operating side and the sales and marketing side. They're going after every opportunity there is and there. Whether it's identifying new lanes, other things that are profitable. We're going after it right now and really being able to lean in and I have to commend the team for their creativity.

Kevin Boone: Their ability to work with our partners and operations and really go after things and adapt quickly and react quickly to market demand out there. So we still have a significant value proposition even with the truck as weak as it is today and that will only accelerate once the truck firms up a little bit here and the next year. But really, really proud of what they've been able to accomplish and we've got a lot of momentum around it.

James McGarrickle: Your next question comes from the line of Walter Sprockland from RBC capital markets. Please go ahead. This is James McGarrickle. I'm on for a Walter today. Thanks for having me on.

Kevin Boone: I wanted to ask a question on US port shareship toward the US East Coast and away from the US West Coast over the past number of years. Give me the agreements with the unions on the web goes. If you expect this share ship to trend to toward the East Coast to continue and any early indication you can share from your conversations with the shipping lines and your strategy to capitalize on these trends longer term.

Kevin Boone: I think you've heard it over and over again, the West Coast are challenged in terms of being able to add capacity and so there's been tremendous investments that continue to be made on the East Coast and where the beneficiary of that. And so we'll continue to work with our East Coast ports and expect that trend to continue going forward. You also see a migration out of China and other markets and that's also helpful for what we're seeing in terms of imports.

Kevin Boone: Coming off from a new locations that can go that are more likely to go the East Coast than maybe the West Coast previously. So a lot of good momentum, a lot of significant investments being made. We're making investments alongside of them to make sure we're prepared for the growth, but it's been a great story that I don't see any reason that that won't continue going forward.

Ravi Shanker: Your next question comes from the line of Ravi Shanker from Morgan Stanley, please go ahead. Thanks, greenery one. There's a couple of questions here, one follow up, sorry if I missed this, but I was a little surprised to see the headwind on the assasorials get a little bit worse because I felt like you guys had a pretty good handle on that. Can you just kind of unpack that for us and kind of if that's now a final number?

Ravi Shanker: And also maybe for Joe, bigger picture, I know the rail, they're all trying to pivot a very heavily towards growth, which is historically been challenging to come by. What do you think about inorganic growth, potential opportunities, maybe short lands, maybe trucking? Is that something you guys looking at as well? Thank you.

Sean Pelkey: Ravi, this is Sean. I'll start with the question around the assasorial. So it's been trending down all year long.

Sean Pelkey: I would say we took our kind of last sequential step down from Q2 to Q3. The little bit more than we expected, but it wasn't just intermodal storage. There were some other components of other revenue that were down slightly. There's a lot of different things in there from subsidiary revenue to switching charges to lots of lots of different factors. So this is probably a good run rate to use going forward. It is also impacted by volume to a degree.

Sean Pelkey: So it'll trend to a little bit higher when the intermodal volumes recover likely, but the level that we're at right now we do think is kind of the bottom. And that's why we just didn't want to want to make sure everybody understood where we were headed for the fourth quarter on that line.

Sean Pelkey: Thanks, Sean.

Joe Hinrichs: And Ravi, just a couple of comments from your second part of your question. I mean, at the highest level, I wouldn't think that trucking is where we would see growth. We're proud of the acquisition of quality carriers and how that's progressed with us at CSX. That was very specialized, you know, serve our chemical customers were very strong franchise and very important business to us. We'll always be opportunistic, but I wouldn't say that trucking is where the growth comes from.

Joe Hinrichs: But it's a couple areas to highlight that we have a highlight so far tonight. First and foremost, I'll start with the fact that, you know, I think you get the sense from this team that we firmly believe that the best way to provide opportunity for growth is to continue to provide class. Best insulating service for our customers. And when we do that, it gives us more and more opportunities to win business with customers. So that is the foundation of where we see growth.

Joe Hinrichs: But yet to remember, we've been investing in the New England region, which is the old Pan Am network that we purchased. And that's going to be an opportunity for growth. We're excited about that. We're going to start a new interchange point with CPC in Mertlewood, Alabama. We're very excited about that opportunity.

Joe Hinrichs: And Kevin referenced it, but I want to highlight it, you know, in order for this industry to see significant growth, we have to work better together to be motivated to serve customers in new and better ways. And we're starting to have some of those good conversations with other class one railroad to be able to talk and think differently about how do we serve the customer and how do we get excited about that opportunity.

Joe Hinrichs: So there are a number of incremental steps we can take to grow the business beyond just getting better and all the work they were doing and the typical nature of our business, which will be some, some things that should help us going into 24 as both Kevin and Sean mentioned, but those are some incremental areas that we have opportunities. And then as our intermodal product continues to get better and we continue to be in the 95 plus percent triple and compliance reliably repeatedly and get to the high 90s.

Joe Hinrichs: As the truck market starts to rebound and its costs continue to increase there. We can be even more competitive versus truck and get some more business off the road there. So a lot of opportunity for us, we have to continue down the path we're on.

Joe Hinrichs: I'm continuing to provide that reliable service, but there's some exciting developments going on in addition to all the projects that are going on industrial developments. Kevin referenced earlier will provide more, maybe more information on that, not guidance, but information on the context of that, but there are hundreds and hundreds of projects in the works in that space from a lot to be excited about and really excited about the capability of our network to take advantage of that.

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