Q3 2024 CSX Corp Earnings Call

Speaker Change: Thank you for standing by. My name is Jail, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation 3rd quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. You may begin. Thank you very much.

Matthew Gorn: Dr. Operator. Hello, everyone, and good afternoon. Welcome to our third quarter earnings call. Having me on this call are Joe Hinrichs, President and Chief Executive Officer, Michael Cory, Executive Vice President, and Chief Operating Officer, Kevin Boone, Executive Vice President, and Chief Commercial Officer, and Sean Paukey, Executive Vice President, and Chief Financial Officer. And a presentation accompany this call and available on our website. You will find slides without forward-looking disclosures and non-GAAP disclosures for your review. That is my pleasure, tender devs, Mr. Joe Hinrichs.

Joe Hrick: Thank you, Matthew, and whoever won, and thank you for joining our third quarter call today.

Joe Hinrichs: First, I want to thank our entire one CSX team who have been tireless in helping our employees and their communities recovered from the hardships caused by two hurricanes in a matter of weeks. Halene in particular had a big impact on our network and we'll talk more about that today. We have largely recovered and we have made sure that CSX has been able to support our realtors who have needed assistance for themselves and their families. That said, there's more work that we will need to do to repair and replace some of the physical infrastructure that we lost which Mike and Sean will discuss later on this call.

Speaker Change: A stepping back and looking at this entire quarter, I am proud of what we accomplished, our aim was to grow volume, revenue, and operating margin for the last year, and that is exactly what we delivered.

Speaker Change: Our merchandise continues to grow at an impressive pace, benefiting from our service leadership and the numerous initiatives at Kevin and his team up pursuing to bring new business to CSX.

Speaker Change: Operation League, efficiency and cost control remain solid, and we're still only getting started with some of the ways that we're using valuable real-time data to optimize our network.

Speaker Change: We have had our challenges, with Cory, we had to adapt and respond to significant weather events, equipment issues that are called terminal and lower diesel prices throughout, with kept our focus on our long-term goal to deliver consistent, sustainable, profitable growth over time.

Speaker Change: Now let's go over some of the highlights. On slide one, it shows our key results from a third quarter compared to last year. Despite the severe weather, we were still able to post some very good results across the company. Looking across the highlights listed on this top line.

Speaker Change: Total volume grew by 3% versus last year, led by strong performance in our core merchandise business where volume also grew by 3%. Versionized revenue grew by in press in 6% to 4% by 3% growth in volume and fable pricing.

Speaker Change: Our operating margin reached 37.4% inclusive of our trucking business and improved 180 basis points compared to last year. Demonstrating strong, year-old, year-old, year expansion as our guidance indicated.

Speaker Change: Now, these charge summarized a solid quarter for CSX, full revenue reached over $3.6 billion for the quarter, a 1% from the same period last year, even with lower fuel surcharge and coal prices. Operating income increased by 7% compared to last year, as we delivered strong gun on margins from top line growth and cost control. Boone's per share grew by 12% supported by solid results for the business and our commitment capital returns.

Speaker Change: I was also his co-ordinator demonstrates strong execution of the powerful momentum behind our proven operating model.

Speaker Change: We remain motivated as a team, keeping a mind that I've told you since I joined CSX over two years ago, talented people working together as one CSX team, where the common goal can accomplish just about anything. Now I'll turn the call over to Mike to write details around our operational performance.

Mike: Thank you, Joe.

Mike: and thanks to all of you for joining us today, so here's a rundown on the operating activities in the quarter.

Mike: We start first though by thanking our 1 CSX team for their extremely hard work and their teamwork to deliver solid results through challenging quarter at times and specifically in certain locations. So let's go to the first slide on safety.

Mike: For every injury, not much has changed in the last quarter in terms of metrics. Although we see a higher frequency than our desired target, we're finding the injury to vary rate as lower and as a result we see a reduction in loss days of work for injured employees.

Mike: For the FDA train accidents we continue to see a year over your decrease in incidents.

Mike: Our biggest improvement has been driven by a reduction in human factor, yard train accidents.

Mike: Through our Safety SX Initiative, we are improving our ability to reduce workplace exposures. And this will continue to drive positive results across the network. We recorded our lowest number of human factor train accidents in September, and human factor incidents are our leading cause. And that progress is really great, and it's a great achievement by our employees here at CSX.

Mike: So, looking at the next slide, my real road remains fluid. I'll be at we have had and still have some weather related challenges. Overall velocity considering the effects of the weather show the resiliency of our network.

Mike: Ability to maintain our food, it became directly from the effective response of our field forces and our ops teams. The managed changes to our service plan have provided needed service to our customers in an efficient manner throughout this period. Collectively, we were able to ensure our strategy of safe restoration of service was accomplished without an injury or accident.

Mike: While network's speed is extremely important, our focus has been equally strong in sharing our major engineering work, gets accomplished according to the plan. With multiple weather constraints, we were able to stay on-plan on maintaining our network velocity.

Mike: While our dual metric was affected by weather, we did see an increase of 3% more car loads and moved it with 3% less train starts

Mike: So we continue to manage inventories in our yards for our customers and always, always look for a more efficient way to move the cars, whether aside the team's focus on service and efficiency. And the lessons learned from our response and actions as a team will certainly help them in development of our operating leaders going forward.

Mike: Over the last slide.

Mike: I continue to work with our sales and marketing team to align our operations with the needs of our customers. Excellent service and cost discipline are always at the forefront. Our metrics do reflect whether related difficulties, however our field forces, as I mentioned earlier, work extremely efficiently to get us back operating as fast as possible.

Mike: But the big thing is we did this collectively as a team, with our service groups saying close to our customers and communicating important two-way information throughout.

Mike: Our vast network resilience and faster recovery over our network is allowed us to remain in line, but their customers need throughout this weather. And I'm very proud of how well the entire team has come together and worked to provide service throughout some challenging disruptions.

Mike: Communication between our service network and field operation teams is very strong and continues to strengthen. These last couple of months have provided plenty of opportunities to show we can do with and for our customers. So I'm all I'm very proud of the team and I'm thankful for their efforts in this tough but very good quarter. Thank you and over to Kevin. Thank you very much.

Kevin: All right, thank you, Mike, and the third quarter as Joe and Mike Boone mentioned, we were presented with a number of challenges from storms, a strike at our East Coast ports, and another temporary outage at our Curtis Bay terminal.

Kevin: You're very proud of the level of communication throughout the CSX team and our focus on serving our customers through these challenges.

Kevin: This was highlighted by our most recent customer survey, I'll just this week with our net promoter's score at the highest level since we started measuring.

Kevin: With major storms impacting our network, we are working with our customers on the rebuilding efforts to ensure CSX is able to deliver the building materials and other essential supplies to the areas where they are needed.

Kevin: There's been a lot to manage through, even for a railroad with the experience of CSX. But working together, we've been able to find creative solutions to keep freight flowing.

Kevin: At a high level, market conditions remain a bit mixed. We are seeing continuous strength of some of our merchandise markets. And while truck rates appear to have bottomed, there remains a soft market. Diesel and natural gas prices remain low, and benchmarked prices have moderated.

Kevin: All that said, we grew total volumes in revenue over the quarter, as our service-led initiatives continue to bring new business to our railroad.

Kevin: The team has continued to build momentum by working with our customers and we're going to continue to push hard to get some mixed economic backdrop. And I'm excited about our upcoming investor day, where you will hear more from our commercial leaders who are laying the foundation to deliver profitable growth for CSX.

Kevin: Let's first review our merchandise business that's shown on slide 7. As a whole, merchandise continues to be a great contributor for us. As we anticipated, volume growth accelerated this quarter, supported by new business winds, truck conversions, and the ramp up of industrial development projects.

Kevin: Let me new gain 6% compared to last year, driven by 3% gain and volume and solid pricing.

Kevin: Note that with lower diesel prices, fuel search charge was a drag on both total revenue and reported RPU. On a core-based basis, or same store basis, a merchandise pricing remains solid.

Kevin: Chemicals continues as positive performance for the year delivering a 9% volume increase year over year. You see consistent broad strength across plastics, industrials, industrial chemicals, LPGs and waste.

Kevin: And I can food the second half in flexion has taken off as we had hoped. With volume also up 9% led by grain and feeding gradients as customers turns to the Midwest for supplies.

Kevin: Close collaboration with our operating team has ensured consistent service as a strong seasonal demand has kicked in.

Kevin: was product's also saw great year-over-year growth, with healthy improvement and pulled board demand contributing to a 9% volume gain. Some of this new fours product business is Shorelink the Hall, which was a factor in three cue reported RPU.

Kevin: results in our minerals business were mixed, but volume up 1% so many is doing very well supported by construction demand and the ramp up of new customer facilities. But what rainy weather was a modest drag on aggregate shipments over the quarter? All I said, the underlying long-term trend remains very favorable.

Kevin: Other markets we serve are facing more near-term challenges. As we've highlighted through much of this year, the metal's market, particularly steel, remains soft, with sluggish demand, ample supply, and low commodity prices.

Kevin: Long reason for softer metals demand is a weaker than anticipated automotive market. Conditions have deteriorated.

Speaker Change: While he was inflected negatively for us this quarter, and mix was also a modest headwind to Otto R.P.U. As Joe mentioned that an investor conference last month, the industry has seen consumer demand diminished by high retail prices and interest rates.

Speaker Change: which has led to higher dealer inventories and slower production. Our belief is that interest rate easing cycle will help these markets normalize.

Speaker Change: Lastly, total fertilizer volume continue to trend negatively in the third quarter. So we're able to pick up some favorable spot moves.

Speaker Change: For the remainder of the year, we expect to see a carryover of solid year-ve-year momentum and chemicals, agon food, forest products and minerals, all trends in metals continue to be challenged in the near-term.

Speaker Change: Now let's turn this slide, eight, to review the cold business.

Speaker Change: For the third quarter, total coal will have a new decline, 7% by 2% decline in volume.

Speaker Change: As shown in our financial report, we saw we export and domestic shipments move in opposite directions with export tonnage increasing by 10% year every year and domestic tonnage decreasing by 12% Low natural gas prices continue to limit the utility burn all in coal RPU was down 5% compared to last year and 7.5% sequentially in line with our guidance last quarter and largely driven by the declines and global benchmarks for metallurgical coal . . . .

Speaker Change: Looking ahead to the fourth quarter, I can see relatively stable. We totally stockpiles our sufficient, and though natural gas prices recently approached the three dollar mark, we're not anticipate any near-term stuff up in volumes.

Speaker Change: Export-demand remains consistent, particularly from buyers in Asia, and then Australia met benchmark has stabilized around the $200 level toward the end of the last quarter.

Speaker Change: In our export contracts, we anticipate a modest to low single digits sequential decline of all in coal argue in the four quarter.

Speaker Change: Charging the Intermodal on slide 9, total revenue decline 2% year over year by volume increased 3%. International shipments grew at a solid, mid-single digit rate, while domestic shipments ended up effectively flat for the quarter. As we talked about in past calls, we did see a shift towards West Coast Arrivals over the summer, which lifted our transcontinental interchange's buzzes to the east.

Speaker Change: We also opened up new business with several customer partners.

Speaker Change: Well, we did see the domestic business gain modest momentum over the quarter, but activity with some of our main channel partners remains relatively soft.

Speaker Change: Total Intermodal RPU decreased 5% largely due to lower fuel surcharge in a mix with international outgrowing the domestic business.

Speaker Change: Please, to see a relatively quick short-term solution for the ILA. As we did see the effects on our volumes during the strike, the trucking backdrop has remained challenged through 2024, but we do see signs of market conditions bottoming, and are well prepared to handle more volumes as the market continues to improve, and the team continues to find new business for the CSX and our modal network.

Unknown Executive: Samming it up, the team performed very well this quarter, especially given the number of external challenges we faced. Still, conditions for the fourth quarter are mixed, with certain markets continuing to show positive momentum while other markets remain challenged, including those markets more impacted by the current interest rate environment.

Speaker Change: Summing it up, the team performed very well this quarter, especially given the number of external challenges we faced.

Speaker Change: Still conditions for the fourth quarter are mixed.

Speaker Change: With certain markets continuing to show positive momentum while other markets remain challenged, including those markets more impacted by the current interest rate environment.

Unknown Executive: We remain consistent throughout market cycles is our commitment to serving our customers, and we remain confident that our creativity will continue to create opportunities next year and well into the future.

Speaker Change: Remain, consistent throughout market cycles is our commitment to serving our customers, and we remain confident that our creativity will continue to create opportunities next year and well into the future. We'll look forward to sharing more with you in November, and I'll turn it over to Sean.

Unknown Executive: We look forward to sharing more with you in November, and I'll turn it over, Sean.

Unknown Executive: Thank you, Kevin, and good afternoon.

Sean Pelkey: I'd like to start by reiterating our appreciation for the tireless work of our fellow rail rotors to help friends, communities, and the network recover from the devastating impacts of the recent hurricanes. From a business standpoint, Halloween impacted revenue by $10 to $15 million at the end of the third quarter and drove a small amount of incremental expense. It appears the fourth quarter storm-related impacts will be larger than Q3, with a current estimate of around $50 million. That includes storm recovery and rerouting costs near 20 million, as well as roughly 30 million of net revenue impacts.

Sean: Thank you, Kevin and good afternoon. I'd like to start by reiterating our appreciation for the tireless work of our fellow rail rotors to help friends, communities and the network recover from the devastating impacts of the recent hurricanes.

Sean: From a business standpoint, Hin impacted revenue by $10 to $15 million at the end of the third quarter and drove a small amount of incremental expense.

Sean: It appears the fourth core storm related impacts will be larger than Q3 with a current estimate of around $50 million.

Sean: That includes storm recovery and rerouting costs near 20 million as well as roughly 30 million of net revenue impacts.

Sean Pelkey: Additionally, a significant rebuild process is already underway for miles of track and multiple bridges across our Blue Rage subdivision. While we're still evaluating the scale and timing of these capital expenditures, our early read is that rebuild costs will likely exceed a total of 200 million, and the construction will take us into next year.

Sean: Additionally, a significant rebuild process is already underway for miles of track and multiple bridges across our Blu-Rage subdivision.

Sean: While we're still evaluating the scale and timing of these capital expenditures are early read, is that rebuild costs will likely exceed a total of 200 million, and the construction will take us into next year.

Sean Pelkey: Now to the discussion of the third quarter results. Capitalizing on powerful momentum generated over the last several quarters, the one CS-16 delivered 7% operating income growth in the quarter, with EPS up double digits. A proven operating model and increasingly collaborative approach with customers delivered profitable growth at strong incremental margins. In fact, combined merchandise and intermodal revenue excluding fuel has grown by at least 3% for 7 consecutive quarters, including 5% growth in the most recent quarter.

Sean: Now to the discussion of the third quarter results.

Sean: capitalizing on powerful momentum generated over the last several quarters, the 1 CSX team delivered 7% operating income growth in the quarter, with PPS up double digits, a proven operating model and increasingly collaborative approach with customers delivered profitable growth at strong incremental margins.

Sean: In fact,

Sean: Combined merchandise and intermodal revenue, excluding fuel, has grown by at least 3% for 7 consecutive quarters, including 5% growth in the most recent quarter. Total revenue increased by 1% impacted by lower coal revenue, as well as declines in fuel recovery, other revenue and trucking.

Sean Pelkey: Total revenue increased by 1%, impacted by lower coal revenue, as well as declines in field recovery, other revenue, and trucking. Expense momentum continued, as costs were down 2% with more detail to come on the next slide. Interesting other was stable compared to the prior year, while income tax expense increased $16 million with higher pre-tax earnings, partly offset by a lower effective rate.

Sean: expense momentum continued as costs were down 2% with more detail to come on the next slide.

Sean: Interested in other was stable compared to the prior year. Well, income tax expense increased $16 million with higher pre-tax earnings partly offset by a lower effective rate.

Sean Pelkey: Let's now turn to the next slide and take a closer look at expenses. Total third quarter expense fell by $36 million, while lower fuel prices were a key driver. Other costs were up just slightly, as efficiency gains and other items mostly offset costs from inflation and 3% volume growth. Turning to the individual line items, labor in fringe was up 45 million due to inflation and higher total headcount. The sequential cost increase from the second quarter was driven by the July 1st union wage increase along with higher incentive compensation. Employment levels have remained stable throughout this year, with car load growth of 3% in excess of 2% headcount growth in Q3.

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

Sean: Total third quarter expense fell by $36 million. While lower fuel prices were a key driver, other costs were up just slightly, as efficiency gains and other items mostly offset costs from inflation and 3% volume growth.

Sean: Turning to the individual line items, Labour in fringe was up 35 million due to inflation and higher total headcount.

Sean: The sequential cost increase from the second quarter was driven by the July 1st Union wage increase along with higher incentive compensation.

Sean: The planet levels have remained stable throughout this year with car load growth of 3% in excess of 2% headcount growth in Q3.

Sean Pelkey: I would also note that about half of the year of your headcount increase is from quality trucking conversions of outside party drivers to company drivers. Adjusting for this headcount would have been up just 1% versus the prior year. It will cost decreased 73 million driven by a lower gallon price and improved efficiency. The operating team delivered our best quarter of fuel efficiency in three years, benefiting from both tactical operating initiatives and increased utilization of fuel saving technology equipment, and rent decreased by $3 million for property gains were unfavorable by $7 million.

Sean: I would also note about half of the year of your headcount increase is from quality trucking conversions of outside party drivers to company drivers.

Sean: A justing for this headcount would have been up just 1% versus the prior year.

Sean: Purchase services and other expense decreased by $25 million from by lower casualty expense and a favorable inventory adjustment in the quarter. With ongoing efficiency gains, mostly offsetting inflation.

Sean: The appreciation was up $13 million into a larger asset base.

Sean: He will cost E.C. 73 million, driven by a lower gallon price and improved deficiency. The operating team delivered our best quarter of fuel efficiency in three years.

Sean: benefiting from both tactical operating initiatives and increased utilization of fuel saving technology.

Sean: Equipment and rent decreased by $3 million, or property gains were unfavorable by $7 million.

Sean Pelkey: Now turning to cash flow and distributions on flight 13, free cash flow continues to be strong at over $2.2 billion. Investing for the safety, reliability, and long-term growth of our railroad continues to be our first priority use of capital.

Sean: Now turning to cash flow and distributions on flight 13.

Sean: Free cash flow continues to be strong at over $2.2 billion.

Sean: Investing for the safety reliability and long-term growth of our railroad continues to be our first priority use of capital. After fully funding these investments, we remain committed to a balanced and opportunistic approach to returning cash, and have distributed over 1.9 billion to our shareholders year to date.

Sean Pelkey: After fully funding these investments, we remain committed to a balanced and opportunistic approach to returning cash and have distributed over 1.9 billion to our shareholders year to date. Economic profit highlights our priority to grow operating income, well maintaining capital discipline and pursuing high return investments, while lower year to date economic profit grew in the third quarter.

Sean: Economic Profit highlights our priority to grow operating income while maintaining capital discipline and pursuing high-returning investments.

Sean Pelkey: The main focus on increasing economic profit over the long term and our confident that focus aligns with the interests of our shareholders with that.

Sean: While lower year to date, economic profit grew in the third quarter.

Speaker Change: Main focus on increasing economic profit over the long term, and our confident that focus aligns with the interests of our shareholders. With that, let me turn it back to Joe for his closing remarks.

Unknown Executive: Let me turn it back to Joe for his closing remarks.

Unknown Executive: All right, thank you, Sean.

Unknown Executive: Now we will finish our prepared remarks by going over the guidance updates for the remainder of the year. As outlined in the beginning of the call, we are proud of what our one CSX team delivered in the third quarter. As planned, we grew volumes, revenue, and operating margins. Now going into the fourth quarter, near-term conditions look modestly more challenging than I mentioned at an investor conference last month. We knew that lower diesel prices and the decline in global benchmarks from that call would be a drag on revenue over the second half and the fourth quarter specifically.

Joe: All right, thank you, Sean. Now we will finish our prepared remarks by going over the guidance of dates for the remainder of the year. As outlined, the getting of the call, we are proud of what our WNCSX team delivered in the third quarter as planned, we grew volumes, revenue, and operating margins.

Joe: Now growing into the fourth quarter, near-term conditions look minus-free more challenging. And I mentioned that an investor conference last month, we knew that lower diesel prices and the declining global benchmark for Metcole would be a drag on revenue over the second half and the fourth quarter, specifically. Since then, we've gone through two hurricanes in our service region, but we're still using it. And it also seems like we've seen volume soften in a couple key customer segments like metals and automotive.

Unknown Executive: Since then, we've gone through two hurricanes in our service region. And we've also seen volumes often in a couple key customer segments like metals and automotive. A bit more than we were expecting; practically, this means that we expect minus vine growth in the fourth quarter, supported by favorable markets like chemicals and ag that Kevin talked about, that continue to perform very well for us. Lower fuel and coal prices, together with that modest volume growth, are leading us to expect a slight decrease in total revenue for the fourth quarter. As we show here, we have to make that lower fuel surcharge and the total effects of a slightly softer coal market will lead to roughly $200 million in revenue effects year over year just on their own.

Joe: A bit more than we were expecting. Practically, this means that we expect mass-binding growth in the fourth quarter, supported by favorable markets like chemicals and aggets Kevin talked about that continued to perform very well for us.

Joe: Lower fuel and coal prices together with that modest volume growth are leading us to expect a slight decrease in total revenue for the fourth quarter. As we show here, we estimate that lower fuel surge charge and the total effects of a slightly softer coal market will lead to roughly $200 million in revenue effects year over year just on their own.

Unknown Executive: Our merchandise franchise continues to run very well, and the operations team is pushing ahead with efficiency measures that are having real benefits. However, slightly lower revenue combined with additional expenses as we reroute and rebuild after the hurricanes are going to limit our near-term margin gains. We're still aiming for $2.5 billion until CapEx this year, but as Sean described, we will likely see some additional capital needs for hurricane rebuilding.

Joe: Our merchandise franchise continues to run very well, and our operations team is pushing ahead with efficiency measures that are having real benefits.

Joe: However, slightly lower revenue combined with additional expenses out as we reroute and be built after the hurricanes are going to limit on your term margin gains.

Joe: We're still aiming for $2.5 billion in total cap access year, but as Sean described, we will likely see some additional cap-on needs for hurricane rebuilding, so much will occur in 2024, calendar year.

Unknown Executive: So much will occur in 2024 county. Finally, there's no change to our commitment to a balanced, opportunistic approach to capital returns via buybacks and a growing dividend.

Joe: Finally, there's no change to our commitment to a balanced, opportunistic approach to cap over turns via biceps and a groan divot him.

Unknown Executive: Let me close with this; we'll give many updates today. There is some near-term uncertainty in the market, and we are rebuilding after two major hurricanes. So we have had to adjust our short-term assumptions in response. All that said, the bottom line is that CSX is running very well, and we are building one of them across the railroad. If it continues across the second half of 2024, and we'll keep building in 2025. We are excited, and just in a few weeks, we'll be hosting many of you at our Investor Day in the middle of the island, but we're going to give you more detail on our strategies to deliver sustainable, profitable growth.

Joe: Let me close with this. We'll give many updates today. There is some near-term uncertainty in the market and we are rebuilding after two major hurricanes. So we have had to adjust our short term assumptions in response. All that said, the bottom line is that CSX is running very well and we are building momentum across the railroad. As continues across the second half of 2024 and we'll keep building in 2025.

Joe: We're excited, and just in a few weeks, we'll be hosting many of you at our investor day in Amelia Island, where we're going to give you more detail on our strategies to deliver sustainable, profitable growth. We encourage you to bring your best questions for the whole team. For now, ready to answer your questions about the quarter. Matthew, please start the Q&A process.

Unknown Executive: We encourage you to bring your best questions for the whole team. For now, ready answer questions about the quarter?

Matthew Korn: Matthew, please start the Q&A process. Don't you, Joe, will now proceed to my question and answer session, as you're all going to appreciate to make sure that everyone has the opportunity to take part in the time that we have. We ask you to please limit yourselves to one and only one question.

Matthew: Thank you, Joe. We will now proceed to my question and answer session, as you all can appreciate to make sure that everyone has the opportunity to take part in the time that we have. We ask you to please limit yourselves to one and only one question. Operator, what are you just trying to process?

Unknown Executive: Operator, ready to start the process.

Unknown Executive: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the Q. If you would like to withdraw your question, simply press star one again.

Speaker Change: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

Unknown Executive: If you're called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question.

Speaker Change: If you would like to withdraw your question, simply press star one again. If you're called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question.

Brian Ossenbeck: Your first question comes from the line of Brian Ossenbeck of JP Morgan. Your line is open.

Speaker Change: Your first question comes from the line of Brian Austin Beck of JP Morgan. Your line is open.

Brian Ossenbeck: Hey, good afternoon. Thanks for taking the question. Just wanted to ask a big picture question about price cost and your ability or how strongly you think you can get back to a positive spread and price cost next year. You have the labor negotiations that have already that a price for increase on the head count side or sorry on the average count side. So you can give us a little bit of sense in terms of how those conversations are going with customers, know that that market has already been set in the market. And if there's anything on the other side, you'll have to get out of those negotiations when you work towards more of the work rest rules.

Speaker Change: Hey, good afternoon. Thanks for taking the question. Just wanted to ask a big picture question about price cost and your ability or how strongly you think you can get back to a positive spread and price cost next year. You have the labor negotiations that have already that a price for increase on the headcount side or sorry on the average comp side. So you can give us a little bit sense in terms of how those conversations are going with customers now that that marker is already been set in the market. And if there's anything on the other side, you'll have to get out of those negotiations when you work towards more of the work rest tools. Thank you.

Unknown Executive: Thank you.

Unknown Executive: Brian, it's on all start and then kind of kick it over to Kevin to talk about conversations with the customers. But just when you think about price cost, we've been consistent saying all year long, you know, that spread between dollars of price and cost of inflation has been positive all year long and about as positive as we've seen in the last decade. So, you know, we're not necessarily seeing anything negative in that regard and not seeing a turn in that either. So that's that's very favorable. In terms of kind of a setup in the inflationary environment for next year, wage inflation, you know, we expect, you know, it's a four percent next year.

Speaker Change: Brian, it's Sean, I'll start and then kind of kick it over to Kevin to talk about conversations with the customers, but just when you think about price cost

Speaker Change: We've been consistent saying all year long, you know, that spread between dollars of praise and cost of inflation has been positive all year long and about as positive as we've seen, you know, in the last decade. So, you know, we're not.

Speaker Change: We're not necessarily seeing anything negative in that regard and not seeing a turn in that either, so that's very favorable. In terms of kind of a setup in the inflationary environment for next year, wage inflation, you know, we expect.

Unknown Executive: These tentative agreements, some of which have already been ratified or at four percent, mid year and next year, we have four and a half percent. We just increased here in July. So that'll carry forward. That's four and a quarter percent. But next year for wages, health and welfare expenses look like they may actually be lower than that. So I think, I think, wage inflation, including health and welfare, will actually be less than four. And then inflation across the rest of the book is likely to kind of be in line with what you're seeing in terms of overall PPI; you know, maybe call it two and a half, two to three percent, somewhere in that ballpark.

Speaker Change: Now it's up for a percent next year, these tentative agreements, some of which have already been ratified or at 4% midyear next year.

Speaker Change: We have four and a half percent, we just increased here in July, so that'll carry forward, that's four and a quarter percent.

Speaker Change: for next year for wages, health and welfare expenses look like they may actually be lower than that. So I think I think wage inflation, including health and welfare will actually be less than four, and then inflation across the rest of the book, likely to kind of be in line with what you're seeing in terms of overall PPI, maybe call it two and a half, two to three percent somewhere in that ballpark. So it's not like the equation is extraordinarily challenging, and I think kick it over to Kevin to talk about conversations and how that's going with the customers.

Unknown Executive: So it's not like the equation is extraordinarily challenging.

Unknown Executive: And, you know, I think kick it over to Kevin to talk about conversations and how that's going with the customers.

Kevin Boone: Yeah. I think there's, you know, a couple of factors. Certainly, I think we've been highly successful this year and exceeded our plan coming in the year, despite a trucking market that obviously has been more persistently down than what we have thought.

Speaker Change: Yeah, I think there's a couple of factors. Certainly, I think we've been highly successful this year and exceeded our plan.

Speaker Change: Coming in the year, despite a trucking market that obviously has been more persistently down than what we had thought. So I think that's probably an opportunity next year. So it's a watch item, but probably more an opportunity than a risk. Hopefully as we as we move through the year and. [inaudible]

Kevin Boone: So I think that's probably an opportunity next year. So it's a watch item, but probably more an opportunity than a risk. Hopefully, as we've moved it through the year. And, you know, that's where we're competing today more and more is versus that truck. And so that would be a helpful dynamic for us.

Kevin Boone: But overall, we do expect inflation to come down over time. And that would be reflected in some of our price. But we still, obviously, look for ways to, you know, cover our costs and do those things in the right way. But really focus on delivering service. And if we deliver the right service and that service continues to improve, then the customer sees the value in that and we're able to price to that service.

Kevin Boone: Brian, Joe, one last thing you mentioned: work rules at the end; they're a three-part question. The reality is, you know, Mike, myself, many of us believe that in order to have the real meaningful conversations with our union partners on safety and work rules, you have to get beyond the wages and the benefits conversation, and that's one of the reasons why we've been so fortunate to reach these ten agreements and be able to get past that so that we can then spend the time over the next several years working together on our improving our efficiency, improving our safety, but also listening to our employees on their needs for work rules, for, you know, for time work-life balance, those kind of things for scheduling, but we're excited about the opportunity to do that in partnership, once we get past the kind of national bargaining type topics of general wage increases and benefits.

Speaker Change: <unk> been kind of national bargaining type topics of general wage increases and benefits and Sean mentioned that we're really excited about the fact that we're actually gonna be able to reduce some of the healthcare related costs.

Kevin Boone: And, you know, Sean mentioned that we're really excited about the fact that we're actually going to be able to reduce some of the calculated costs associated with our union employees next year. So, a lot more to come on that. Thanks.

<unk> with our Union employees next year, so a lot more to come on that thanks.

Unknown Executive: Thank you.

Speaker Change: Thank you. Your next question comes from the line of Arey Rosa of Citi. Your line is open.

Ariel Rosa: Your next question comes from the line of every Rosa of City.

Ariel Rosa: Your line is open. Great. Thank you so much for taking into question.

Speaker Change: Great. Thank you so much for taking the question so Jim.

Unknown Executive: So, Joe, I'm curious. Obviously, we're dealing with a loose trucking market. It's been that way for a while.

Speaker Change: I'm curious, obviously, we're giving a little loose truck market, it's been that way for a while in terms of upside to intermodal pricing for next year, maybe you could give us some indication on how those conversations are progressing with customers and then obviously, 1% revenue growth a little bit soft is there anything you can do in terms of mix. So it may be.

Unknown Executive: In terms of upside to intermodal pricing for next year, maybe you could give us some indication on how those conversations are progressing with customers. And then obviously 1% revenue growth is a little bit soft.

Unknown Executive: Is there anything you can do in terms of mix to maybe accelerate that beyond that kind of low single-digit type number, you know, whether it's focusing more on the merchandise side or, you know, again, fixing that mix on the intermodal pricing. Thanks. Yeah, well, obviously the success we've had in merchandise is a very good mix factor for our business, and you'll hear in November that there's a lot of exciting things that we see within our merchandise markets and what we're doing in the teams that got a lot of great work, but I won't. I want to preamp that today, and we'll share that in November. But you know, when we think about intermodal pricing, you know, there was an intermodal customer of ours that spoke yesterday, and they're certainly closer to the market dynamics on a day-to-day basis than maybe we are.

Speaker Change: Accelerate that beyond that kind of low single digit type number.

Speaker Change: Whether it's focusing more on the merchandise side or.

You know again fixing that nexon on intermodal pricing. Thanks.

Speaker Change: Yeah, well obviously the success we've had in merchandize is a very good mix factor for our for our business and you'll you'll hear in November that Theres, a lot of exciting things that we see within our merchandise markets and what we're doing and the teams that got a lot of great work, but I won't I want to preempt that today, and we will share that in.

Speaker Change: In November, but when we think about intermodal pricing.

Speaker Change: There was an intermodal customer of ours that spoke yesterday and they're certainly closer to the market dynamics on a day to day basis. Then it may be we are but you know I think there is some hope that at least we bottomed here and you know it.

Unknown Executive: But, you know, I think there is some hope that at least we bottomed here and, you know, at some point next year, we would anticipate some increases because, you know, truckers out there aren't very profitable right now and they end up having to cover their costs at some point. So we're seeing it's probably slower than people expected supply coming out of the market, and that will adjust. And I think that will provide opportunities to convert more volume in the east and hopefully at better rates. And, as you know, in many cases, we're tied to that.

Speaker Change: Point next year, we would anticipate some increases because the truckers out there aren't very profitable right now and they end up having the call to cover their costs at some point so we're seeing.

Speaker Change: Slower than people expected supply coming out of the market and that.

Speaker Change: That will adjust and I think they will provide opportunities to convert more volume in the east and hopefully at better rates and as you know in many cases, where we're tied to that some we have some spot spot market business and others. We follow the price as our customers benefit from that so it'll be a gradual.

Unknown Executive: Some we have some spot market, spot market business and others, we follow the price as our customers benefit from that.

Unknown Executive: So it'll be a gradual, you know, path forward, but I do think it's probably a better backdrop than what we saw in 2024.

Paths forward, but I do think it's probably a better backdrop than what we saw in 2024.

Jonathan Chappell: Thank you. Your next question comes from the line of Jonathan Chappelle of Evacore ISI.

Thank you. Your next question comes from the line of Jonathan Chapelle of Evercore ISI. Your line is open.

Jonathan Chappell: Your line is open. Thank you.

Speaker Change: Thank you good afternoon.

Jonathan Chappell: Good afternoon. Sean, you threw a lot of numbers at us on the short termy stuff: 200 million from fuel and coal, and then the 50 million from the hurricane impact. I know it's still really in the quarter. I know there's a lot that can happen, but when you take those things, mixing kind of a softer auto and metals, when you talk about revenue being down moderately and operating margin. Reducing, so I'm guessing that's deteriorate sequentially. What kind of magnitude are we looking at there? Are we talking about, you know, tens of basis points or substantially greater, based on what you see to that.

There are a lot of numbers at us on the short term stuff 200 million from fuel and coal and then $50 million from the Hurricane impact I know, it's still early in the quarter I know, there's a lot that can happen, but when you take those things mixed in kind of a softer auto and metals. When you talk about revenue being down moderately and operating.

Speaker Change: <unk>.

Speaker Change: Reducing so I'm guessing that's deteriorate.

Speaker Change: Sequentially, what kind of magnitude are we looking at there are we talking about tens of basis points are substantially greater based on what you see today.

Sean Pelkey: Jonathan, there are a lot of numbers, so yes, and you got them all right. So thank you. So Joe mentioned the revenue headwinds; those are year-over-year in terms of fuel and coal. That probably translates into about $100 million of operating income headwinds year-over-year in Q4, and then add on that what we're estimating for now to be roughly $50 million from the hurricane. That's a significant headwind on a year-over-year basis; that'll make it challenging to grow operating income—challenging to grow margins.

Speaker Change: Yes, Jonathan there are a lot of numbers, so, yes, and you got them all right. So thank you.

Speaker Change: So Joe mentioned the revenue headwinds that those are those are year over year in terms of fuel and coal.

Speaker Change: You know that but probably translates into about $100 million of operating income headwinds year over year in Q4, and then add on that what we're estimating for now to be roughly $50 million from the hurricane that's a significant that significant headwind on a year over year basis that will make it challenging to grow operating income challenging to grow.

Speaker Change: Margins, what that means on a sequential basis is.

Sean Pelkey: What that means on a sequential basis is normally you would see seasonality. Q3 to Q4 margins might get a little bit worse; they'll probably be worse than normal seasonality as a result of all the dynamics that we're seeing there, including the impact of the storms. In terms of how much worse, I think we're still working through cleanup and recovery, still hoping that we can recover some of the revenue that's been lost, and obviously keeping focused on efficiency efforts. Mike mentioned, even with volume up 3%, we took starts down 3% in the third quarter. There's a lot of momentum there; there are some things that we can do to help offset it, but it will certainly be worse than normal seasonality in terms of margins and operating income, Q3 to Q4.

Speaker Change: Normally you would see seasonality Q3 to Q4 margins might get a little bit worse.

There'll probably be worse than normal seasonality as a result of all the dynamics that we're seeing there.

Speaker Change: Including the impact of the storms in terms of how much worse I think we're still still working through cleanup and recovery are still hoping that we can recover some of the revenue that's been lost and obviously keeping focused on efficiency efforts, Mike mentioned, even with volume up 3%. We took we took starts down 3% in the third.

Quarter. So there's a lot of momentum there there's some things that we can do to help offset it but.

Speaker Change: It will certainly be worse than normal seasonality in terms of margins and operating income in Q3 to Q4.

Scott Group: Your next question comes from the line of Scott Group of Wolf Research; your line is open. Hey, thanks afternoon. So Mike, as you're trying to balance service and efficiency, any thoughts on headcount trends from here and overall sort of cost trends? And then Sean, I know you had a comment about the comfort employees stepping up sequentially and any thoughts on how to think about that going forward. Thank you.

Speaker Change: Your next question comes from the line of Scott Group of Wolfe Research. Your line is open.

Scott Group: Hey, Thanks afternoon, So Mike is as Youre trying to balance service and efficiency.

Scott Group: Any thoughts on on head count trends from here and an overall sort of cost trends and then Sean I know you had a comment about the.

Scott Group: Comp per employee stepping up sequentially and any thoughts on how to think about that going forward. Thank you.

Scott Group: Hey there, Scott. Let's start with headcount. First of all, our focus is on retention when it comes to headcounts. We're all, we're hiring for attrition, people leaving, and it's actually at an escalated rate than what we want, so that's a big focus to bring that rate down, because there's turn in the headcount, people that are here for two years and so on, then they leave. Second, we are, we're good in, you know, pretty much every location with a couple of locations in the northeast that we're still hiring for. It's not a big number, but I don't see, I see our headcount getting better for that matter as we get more fluid.

Speaker Change: Hey, there Scott.

Speaker Change: Let's start with head count.

Speaker Change: First of all our focus is on retention when it comes to head count.

Overall, we're hiring for attrition people, leaving and its actually at an escalated rate than what we want so that's a big focus is to bring that rate down because there's churn in the head count people that are here for two years and so and then they leave.

Speaker Change: Second we are a we're good in in pretty.

Speaker Change: Pretty much every location with a couple of.

Speaker Change: <unk> locations in the northeast so were still hiring for it's not a big number but I don't see I see our head count getting better for that matter as we get more fluid you got to remember and maybe you don't but in July we probably had our best.

Scott Group: You know, you got to remember, maybe don't, but in July, we probably had our best operating and customer service metric month throughout the year, and then we got into all these difficulties. So getting the railway back in shape here over the next few weeks is job number one. That cost that you refer to, yeah, our focus is to continue to deliver the service, but make sure that we're extremely efficient and not hung up on anything other than the cost that takes us to get there and what they need. And so I see the cost continuing to be a better month there.

Speaker Change: Operating and customer service metric months throughout the year and then we got into all these difficulties so getting the railway back in shape here over the next few weeks as job number one debt.

Speaker Change: The cost that you referred to yes, our focus is to continue to deliver the service, but make sure that we're extremely efficient and not not hung up on on anything other than the cost it takes us to get there and what they need and so I see the costs continuing to be to be a betterment there. It is.

Scott Group: It's just with the disruption to our network, as Sean has mentioned, this next quarter is going to be, you know, not where we want to be, but this, you know, the approach we've taken where we've, you know, minimized the amount of starts through all this disruption is still handled more volume. I see more of that. Yes, no question.

Speaker Change: With the disruption to our network as Sean has mentioned this next quarter is going to be you know not where we want to be but this.

Speaker Change: The approach, we've taken where we minimize the amount of starts through all this disruption is still handled more volume I see more of that yes no question.

Sean Pelkey: Yeah, I just add on the head count piece there, Scott. We normally, well, at least last year, you know, we saw an increase in head count from Q3 to Q4. We'll probably see an increase this year, just very modest. And the reason for that is you've got the train and engine hiring pipeline. What we're hiring for right now essentially is mid year next year, vacation peak. So those folks will get marked up and qualified right about the time, and a tradition gets a little bit higher about that time. So, but, but that'll be modest. We'll still, we still expect volume to grow in excess of head count, especially when you normalize for the quality company driver piece that I talked about in terms of compromise.

Speaker Change: Yeah, and I'd just add on the head count piece there Scott we normally will at least last year. We saw an increase in head count from Q3 to Q4, we'll probably see an increase this year just very modest and the reason for that is you've got the train and engine hiring pipeline. What we're hiring for right now essentially is mid year next year vacation peak.

Speaker Change: So those folks will get marked up and qualified right about the time and an attrition gets a little bit higher about that time so.

Speaker Change: But but that'll be modest will still we still expect volume to grow in excess of head count, especially when you normalize for the for the quality company driver piece that I talked about.

In terms of comp per employee.

Sean Pelkey: We normally see a little bit of a step up Q3 to Q4. And that's related to a few different factors. You know, the first is that you start winding up some of your capital programs. So we have employees that charge more of their time to operating expense at that time of the year. Vacations as well. And then, you know, I would add on to that this year, the impacts of the storm, driving some higher over time in the early weeks of the quarter here. So all those factors, I don't think it's going to be significant, but we should see a little bit of an increase in labor per employee.

We normally see a little bit of a step up Q3 to Q4 and that's related to a few different factors. The first is that you you start winding up some of your capital programs. So we have employees that charge more of their time to operating expense at that at that time of the year vacations as well and then.

Speaker Change: I'd add on to that this year that the impacts of the storm are driving some higher overtime in the early weeks of the quarter here. So all those factors I don't think it's going to be significant but we should see a little bit of an increase in labor per employee.

Speaker Change: Okay.

Tom Waterwoods: Your next question comes from a line of Tom Waterwoods of UBS. Your line is open.

Speaker Change: Your next question comes from the line of Tom <unk> of UBS. Your line is open.

Tom Waterwoods: Great. Yeah.

Speaker Change: Great Yeah good afternoon.

Unknown Executive: Good afternoon.

Kevin Boone: I wanted to just, I guess, two questions really for Kevin. Kevin, how do you think about the sensitivity of, you know, you're doing this multi-er work and, you know, industrial development, a lot of, you know, kind of, you know, I guess a long time horizon work. Do you think there's some degree of sensitivity to those projects to the cycle? You know, it does seem like, you know, you talk about a mixed outlook and seems like there've been some weakening in certain markets in 3Q. Is that something that, you know, people slow down projects?

Speaker Change: Wanted to just I guess two questions really for for Kevin.

How do you think about the sensitivity of your units multi your work in.

Industrial development a lot of you know kind of what you know.

Speaker Change: Longtime horizon work do you think there is some degree of sensitivity to those projects to the cycle.

Speaker Change: It does seem like you know you talked about it mixed outlook and it seems like there's been some weakening in certain markets and <unk> is that something that you know people slow down projects and I don't know if there's some kind of election related impact but.

Kevin Boone: And I don't know if there is some kind of election-related impact, but just wanted to see if you could offer any thoughts about, you know, maybe how cycle and other uncertainty might affect how rapidly projects come on in, 2526. Thank you. Yeah, I think it's certainly a factor, and I think you have seen, you know, we've seen announcements obviously on the EV side, which is actually, you'll see this in November, a very small portion of our portfolio, and we've adjusted for that when you see the portfolio, but that is a factor. I mean, with the economics, what the economy is doing at the time will either accelerate or decelerate some of these, but the shovels are in the ground and the capital is already being put to work.

Speaker Change: Just wanted to see if you could offer any thoughts about.

Speaker Change: Maybe how cycle another uncertainty might affect how rapidly projects projects come on in 'twenty five 'twenty six thank you.

Speaker Change: Yes, I think it's certainly a factor and I think you have seen you know we've seen announcements obviously on the EV side, which is a actually you'll you'll see this in November a very small.

Speaker Change: A portion of our portfolio and we've adjusted for that when you see the portfolio, but that that is a factor I mean, when the economics are what the economy's doing at the time, we will either accelerate or decelerate some of these but when the shovels in the ground and the capital's already.

Speaker Change: You can put to work those projects, one or obviously go to utilization and get a return and we're seeing you know a lot of these projects have shovels in the ground. Currently so we have a lot of visibility that theyre going to happen because they slipped by three months or six months.

Kevin Boone: Those projects want to, you know, obviously go to utilization and get a return, and we're seeing a lot of these projects have shovels in the ground currently, so we have a lot of visibility that they're going to happen. Could they slip by three months or six months? I think that's possible. We're not, I don't think we're seeing it in a broad, broad way, other than maybe the EV obviously announcements that we've seen, but those are, you know, 12 months ago.

That's possible, we're not I don't think we're seeing it in the abroad Broadway other than maybe the EV, obviously announcements that we've seen but those are.

Speaker Change: You know 612 months ago. So.

Kevin Boone: So, yeah, I think that's a factor, but I think we feel very, very confident given what we've seen in the capital already spent and a lot of these larger projects for us that those are going to be tailwinds for us and we'll give you a lot more visibility to that in November.

Speaker Change: Yeah, I think that's a factor, but I think we feel very very confident given what we seen in the capital already spent and a lot of these larger projects for us that those are going to be tailwind for us and we'll we'll give you a lot more visibility to that in November.

Brandon Oglenski: Your next question comes from the line of Brandon Oglenski of Barclays. ULN is open. Hey, good afternoon, and thanks for taking the question.

Speaker Change: Your next question comes from the line of Brandon No Glinski of Barclays. Your line is open.

Speaker Change: Hey, good afternoon, and thanks for taking the question.

Brandon Oglenski: Joe, I know you addressed this with the first one, but maybe I think it's worth coming back to, you know, the new five-year agreements that you guys signed with. I think three and a half percent inflation locked in. A lot of investors just question, like, why go early there, especially as inflation's coming down? Like, couldn't you get a better deal if you waited. But, you know, in your response, you said, like, there's things we're looking to do differently here. And I know when you came to the cemetery two years ago, you said, "Look, labor relations or something."

Speaker Change: Joe I know you addressed this with the first one about maybe I think it's worth coming back to the new five year agreements that you guys signed with I think three 5% inflation are locked in.

Speaker Change: A lot of investors just question like why go early there, especially as inflation's coming down like couldn't you get a better deal if you waited.

Speaker Change: But in your response, you said like there's things we're looking to do differently here and I know when you came to this industry two years ago. He said look labor relations are something I want to focus on so can you elaborate on what you hope to get out of this on the other end.

Brandon Oglenski: I want to focus on some. Can you elaborate on what you hope to get out of this on the other end.

Joe Hinrichs: Sure, Brandon. Thanks. I mean, first of all, you know, when we all travel the network and talk to our employees, I can tell you the single largest thing, other than safety, which is always, you know, a topic of conversation, that employees told us was they didn't like what happened last time. They were not; they didn't feel. At any way, shape or form part of one team and didn't feel like they were appreciated value. They went three years without a raise during a very highly inflationary time period and during COVID when they were, you know, essential workers.

Speaker Change: Sure Brandon Thanks, I mean first of all.

Speaker Change: You know when I when we all travel the network and talk to our employees I can tell you the single largest saying other than safety, which is always a topic of conversation that employees told us was that they didn't like what happened last time they were not they didn't feel.

Speaker Change: And in any way shape or form part of one team and didn't feel like they were appreciated value. They went three years without a raise during very highly inflationary time period and during Colby when they were no.

Speaker Change: Essential workers.

Joe Hinrichs: And all the things that happened there. And both are the union presidents that we spoke to, and the union leaders and the employees all said, we don't want to do that again. And I can tell you, having been there on the days they were voting, Congress told us, "don't come back here again."

Speaker Change: And all the things that happened there and both the Union presidents that we spoke to and the Union leaders and the employees. All said, we don't want to do that again and I can tell you having been there on the days they were voting Congress told us don't come back here again.

Joe Hinrichs: So that's a long way of saying that it's really important to remember that no one was satisfied or happy with what happened last time. So if we just go on the same path, we've always been, we'll repeat that and we'll say once again everyone was unhappy.

Speaker Change: So.

Speaker Change: That's a long way of saying that it's really important to remember that.

No one was satisfied or happy with what happened last time. So if we just go on the same path, we've always bamboo repeat that and we will say once again everyone was unhappy.

Joe Hinrichs: And as Mike talked about, you know, one of the most important things that we need to do for our network is stabilize our employment levels, get the experienced people to stay, and create an environment where people want to be here to help us provide great service and do it safely and efficiently. All those come from people who are motivated to be part of the team, but also who have experience and stay here. So we sat down as an industry and talked a lot about what happened last time, and we endeavored as a coalition to try and reach an agreement, voluntary agreement early with willing union partners, which were several.

Speaker Change: And as Mike talked about one of the most important things that we need to do for our network is stabilize our appointment levels get the experienced people to stay in creating a bond where people want to be here to help us provide great service and do it safely and efficiently all of those come from people who are motivated to be part of the team, but also who have experience and stay here.

Speaker Change: So we sat down as an industry and talked a lot about what happened last time, and we we endeavored as a as a as a coalition to try and reach an agreement voluntary agreement early with willing Union partners, which were there were several.

Joe Hinrichs: We weren't able to do it as a coalition, but then quickly we were able to do that with CSX, and as you saw in the first other business that followed pretty quickly. The good news here is, you know, there's been a, basically a pattern established for lack of better word of, you know, what the economics are going to be. Sean mentioned, there's going to be some healthcare reduction costs coming to us and to our employees next year, which is great. But also we, we start with the third percent next year, but the three years are 3.0 percent, and that's really important.

Speaker Change: We weren't able to do it as a as a coalition, but then quickly we were able to do that with PSX and as you saw in the southern and Peanuts that followed pretty quickly.

Speaker Change: The good news here is there's been a basically a pattern established for them.

Speaker Change: Lack of better word.

Speaker Change: You know what the economics are going to be Sean mentioned, theres going to be some health care reduction costs coming to us and to our employees next year, which is great.

Speaker Change: But also we we start with a 4% next year, but the 50 years of 3.0%.

Speaker Change: And that's really important so it goes for a 375 353 to five three that's really important because yes inflation is coming down.

Joe Hinrichs: So it goes 4, 3, 7, 5, 3, 5, 3, 2, 5, 3. That's really important because yes, inflation is coming down. You have to remember that we're in an environment where people are seeing these headlines from Boeing or the ILA or other things that are bigger numbers because they're going back to even periods before COVID. In some cases, what I didn't get, you know, extensive raises, so there's a lot of mixed messaging out there. Our view is, this is the right approach for CSX. It's the right approach for how we're working as one CSX team to make sure our employees feel valued and appreciate, respected, and listened to.

Speaker Change: You have to remember that we're in an environment, where people are seeing these headlines from Boeing or the I L. A or other things that are bigger numbers, because theyre going back to periods before COVID-19 in some cases, where they didn't get extensive raises so theres a lot of mixed messaging out there. Our view is this is the right approach for C. S X.

Is the right approach for how we're working as one <unk> to make sure our employees feel valued and appreciated respected and listen to and that our belief is that you get the national agreements out of the way on the wages and benefits and then you can go to work on how you work together to improve the efficiency of the network work on safety as Mike talked about and.

Joe Hinrichs: And that our belief is that you get the national agreements out of the way on the wages and benefits. And then you can go to work on how you work together to improve the efficiency of the network work on safety, as Mike talked about. And also, you know, listen to other issues that need to be resolved.

Speaker Change: Also listened to other.

Speaker Change: Issues that need to be resolved, we have five years to work on that now without the noise of.

Joe Hinrichs: We have five years to work on that now without the noise of the national negotiations. If you look at what happened last time, we never really got to many of the local workers' stuff because we were took three years through the national agreement. So that's how we're looking at it.

Speaker Change: The national negotiations.

Speaker Change: You look at what happened last time, we never really got too many of the local work rule stuff because we took three years through the national agreements. So that's how we're looking at it.

Joe Hinrichs: You know, I think you can see the efficiency that we saw in the third quarter, you know, and the incremental margins on the volume in the third quarter were substantial. And that's the power of this network when we have our employees and everybody working together to serve the customer efficiently.

No I think you can see.

Speaker Change: The efficiency that we saw in the third quarter.

Speaker Change: And.

Speaker Change: Nico more incremental margins on the volume in the third quarter were substantial and that's the power of this network when we have our employees and everybody working together to serve the customer efficiently.

Christian Wetherbee: Your next question comes from the line of Christian Wetherbee of Wells Fargo. The line is open.

Speaker Change: Your next question comes from the line of Christian Wetherbee of Wells Fargo. Your line is open.

Christian Wetherbee: Yeah, hey, thanks.

Christian Wetherbee: Yeah, Hey, thanks, good afternoon guys.

Christian Wetherbee: Good afternoon, guys. You know, I know it sounds like fourth quarter from a margin standpoint difficult to make your headway given some of the headwinds that you're talking about, which makes sense. I guess when you think about it for a full year, I think that probably means, you know, sort of little margin in 24. I know I'm asking you guys to look out a little bit here, but kind of conceptually with the environment that we have today, with sort of weakness in some areas, maybe some strength, some company specific strengths and other parts of your network.

Christian Wetherbee: I know it sounds like fourth quarter from a margin standpoint difficult to make year over year headwind given some of the headwinds that you're talking about which makes sense I guess when you think about it for a full year I think that probably means you know sort of little margin in 'twenty four.

Christian Wetherbee: I know I'm, asking you guys to look out a little bit here, but kind of conceptually with the environment that we have today with sort of weakness in some areas maybe some strength some company specific strengths in other parts of your network is this the type of environment that you think you can consistently grow margins and I guess what are the sort of puts and takes that you think you need to see as we move into 'twenty five for that to continue to happen.

Christian Wetherbee: Is this the type of environment that you think you can consistently grow margins in? I guess what are the sort of puts and takes that you think you need to see as we move into 25 for that to continue to happen or resume to happen again.

Our resume to happen again.

Sean Pelkey: Yeah, Christian, thanks for your question. Obviously, for 25 specifically, we're still in the middle of the planning process, so it's a bit early to kind of definitively say anything. But, you know, what I would say broadly speaking, in the longer term, we'll highlight this at the investor conference in a few weeks as well, is the setup for CSX in terms of where the service product is at. How that's impacting the customer experience and the interactions that that's creating, which translate into growth opportunities, not to mention continuing to be able to price at or above inflation, is very supportive.

Speaker Change: Yeah Christian Thanks for your question.

Speaker Change: Obviously for 25, specifically, we're still in the middle of the planning process. So it's a bit early to kind of definitively say anything, but what I would say broadly speaking and longer term and we'll highlight this at the Investor Conference in a few weeks as well as the setup for C. S X in terms of where the service product is that how that's.

Speaker Change: Acting the customer experience and the interactions that that's creating which translate into growth opportunities.

Speaker Change: Not to mention continuing to be able to price at or above inflation is is very supportive the.

Sean Pelkey: The other piece of that, of course, is the fact that the network has capacity. We have locomotives, we have crews. Like Mike mentioned, there are some places we're still hiring, but for the most part we're only hiring for attrition. We've got line of road capacity, so you know, you take all that together. It's a good setup for strong incremental margins. There's always things that we can't control that could make it more challenging or easier for us to achieve margin improvement and operating income growth, which, frankly, is the first goal. Operating margin is really sort of the outcome of all of it as we grow into the existing capacity.

Speaker Change: The other piece of that of course is the fact that the network has capacity. We have locomotives. We have crews like Mike mentioned, there are some places where we're still hiring but for the most part we're only hiring for attrition. We've got line of road capacity. So you take all that together, it's a it's a good setup for strong incremental margins there's always.

Speaker Change: Things that we can't control that could that could make it more challenging or easier for us to achieve margin improvement.

Speaker Change: And operating income growth, which frankly is.

Speaker Change: As the first goal.

Speaker Change: Operating margin is really sort of the outcome of all of it as we grow into the existing capacity.

Sean Pelkey: Fuel prices are down; you know, if you look at where they're expected to be next year, it should be another headwind for us. Export coal prices seem to have stabilized, but if you carry that out to next year, that would be a headwind for us next year. We're going to do a lot of construction on the Howard Street Tunnel next year in Baltimore that will cause some rerouts, some network disruption, not to mention the rebuild coming out of these storms. So there's some things that will make it a little more challenging. We may see some tailwinds from the trucking market.

Speaker Change: Fuel prices are down.

Speaker Change: Look at where they are expected to be next year. It should be another headwind for us export coal prices seem to have stabilized, but if you carry that out to next year that would be a headwind for us next year.

Speaker Change: We're going to have we're going to do a lot of construction on the Howard Street Tunnel next year in Baltimore that will cause some reroute some network disruption not to mention the rebuild coming out of the storm. So there are some things that will.

Speaker Change: Make it a little more challenging.

Speaker Change: We may see some headwind some tail winds from from the trucking market, we're watching that closely and hopeful that.

Sean Pelkey: We're watching that closely, and hopefully let that the environment there is a little easier next year than it was the previous year. But certainly, longer term, having the capacity to grow and continuing to deliver a consistent high level of service to the customer is a winning equation for us.

Speaker Change: <unk>.

Speaker Change: You know the environment there is a little easier next year that was the previous year, but certainly longer term, having the capacity to grow and continuing to deliver a consistent high level of service to the customer as a winning equation for us.

Daniel Imbrow: Your next question comes from the line of Daniel Imbrow of Stevens. Your line is open.

Speaker Change: Your next question comes from the line of Daniel Umbro of Stephens. Your line is open.

Daniel Imbrow: Yeah, hey, good evening, guys. Thanks for taking our questions. I guess, Kevin, I wanted to dig into just the volume growth. I mean, you mentioned some sharewinds and truck-to-rail conversions.

Daniel Umbro: Yeah, Hey, good evening guys. Thanks for taking our questions I guess, Kevin I wanted to dig into the volume growth that you mentioned some share wins and truck to rail conversions I'm curious if you can just add more color around maybe the cadence of wins or what categories or fill into during the quarter and then I think there are some concerns among investors around merchandise pricing. So I'm curious how is.

Daniel Imbrow: I'm curious if you can just add more color around the decadence of winds or what categories of fill into during the quarter. And then I think there's some concerns out among investors around merchandise pricing. So some curious how is merchandise pricing out in the market today? And are you seeing business that you're winning be more price competitive than past bids? There's any change in that as you win this business.

Daniel Umbro: Merchandise pricing out in the market today, and how are you seeing business that youre, winning being more price competitive than past bid. There is any change in that as you win this business.

Kevin Boone: Thanks. Yeah, we certainly compete every day, right? And we have a great service product that's only getting better. And that's obviously been re-emphasized by some of the surveys that we do with our customers. So that's certainly a lot easier environment to sell into than an environment where your service isn't great. And we experienced that a couple of years ago where we've been challenged with, obviously, account and some other things. So nothing's changed from that perspective. And the team is focused on that. We want to deliver value to the customer, and the value, you know, when we're able to do that through service, the customers are willing to pay for it.

Speaker Change: Yeah, we certainly compete every day right.

Speaker Change: And we have a great service product, that's only getting better and that's.

Obviously been a reemphasize by the some of the surveys that we do with our customers so that.

Speaker Change: Certainly a lot easier environment to sell into that and then in an environment, where your service isn't great and we experienced that a couple of years ago, where we were challenged with obviously headcount and some other things. So nothing has changed from that perspective and the team is focused on that we want to deliver value to the customer and the value you know when we're able to do that through service the customer.

Speaker Change: They're willing to pay for it and we're always looking for ways, where we can provide value outside of price can recycle their assets and reduce their capital spend and do other things that create efficiencies for our customers and those are discussions that we have all the time and probably more so today than with Mike and his team.

Kevin Boone: And we're always looking for ways where we can provide value outside of price. Can we cycle their assets and reduce their capital, spend them, do other things that create efficiencies for our customers. And those are broke discussions that we have all the time. And probably more so today than with Mike in his team, being very helpful in those conversations.

Being very helpful in those conversations so.

Kevin Boone: So there's not a big dramatic change in that, you know, as we go in the next year. As I mentioned, the trucking markets on touch on this, I think that's helpful. We are successfully converting truck volume in our merchandise franchise, which I can say is probably more than what we've done since I've been in this role. And we've got a minimum around that. What could even reflect that higher is certainly a tighter trucking market where customers aren't seeing savings by doing nothing? You know, when you sit around and you have to do nothing. You're getting savings; you're not. It's compelled to maybe move some of that freight over to the rail.

Speaker Change: There's not a big dramatic change in that as we go into next year as I mentioned, you know the trucking market, Sean So I'll touch on this I think that's helpful. We are we are successfully converting.

Speaker Change: Truck volume in our merchandise franchise, which I can say is probably more more than what we've done since I've been in this role.

Speaker Change: We've got a momentum around that what could even inflect. It higher is certainly a tighter trucking market where customers aren't seeing savings by doing nothing.

Speaker Change: You know when when you sit around and you have to do nothing or Youre getting savings you're not compelled to maybe move some of that freight over to the rail when that changes in that environment changes I think the team is really ready to capitalize on that so I think that's where in the hopefully in the early innings of that but despite all of those headwinds on the trucking market we have converted.

Kevin Boone: When that changes and that environment changes, I think the team is really ready to capitalize on that.

Kevin Boone: So I think that's in the hopefully in the early innings of that. But despite all those headwinds on the trucking market, we have converted in areas across the board. And you're seeing in our numbers, forest products in other areas, metals and equipment. We expect some great conversion there over time by the team. And we see those opportunities more and more as we move in the next year and the years beyond that.

Speaker Change: In areas across the across the board and you are seeing in our numbers forest products and other areas metals and equipment, we expect some.

Speaker Change: Some great conversion there over time.

Speaker Change: The team and we see those opportunities more and more as we move into next year and the years beyond that.

Gordon Eleger: Your next question comes from a line of Gordon Eleger of Goldman Sachs. You line is open.

Speaker Change: Your next question comes from the line of Jordan Olinger of Goldman Sachs. Your line is open.

Gordon Eleger: Yeah, hi, just a question. I think you indicated in your remarks that you're seeing a modest improvement or uptick or something along those lines for domestic intermodal. I'm wondering if you live a more color on that, you know, how that looking now relative to international, which I know I've been really driving things in intermodal. And is it enough to sort of move that needle on your yield for intermodal at this point? Thanks.

Jordan Olinger: Yeah, Hi, just a question I think you indicated in your remarks that you're seeing a modest improvement or uptick or something along those lines for domestic intermodal I'm wondering if you're a little more color on that you know how that looking now relative to international which I know had been really driving things in intermodal.

Jordan Olinger: And is it enough to sort of move that needle on your yield for intermodal at this point.

Jordan Olinger: Thanks.

Gordon Eleger: I think, you know, at this point, we're safe to call, you know, that it feels like the bottoming. Certainly, and, you know, that gives us hope that we've reached that out what the inflection will be and look like. That's a watch item for us. There was talking poor forward. We're not hearing about that as much, but that's TBD. We expect to hopefully a more normalized peak season, but that's a watch item for us. But we're optimistic that that will occur and we're planning for that as well. So we do think, you know, the fundamentals don't support a lot of the trucking supply out there, and that's going to rebalance.

Speaker Change: I think at this point, we're safe to call you know that it feels like the bottoming certainly and that gives us hope that we've reached that how what the inflection will be and look like that's a watch item for US there was talk of pull forward I'm, we're not hearing about that as much but that's TBD, we expect or hope.

Jordan Olinger: A more normalized peak.

Jordan Olinger: Peak season, but that's a watch item for us, but we're optimistic that that will.

Jordan Olinger: <unk> occur and we're planning for that as well so we.

We do think you know the fundamentals don't support a lot of the trucking supply out there and that's going to rebalance certainly probably took a lot longer to rebalance given some of the.

Gordon Eleger: Certainly, probably took a lot longer to rebalance, given some of the influx of profitability they experienced during the pandemic and so a lot more. They were sitting on a lot more cash, the ride that's cycle out and maybe previous cycles. So hopefully, I think you'll learn through the earnings calls with the other truckers and others that, you know, they're seeing some stability as well.

Jordan Olinger: The influx of profitability they they experienced during the pandemic and so a lot more they were sitting on a lot more cash the ride the cycle out than maybe previous cycles. So.

Jordan Olinger: Hopefully I think you'll learn through the earnings calls where the other truckers and others.

Jordan Olinger: They're seeing some stability as well, but we're seeing stability I wouldn't say an inflection at this point.

Gordon Eleger: But we're seeing stability; I wouldn't say, in an inflection at this point.

Stephanie Moore: You're next question comes from line of Stephanie Moore of Jeffries. Your line is open.

Speaker Change: Your next question comes from the line of Stephanie more of Jefferies. Your line is open.

Stephanie Moore: A great good afternoon. Thank you. You know, I feel like you could talk a little bit about some of the different volumes that you called out ahead of just the labor negotiations and potential strike in the East Coast. You know, maybe if you could talk about the impact that you did see, you know, during the quarter and then kind of what you're hearing and seeing now in terms of those volumes. You know, returning back to normal flows and normal to the East Coast. Thanks. Yeah, I mean, it was a little bit modest. We did see some shipments naturally move over the West Coast, and then we would have benefited from that moving from the West to the East, but it was relatively modest.

Great Good afternoon, and thank you.

Speaker Change: I was hoping you could talk a little bit about some of the different volumes that you called out ahead of just the labor negotiations in terms of strike in the East coast.

Speaker Change: So maybe if you could talk about the impact that you did see.

Speaker Change: During the quarter, and then kind of what you're hearing and seeing now in terms of those volumes returning back to normal flows in a normal to the east coast.

Speaker Change: Yeah, I mean, there was a little bit modest we did see some shipments I'm naturally move over to the West Coast and then we would have benefited from that I'm moving.

Speaker Change: From the west to the east, but it was relatively modest you know we did see some impact obviously with the port shut down on the East Coast you saw that for a few days and then I've got a I've got to tell you that our operating group on the intermodal side was ready to ramp back up immediately so very little disruption coming out of it but those were some loss days that we would expect to recover.

Stephanie Moore: You know, we did see some impact, obviously, with the port shut down the East Coast. You saw that for a few days, and then I got I got to I got to tell you that our operating group on the interval side was ready to ramp back up immediately. So very little disruption coming out of it, but those were some lost days that we expect to recover through the rest of the quarter. But it did impact us on the near term basis.

Speaker Change: Through the rest of the quarter, but it did impact us on the near term basis.

Speaker Change: Yeah.

Ken Hexter: Your next question comes from a line of Ken Hexter of Bank of America.

Your next question comes from the line of Ken <unk> of Bank of America. Your line is open.

Ken Hexter: Your line is open. Hey, great.

Speaker Change: Hey, great good afternoon.

Ken Hexter: Good afternoon.

Ken Hexter: Maybe talk a little bit about export coal demand and the stability in the market given the growing importance and volatility. How stable can we look at this level of demand? Because obviously, we talked about the benchmark pricing and what's happening on the yield side, and then Joe Mike, you mentioned the service levels multiple times. How do we align the service levels with what we get to see, which is the erosion in the on-time originations and arrivals down into the low 70s, upper 60s? Maybe you can just walk us through that. Thanks.

Speaker Change: Maybe you could talk a little bit about export coal demand and the stability in the market given the growing importance and volatility.

Speaker Change: How stable can we look at this this level of demand because obviously, we talked about the benchmark pricing and whats happens on the yield side and then Joe Mike You mentioned the service levels multiple times.

Speaker Change: How do we align the service levels with what we get to see which is the erosion in the on time originations and arrivals down at the low Seventy's upper <unk>.

Speaker Change: Maybe you can just walk us through that thanks.

Unknown Executive: Export coal, my favorite subject. I think, you know, when you look at this market over a long period of time and any cyclical market, you see supply response when the prices are really good, and then you obviously see demand response when the macro is not so great globally. What I do think is different going forward is you don't see the supply response like you did in the past. Obviously, the financing and other investments aren't there to bring on new volume into the market. And I think that's a very, that's a better backdrop for the market we serve in the minds that we serve today in the global competitive environment.

Speaker Change: Export coal my favorite subject.

Speaker Change: I think when you look at this market over a long period of time in any cyclical market do you see supply response when the prices are really good and then you'll obviously see demand response when the macro is not so great globally, what what I do think is different going forward as you don't see the supply response like you did in the past obviously the financing and other.

Speaker Change: Their investments aren't there to bring on new volume into the market and I think that's a very that's a better backdrop for the market, we serve and the mines that we serve today.

Speaker Change: <unk> a competitive environment, so I am hopeful that that creates more price stability.

Unknown Executive: So I'm hopeful that I create some more price stability, longer term, and the other thing is the cost of risen globally as well. And so I think the natural price for coal is probably going to stabilize above where it is today. And that gives me hope that we'll see a better pricing environment going forward. And certainly what you've seen here recently is China stimulus, and that's been the talk, right? And they are a big consumer of coal in the global market, and you know, that has given some optimism there that that could recover. So it's like it's a global we need in the global market. Are our customers compete in the global market, but I do think the supply or lack of supply response going forward is probably a healthier environment for us.

Speaker Change: Longer term and.

Speaker Change: The other thing is they're cost have risen globally as well and so I think the the natural price for coal is probably going to stabilize above where it is today and that gives me hope that we'll see better pricing environment going forward.

Speaker Change: Certainly what you've seen here recently is China's stimulus and that's been the talk right and they are a big consumer of coal.

In the global market and you know that has given some optimism there that that could recover so it's like a global we compete in the global market our customers compete in the global market, but I do think the supply or the lack of supply response going forward is probably a healthier environment for us and it makes me optimistic on the met.

Unknown Executive: And, you know, it makes me optimistic on the met met our met business in particular that we'll see that more stable in the future.

Speaker Change: Hum.

Speaker Change: Mrs in particular that we'll see that.

Speaker Change: More stable in the future.

Unknown Executive: Hey, good afternoon, Ken. Sorry, there was a two-part question operator. Like Ken said, to put it as basic as I can, we really focus on the CSD number. So if you want a number, that's the one that's our first and last model. That's the one we say customer basically lets us know what they need, and we bring it. So how do we get the cars there on the trains? Regardless of the weather conditions, we have a big automotive network that we don't necessarily run a scheduled plan, but it changes quite a bit between loading. So we don't change the train schedules other than to modify to where they're going to.

Hey, good afternoon, Ken.

Oh, sorry, there was a it was a two part question.

Speaker Change: <unk>.

Speaker Change: Like Ken said to put it.

Speaker Change: Basically as I can we really focus on the C. S. D number. So if you want a number that's the one that's our first and last mile. That's the one we say customer basically lets us know what they need and we bring it so how do we get the cars there on the trains.

Regardless of the weather conditions, we we have we have a big automotive network that we don't necessarily we run a scheduled plan, but it changes quite a bit between loading. So we don't change the train schedules other than to modify to where theyre going to so the on time performance isn't as important as the car cycle and that's how we look at.

Unknown Executive: So the on-time performance isn't as important as the car cycle. And that's how we look at it. So yeah, you're right. We want to be in, like, if you want, you know, if seven out of ten trains are running on time, what we're watching for is to make sure the cars that are on those trains are getting to where they need you to fulfill the customer's needs. You know, you can take dwell; you can take care of all those things you're trying to balance with, first of all, the service product you promised to deliver, and that's really back to the CSD number.

Speaker Change: So yeah Youre right, we want to be like if we want seven out of 10 trains are running on time, what we're watching for is to make sure. The cars that are on those trains are getting to where they need to fulfill the customer's needs.

Speaker Change: You can take dwell you can take car velocity, all those things you're trying to balance with first of all the service product you've promised to deliver and that's really back to the CSD number. That's the one we look for that and then how we get it there we're trying to do with the cheapest and most efficient way so.

Unknown Executive: That's the one we look for that. And then how we get it there, we're trying to do it the cheapest and most efficient way. So I'm not saying it's not important, but we are we're been very those last not just as weather here, but this last six months since I've been here, we have been really trying to find a way to find the efficiency and the service and the numbers right now, not going to say they're blurred, they're all important, but we're balancing each one. And yes, disruptions heard are on-time performance. And that has been reflected this last quarter. Like I said, if you go back to July, you could start to see where we're going.

Speaker Change: So I'm not I'm, not saying, it's not important.

Speaker Change: But we are we have been very those last not just as weather here, but this last six months since I've been here, we've been really trying to find a way to fund the efficiency and the service in the numbers right now not going to say they are blurred, they're all important but we're balancing each one and yes <unk>.

Disruptions hurt our on time performance.

Speaker Change: And that has been reflected this last quarter like I said, if you go back to July you could start to see where we're going so it is a focus but it's one of its one of the few that we balance to get those and results.

Unknown Executive: So it is a focus, but it's one of a few that we balanced to get those end results.

Unknown Executive: Thank you.

Thank you. Your next question comes from the line of Ben Nolan of Stifel. Your line is open.

Ben Nolan: Your next question comes from a line of Ben Nolan of Steve. Your line is open.

Speaker Change: Yes.

Ben Nolan: Yeah, thanks for taking the question. I wanted to ask a little bit just on pricing. It seems like the one area or one of the areas where you actually have been able to get a little bit better pricing is on the chemical side.

Ben Nolan: Thanks for taking the question I wanted to ask a little bit just on pricing. It seems like the one area or one of the areas, where you actually have been able to get a little bit better pricing is on the chemical side.

Ben Nolan: Is that chemical specifically? Is that just a function of a healthy market where there is some pricing ability? Is it may be starting to see some impact from quality, or just maybe talk through how the chemical part of the business is evolving. Yeah, I think there's a lot of factors that obviously play an RPU length of all those things. I don't see the chemical market really that different from some of our other merchandise markets where we've been successful. So I know, you know, optically, maybe on RPU basis that that appears to be the case, but I think, you know, when you look at across that merchandise portfolio, there's really not a big deviation between the markets.

Is that.

Ben Nolan: Chemicals, specifically is that just a function of a healthy market, where there is some pricing ability as it may be starting to see some impact from quality or just maybe talk through how the chemical part of the businesses is evolving.

Speaker Change: Yeah, I think theres a lot of factors that obviously play in RPE length of haul all of those things I don't see the chemical market really that different from some of our other merchandise markets, where we've been successful so.

I know you know optically maybe on RQ basis that that appears to be the case, but I think when you look at across the merchandise portfolio Theres really not a big deviation between the markets.

Kevin Boone: You know, as a service continues to get better, as I mentioned before, as we deliver, as we can cycle their cars faster and save them capital. All those things factor in and deliver value to the customer in other ways where we can monetize that through price.

Speaker Change: As a as a service continues to get better as I mentioned before as we deliver as we can cycle their cars faster and save them capital all those things factor in and deliver value to the customer in other ways, where we can monetize that through through price.

Speaker Change: Yeah.

Jason Sidle: I'm a line of Jason Sidle of TD Cowan.

Speaker Change: From the line of Jason Seidl of TD Cowen Your line is open.

Jason Sidle: Your line is open. Thank you, gentlemen. That can appreciate you squeezing me in here. I wanted to talk a little bit about intermodal yields. I mean, there was a lot of movement afraid from the East Coast to the West Coast in anticipation of the port strike. Do you see that switching back? And if so, what sort of impact should we expect on the yields? And then I guess I throw a quick one here too. How are you feeling going to that January 15th date with the ILA? You think it could be strike fears to point out?

Yes.

Jason Seidl: Thank you gentlemen, good afternoon I. Appreciate you squeezing me in here I wanted to talk a little bit about intermodal yields I mean, there was a lot of movement of freight from the east coast to the West coast in anticipation of the Port strike.

Jason Seidl: Do you see that switching back and if so what sort of impact should we expect on the yields and then I guess I'll throw a quick one here too how are you feeling going into that January 15th.

Jason Seidl: Do you think it could be strike fears to point out.

Jason Sidle: I don't have any insight; you know, look at how that's going, but it certainly will be a watch item for us. I'm hopeful that, you know, obviously an agreement will come well before that and create some, and eliminate some of the uncertainty that could create again for us. You know, when I think about freight and the movement of freight, it naturally wants to move to, you know, a certain port and efficiently. And so you've seen the East Coast outperform the West Coast over time. Some of that's because of the manufacturing shifts you're seeing, some of that away from China and other parts of the world, and more naturally wants the land on the East Coast.

Speaker Change: Oh I you know I don't have any inside.

Speaker Change: Look at how that's going but it certainly will be a watch item for us I'm hopeful that you know obviously the agreement will become well before that and create some and eliminate some of the uncertainty that that could create again for us.

Speaker Change: When I think about afraid in the movement afraid it naturally wants to move to a.

Speaker Change: A certain port and efficiently and so you've seen the east coast.

Speaker Change: Outperformed the west coast over time.

Speaker Change: Some of that's because of the manufacturing shifts you're seeing some of that away from China and other parts of the world and.

Speaker Change: And more naturally wants to Atlanta on the East Coast I think that continues from everything as you see us trying to decouple from China and those factors and that's a great thing for US. If you look at the investments that are being made on the east coast versus the West Coast I think those are supportive of our.

Kevin Boone: I think that continues from everything as you see us trying to decouple from China, and those factors, and that's a great thing for us. If you look at the investments that are being made on the East Coast versus the West Coast, I think those are supportive of outgrowth and will participate in that as well. But in many ways, we're somewhat agnostic if, you know, if again, if freight wants to move in the West and move to the East Coast, that's not a bad thing for us. That would traditionally would truck. And so that's that's that's an opportunity for us.

Our growth and will participate in that as well, but in many ways. We're somewhat agnostic as you know if again if freight wants to move in the west and moved to the East Coast, that's not a bad thing for us that traditionally would truck and so that that's that's that's an opportunity for us I do think over.

Kevin Boone: I do think you know, over time, as we continue to see the East Coast volumes continue to increase. I think we can push more in the Chicago and other areas. That's an opportunity, and we'll see that further play out here over time. And then the end of the import strategy that we have, it's going to create a lot of value and it's going to open up opportunities for our customers to look differently at shifting even more freight over to the East Coast because we can efficiently move it in. And then, with our East Coast ports, in a very, very efficient way.

Speaker Change: Over time as we continue to see the east coast volumes continue to increase I think we can push more in Chicago and other areas, that's an opportunity and we'll see that.

Speaker Change: So they'll play out here over over time, and then the inland port strategy that we have is going to create a lot of value and it's going to.

Speaker Change: Open up opportunities for our customers look differently at shifting even more freight over to the east coast, because we can efficiently move it in Finland, with our east coast ports and a very very efficient way. So I don't think I'm you know, we'll get through this noise on the obviously the labor negotiations, but overall I think the trend continues and we're going to be.

Kevin Boone: So I don't think, you know, we'll get through this noise on the obviously the labor negotiations. But overall, I think they try and continue, and we're going to benefit from that as a railroad.

Speaker Change: But from that as a railroad.

Unknown Executive: Your next question comes from the line of basketball majors of Susquehanna. Your line is open.

Your next question comes from the line of Bascom majors Susquehanna. Your line is open.

But as Colm, perhaps your line is on mute.

Walter Spracklin: You're next question comes from Line of Water, Spracklin of RBC Capital. Your line is open. Yeah, thanks very much.

Speaker Change: Your next question comes from line of Walter Spratlin of RBC Capital. Your line is open.

Speaker Change: Yeah, Thanks very much.

Walter Spracklin: Good afternoon, everyone. You're just curious on the competitive marketplace. I know there's a lot of discussion on track, but I know your main competitor on the rail side is affecting quite some meaningful changes that it's leading to impacts on their service. I'm wondering if you're seeing that come up in the marketplace at all. Are you seeing any, you know, is there any any larger contracts that are coming up that you see either an opportunity or a risk here. I just curious to get a better handle on how much of an improvement in your competitors' operations is affecting your or impacting you in terms of going to your business in the marketplace.

Walter Spratlin: Good afternoon, everyone just curious on the competitive marketplace.

Walter Spratlin: So on track, but I know your main competitor on the rail side.

Walter Spratlin: <unk> quite some.

Walter Spratlin: Some meaningful changes that is leading to it.

Walter Spratlin: Impacts on their service I'm wondering if you're seeing that come up in the marketplace at all.

Walter Spratlin: Are you seeing any.

Walter Spratlin: Is there any any larger contracts that are coming up that you see as either an opportunity or a risk here just curious to get a better handle on how much of a.

Speaker Change: The improvement in your competitors operations is affecting your.

Speaker Change: We're impacting you in terms of winning or losing business and the markwest.

Kevin Boone: Yeah, I think, look, you know, as I mentioned before, we compete every day. We compete knowing that we have very, very good service that continues to improve. And I think the customers have seen that stability and the leadership team that we have built, the consistency of our message and what we're trying to achieve, and they understand our objectives, which is to grow with them. I think that's very helpful when you get into those discussions that they understand where we're going and that there's going to be stability among the leadership team and the team that we've built.

Speaker Change: Yeah I think.

Speaker Change: As I mentioned before we compete every day, we compete knowing that we have a very very good service that continues to improve and I think the customers are seeing that stability in the leadership team that we have though.

Consistency of our message and what we're trying to achieve and they understand our objectives, which is to grow with them and I think that's very helpful. When you get into those discussions that they understand where we're going and that there's still going to be stability. Among the leadership team and the team that we built so.

Kevin Boone: So, you know, we continue to have a very, very effective cost base. We can compete when we need to compete both on service and cost. And I think in those cases, we're going to be very, very competitive, and we're going to be winners in that situation. So, you know, we're focused obviously on other opportunities too. We want to grow the pie. We want to grow the market. We want to move the freight that's not moving on real as well. And I think having those discussions, along with retaining our own business, is really helpful in retaining that business.

Speaker Change: No. We would continue to have a very very effective cost base. We can compete when we need to compete both on service and cost and I think in those cases, we're going to be a very very competitive and we're gonna be winners in those situations.

Speaker Change: Situations so.

Speaker Change: You know we're focused obviously on other opportunities to we want to grow the pie we want to grow the market. We want to we want to move the freight that's not moving on rail as well and I think having those discussions along with retaining our own business is really helpful in retaining that business. So.

Kevin Boone: So, that's where we're focused on right now is growing the pie. And, you know, I think we're going to have a lot of success.

Speaker Change: That's where we're focused on right now is growing the pie and.

Speaker Change: I think we're going to have a lot of success. We've had a lot of success. This year and we're going to continue to have that success as we move into next year and the years beyond that.

Kevin Boone: We've had a lot of success this year, and we're going to continue to have that success as we move in the next year and the years beyond that.

David Vernon: Your next question comes from a line of David Vernon of Sanford Birdstein. Your line is open.

Speaker Change: Your next question comes from the line of David Vernon Sanford Bernstein. Your line is open.

David Vernon: Hey, good afternoon, guys, and thank you for hosting the call and taking the questions. So Joe, it sounds like you're invested a lot in the culture part of the equation. I'm wondering if you can share some perspective on how some of the churn rates or turnover rates, however you guys measure maternally internal network motor scores, that kind of stuff has changed as a result of those investments. Yeah, thanks, David. I mean, first of all, we look at many metrics, but as we've talked about many times, culture is kind of hard to measure. I've likened it to love, which is, you kind of know it when you feel it, but you can't really measure it.

David Vernon: Hey, good afternoon, guys and thank you for hosting the call and taking the questions.

David Vernon: So Joe it sounds like you're investing a lot in the cultural part of the equation I'm wondering if you can share.

David Vernon: Some some perspective on how some of the churn rates are turnover rates. However, you guys measure them internally internal net promoter scores that kind of stuff has changed as a result of those investments.

Joe Hinrichs: Yes, Thanks, David I mean first of all we look at many metrics but.

As we've talked about many times culture is kind of hard to measure.

I've likened it to love, which is you kind of note when you feel it but you can't really measure it.

David Vernon: Have that being said, you know, we see it in many ways. For example, we do do net motor scores with our employees, and both on our management side and our union side, those numbers have moved meaningfully in the last two years. They're not what we want them to be on the union side. And we still have work to do there, but they've come up significantly from where they were just two years ago. Mike mentioned what we're looking at in a form of attrition, both in our new hires, but also longer mid, you know, longer term hires.

Joe Hinrichs: That being said, we see it in many ways. For example, we do do net promoter scores with our employees and both on our management side and our Union side. Those numbers have moved meaningfully in the last two years. They are not where we want them to be on the union side.

And we still have work to do there, but they've come up significantly from where they were just two years ago.

Speaker Change: Mike mentioned, what we're looking at it in a form of attrition both in our new hires but also longer mid to longer term hires that attrition rate on an earlier new hires is really important to us because we invest six plus months of training in them I think conductor and if we lose them. After all that we have to start again, especially at some key.

David Vernon: The attrition rate on early new hires is really important to us because we invest, you know, six plus months of training in them. And then conductor, and if we lose them after all that, we have to start again, especially at some key sites. So that's really important, but it's more than that. I mean, you know, if you look at the efficiency gains we're getting on, you know, quarter, quarter, record of this year. And importantly, you know, Kevin mentioned it: the best net promoter scores we've ever had to be the measuring on our customer side. Those are all impacted by attitudes and the, you know, the work that our employees do.

Speaker Change: These sites, so that's really important but it's more than that I mean.

Speaker Change: If you look at the.

Speaker Change: Efficiency gains we're getting them.

Speaker Change: Water over quarter recorded this year.

Speaker Change: And importantly, you know Kevin mentioned it the best net promoter scores we've ever has to be the measuring on our customer side. Those are all impacted by attitudes and the you know the work that our employees do and if they feel part of the team and feel listened to and valued and appreciated theyre going to give us a better.

David Vernon: And if they feel part of the team and feel listened to and valued and appreciated, they're going to give us a better outcome for our customers and better efficiency and a safer environment for everybody. So it's, you know, it's hard to measure with one thing, but I can tell you that we feel very strongly that we're seeing the results of the efforts that we put in and the results that come from that. We're, you know, we've had, you know, 20, roughly 20 family days; there were 30,000 people attending. It's the kind of environment where people want to be a part of. People are telling us over and over again, they're proud to wear CSX gear in their communities again.

Speaker Change: Outcome for our customers and better efficiency and a safer environment for everybody. So it's it's hard to measure with one thing, but I can tell you that we feel very strongly that we're seeing the results of the efforts that we put in and the results that come from that.

Speaker Change: You know we've had.

Speaker Change: You know 20, roughly 20 family days with over 30000 people attending.

Speaker Change: The kind of environment, where people want to be a part of people are telling us over and over again, they're proud to wear <unk> gear in their communities again, all those things are important for retention and attracting talent, but also important for how people work together I've said many times. This is a service business and service business must really work hard on their cultures and their employee engagement because you employ.

David Vernon: All those things are important for retention and attracting talent, but they're also important for how people work together. I've said many times, this is a service business and service business must really work hard on their cultures and their employee engagement because the employees of the ones provide the service. And if you, if you would have seen all the notes we received this year, our employees thanking us for reaching out to every employee in regions impacted by the hurricanes, making sure they need anything, whether it's a generator or water or anything. And the notes I'm receiving, and our team is receiving, and they know they're not a number.

Speaker Change: Of the one to provide the service.

Speaker Change: If you would have seen all the notes we received this year from our employees thanking us for them.

Speaker Change: Reaching out to every employee in in regions impacted by the Hurricanes, making sure. They they need anything whether it's a generator or water or anything in the nodes I'm receiving and our team is receiving in.

Speaker Change: No they're not a number.

David Vernon: Those things are important in our business; they're important for retention. That's why they're important for retention, but they're also important for the energy that we have that feeds into ultimately our customers. So we believe it's working, and we can see it in the numbers. Sean mentioned, you know, we have seven quarters in a row now where we've grown, you know, merchandise in remote revenue by 3% or more as seven quarters in a row in an environment that's been, you know, complicated. And you also see it in the resiliency of our network and how quickly we respond to issues and how quickly we can get back up and running.

Speaker Change: Those things are important in our business that are important for attention for attrition. That's why they're important for retention, but there are also important for the energy that we have the feeds into ultimately our customers. So we believe it's working.

Speaker Change: And we you can see it in the numbers I mean, Shaun mentioned you know we have seven quarters in a row now where we've grown well you know merchandise intermodal revenue by 3% or more at seven quarters in a role and in an environment that's been complicated.

Speaker Change: And you'll also see it in the resiliency of our network and how quickly we respond to issues and how quickly we can get back up and running.

David Vernon: I mean, I want to last thing, we've heard a lot about weather and hurricanes today and you probably, you don't want to hear anymore about it, but the people that have been around here a long time 30 plus years are telling me that the impact of a clean on our network is the second most impactful hurricane they've seen, the CSX Katrina being the worst. First. I tell you the scale of things we're dealing with, and yet we're talking about an impact of $15 million in the quarter. As Sean noted, obviously we have some significant capital costs to rebuild the network, but that's people working together with a spirit and a motivation that doesn't come if people don't feel like they're a part of one CSX team.

Speaker Change: The last thing that you've heard a lot about weather and hurricanes today and you probably you don't want to hear any more about it but.

Speaker Change: The people that had been around here a long time 30, plus years are telling me that the impact of Helene on our network is the second most impactful hurricane they've seen that C. S X.

Speaker Change: Katrina being the worst.

Speaker Change: I tell you the scale of things, we're dealing with and yet you were talking about an impact of 15.

Speaker Change: $15 million in the quarter as Sean noted, obviously, we have a significant capital cost to rebuild the network, but that's that's people working together in.

Speaker Change: In a in a with a spirit and a and a motivation it doesn't come if people don't feel like they're part of <unk> team. So also you know getting national agreements done before they expire that's never happened in the railroad industry. Those are examples of things.

David Vernon: So, also getting national agreements done before they expire, that's never happened in the real world industry. Those are examples of things that are happening because of our culture and because of how we're working together. Often, that plays out in the customer service we deliver, in the safety we actually deliver, and Mike mentioned it; our severity rate is down dramatically in injuries over the last several months. That's really important. The injury rate hasn't really moved, but the severity rates moved dramatically. That's the kind of thing you get when people are working together, and their culture builds from there.

Speaker Change: That are happening because of our culture and because of how we're working together ultimately that plays out.

Speaker Change: In the customer service, we deliver in the safety, we actually deliver and Mike mentioned it our severity rate is down dramatically in injuries over last several months, that's really important the injury rate hasn't really moved but the severity rates move dramatically. That's the kind of thing you get when people are working together and they're in their culture builds from there.

Unknown Executive: Thank you.

Speaker Change: Thank you.

Unknown Executive: This concludes our time that we have for Q&A, and with no further questions, this concludes today's conference call. Thank you for your attendance. You may now disconnect.

Speaker Change: This concludes our time that we have for Q&A.

Speaker Change: And with no further questions. This concludes today's conference call. We thank you for your attendance you may now disconnect.

Unknown Executive: Please wait. The conference will begin shortly. Thank you very much.

Speaker Change: Please wait the conference will begin shortly.

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