Q4 2024 CSX Corp Earnings Call
Abby: Ladies and gentlemen, thank you for standing by. My name is Abby and I'll be your conference operator today. At this time, I would like to welcome everyone to the CSX 4th Quarter 2024 Earnings Conference Call.
Abby: All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session.
Abby: If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time.
Speaker Change: Thank you. And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. You may begin.
Matthew Korn: Thank you, Abby. Hello, everyone, and good afternoon. Welcome to our fourth quarter earnings call.
Speaker Change: Joining me on the call today are Joe Hinrichs, President and Chief Executive Officer, Mike Cory, Executive Vice President and Chief Operating Officer, Kevin Boone, Executive Vice President and Chief Commercial Officer, and Sean Pelkey, Executive Vice President and Chief Financial Officer.
Speaker Change: In the presentation accompanying this call, which is available on our website, you will find slides with our forward-looking disclosures and our non-GAAP disclosures for your review. With that, it is now my pleasure to introduce Mr. Joe Hinrichs.
Speaker Change: All right, thank you, Matthew. And hello, everyone. Thank you for joining our fourth quarter call.
Speaker Change: As we look back and review 2024, we see that our railroad faced a significant number of challenges during the year, including weaker commodity prices, a bridge collapse, and multiple hurricanes.
Speaker Change: We had another year where U.S. industrial production was effectively flat, reflecting mixed end markets across our customer base. There were also some labor disruptions across the North American supply chain, which added economic uncertainty.
Speaker Change: But it's so impressive that through all of this, our OneCSX team continued working together to improve our overall business. We have been resilient, adapting to changing markets and operating conditions, while remaining focused on our commitment to customer service.
Speaker Change: Last year was different than we planned, but we are proud of what we achieved and how we achieved it. We are confident because we know that our momentum continues to build and we are ready for the important year ahead of us in 2025.
Speaker Change: Now as shown on the first slide, we achieved a lot over 2024.
Speaker Change: CSX achieved 2% volume growth for the year, outpacing the industrial economy yet again. We accomplished this even with a number of constraints on our coal franchise, including the collapse of the Francis Cockney Bridge in Baltimore.
Speaker Change: Our leading merchandise business delivered 3% revenue growth, even after absorbing the effects of much lower fuel surcharge, soft metals markets, and the hurricane disruptions.
Speaker Change: Operationally, we worked across our network to reduce waste, unlock capacity, and improve responsiveness.
Speaker Change: We took more steps in building a successful culture that can deliver more sustainable, efficient performance, and drive more positive momentum for the business.
Speaker Change: We also led the rail industry in reaching early agreements with our labor unions on our five-year contracts, working together to value our employees, avoid the prolonged labor battles of the past, and provide certainty for our customers.
Speaker Change: Now we can review some of the results of the fourth quarter.
Speaker Change: Slide two highlights key metrics for our fourth quarter compared to last year. As we expected, our underlying operations performed well, but we did see the impacts of substantially lower coal and diesel prices.
Speaker Change: Hurricane effects also weighed on revenues and expenses for the quarter as we noted in our October call.
Speaker Change: Total volume grew by 1% versus last year in the quarter. The largest contributor was growth in intermodal volume, which gained 4%. Quarterly revenue declined by 4%, largely due to lower global coal prices and a decline in fuel surcharge.
Speaker Change: Earnings per share declined 7% on an adjusted basis, excluding the effects of the goodwill impairment this quarter.
Speaker Change: Overall, we executed well through a difficult period. However, we are not satisfied with these results.
Speaker Change: We have a clear vision of what we want to achieve at CSX, as we shared with you at our recent Investor Day, and we are committed to delivering on that vision for the benefit of our customers, our employees, and our shareholders.
Mike Cory: Now I'll turn the call over to Mike to discuss our operational performance.
Mike Cory: Thank you, Joe, and I really appreciate you all taking the time today to participate. So first, you know, I want to thank our team for the tremendous efforts through the quarter and the year. And I'm really truly proud of this team, from weather to structural challenges like the Blue Ridge or Howard Street Tunnel, they work together to minimize the impact on our customers.
Mike Cory: The fourth quarter saw a sequential decline in FRA injuries, which reflects our continuing initiatives around transforming our safety culture.
Mike Cory: However, the full year rate remained elevated compared to last year.
Mike Cory: A positive result of our efforts has been a significant reduction in our employees lost time associated with injuries. We finished 2024 with the lowest total workdays lost in the calendar year in company history.
Mike Cory: For FRA accidents, we saw a quarterly year-over-year increase, but finished largely flat on an annual basis.
Mike Cory: We strongly believe that our work in the field on hazard identification and exposure controls, combined with our focus on newly hired and trained employees, will continue to reduce significant injuries and accidents.
Mike Cory: And to improve efficiency in our capital work, we continue to harden our main lines and infrastructure more effectively. We clearly see how our SafeCSX initiative is creating positive fundamental changes in both our safety leadership and the workplace environment our employees are in.
Over to the next slide.
Mike Cory: On this slide, you can see the impact of the strong hurricanes that passed through much of our service areas at the beginning of the quarter and flowed through to our customer service metrics.
Mike Cory: Much of the impact to our trip plan compliance came directly from our inability to deliver cars to customers due to the effects of the storm. Our customer switch data shows that we maintained a relatively good first and last mile switching considering the challenges, however, it remains our focus for improvement.
Mike Cory: I'm confident that our team will deliver in these metrics as we progress through the year. I'm also very pleased with the progress that we've made in developing our field employees to be more responsive to customer needs.
Mike Cory: As this development takes hold, we have a much better understanding at the local level on how to manage costs through proper service process.
Over to the next slide.
Mike Cory: As I stated earlier, 2024 brought various weather-related challenges over the last two quarters that have affected our overall operating metrics.
Mike Cory: We entered Q4 still dealing with the residual effects of the previous storm such as the Blue Ridge reroutes.
Mike Cory: Hurricane Milton in particular caused long periods of recovery for the various commodities that moved into and out of Florida. This resulted in increased wealth for our traffic in our largest volume state. It also affected other parts of the network as we were unable to run our regular cadence on some flows throughout the storms up to recovery.
Mike Cory: On the velocity side, we were able to maintain, excuse me, we were able to continue increasing our capacity and maintain our speed through very close management of our train starts.
Mike Cory: This also benefits our locomotive utilization and overall transportation, engineering and mechanical costs.
Mike Cory: As we worked hard in adverse conditions to maintain our network fluidity, we also drove strong improvements in efficiency. The top right of the slide shows the gains we've made in fuel efficiency, which has resulted in millions of dollars in savings this last year.
Mike Cory: The chart on the bottom reflects how we're using less power per ton of freight moved, another indicator of better operating efficiency.
Mike Cory: Further, over 2024, our engineering, transportation, and network teams work together to improve our work block performance.
Mike Cory: This resulted in substantial improvements in the amount of rail, ties, and ballast replaced per man hour compared to the previous year. Now, we're seeing great productivity gains here, but there's still much more improvement that we expect to get going forward.
Mike Cory: For the Howard Street Tunnel, we've commenced rerouting traffic and our start date of February 1st is on target.
Mike Cory: This project was initially planned to take three years and create extensive daily track outages over one of our key corridors.
Mike Cory: I'm extremely proud of the team for being able to turn this around from a three-year project to one that will take six to eight months for the tunnel to be operational.
Mike Cory: benefit from this improvement forever and far faster than originally planned.
Mike Cory: At the investor day I spoke about the opportunities at Cumberland. The team's 90% complete with the site's reconfiguration and the results have been great. Already we've doubled the number of cars processed per day, meeting our initial target.
Mike Cory: And with completion still to come, we are focusing on much more in terms of improvements.
Mike Cory: Overall, I'm extremely pleased with our progress on many of the fronts. All our initiatives discussed at Investor Day are proceeding, and while 2024 had numerous challenges, we made fundamental improvements in many areas that will benefit us over the long run.
Mike Cory: We've increased transparency in the relationship between cost and service for our operating managers.
Mike Cory: As a result, our service continues to improve while our costs stay in line with expectations. Our SafeCSX program is well underway and the team is defining and implementing key process changes with our operating employees, bringing benefits to employee retention as well as improving reliability and resiliency across our network.
Mike Cory: Considering the various challenges that came about last year, I'm very pleased and confident in the operating team's response and their collective work in both restoration and tackling our initiatives going forward.
Speaker Change: So, looking forward, I believe we're well-positioned to deliver our objectives in 2025 and beyond, and we're all looking forward to capitalizing on the opportunities as they present themselves. With that, over to you, Kevin.
All right, thank you, Mike.
Kevin Boone: First, I do want to thank this entire sales organization for all their hard work throughout 2024. As Joe and Mike have described, we faced numerous challenges across our network this past year, and our team responded with a steady commitment to serving our customers.
Speaker Change: highlighted by our fourth quarter voice of the customer survey where we saw the net promoter score reaching an all-time high.
Speaker Change: We continue to see mixed conditions across the markets we serve. Industrial output remains muted, interest rates are still high, and the truck cycle has yet to inflect.
Speaker Change: With that said, we hear optimism from our customers as they consider the potential for supportive domestic economic policies. We continue to see strong activity into 2025 with new project inquiries into our industrial development group.
Speaker Change: Our focus remains to drive outgrowth in the markets we serve, continuing our track record of exceeding industrial production.
Speaker Change: For the fourth quarter, revenue and volume were flat compared to last year, but on a four-year basis, revenue was 3% higher, with a 1% increase in volume.
Speaker Change: Looking across the end markets, chemicals remain strong in the fourth quarter consistent with the full year performance, with volume increasing 6%.
Speaker Change: Robust demand for plastics and LPGs has driven much of the growth throughout 2024.
Speaker Change: Minerals volume was supported by positive demand for cement and aggregates and forest products volume was up 3% as CSX capitalized on continued demand in paper markets and pulp board.
Speaker Change: On the other side of the markets, volume for fertilizers business was impacted this quarter as supply chains here in Florida felt the lingering effects of hurricanes.
Speaker Change: Performance within metals remains sluggish, as it has been all year, largely due to continued soft demand for steel.
Speaker Change: Volume for our automotive business declined 2% for the quarter as higher dealer inventories have led to lower build rates.
Speaker Change: Looking ahead to 2025, we're seeing strong demand signals in our ag and fertilizer segments, along with continued strength in minerals and chemicals.
Speaker Change: Interest rate-sensitive markets including automotive, metals, and housing continue to remain challenged.
Speaker Change: While we anticipate a slower start in the first quarter, we do expect moderate merchandise carload growth for the full year, supported by steady, service-driven conversions and new industrial development projects that should accelerate as we exit 2025.
Speaker Change: Now let's turn to slide nine to review the coal business.
Speaker Change: Co-revenue declined 20% for the quarter on 7% lower volume as we've navigated the effects of reduced global benchmark pricing and production issues.
Speaker Change: All in coal RPU declined 14% year-over-year and 4% sequentially, in line with previous guidance.
Speaker Change: Export volume fell modestly, largely due to lower supply availability from certain coal mines or temporary geological issues limited production.
Speaker Change: That said, for all of 2024, export coal volume grew by 9%, even considering the impacts of the Key Bridge and the shiploader outage at Curtis Bay.
Speaker Change: Exports represented more than half of our coal car loads for the full year, a first for CSX.
Speaker Change: Domestic shipments were pressured during the quarter, driven by lower natural gas prices and ample utility stockpiles.
Speaker Change: More recently, we have seen colder winter weather that has begun to reduce utility stockpiles, providing incremental opportunities as we move into the summer months.
Speaker Change: As we look into 2025, we anticipate a decline in coal volume, with the weakest year-over-year performance in the first quarter. This includes temporary production outages at a couple of CSX-served mines that will mainly impact the first half of 2025 from a year-over-year volume perspective.
Speaker Change: Based on current global benchmark prices, we expect all-in coal RPU to be down roughly three percent sequentially in the first quarter.
Speaker Change: As we have highlighted previously, we also see a couple of plant closures at domestic utilities that are scheduled for later this year.
Speaker Change: Despite these challenges, our utility customers are facing accelerating growth in power demand across areas of our service network, where data center build-outs are in progress.
Speaker Change: Lower utilization rates at existing CSX-SERV utilities does provide opportunities to work with customers to meet increased demand.
Turning to slide 10 to review the intermodal business.
Speaker Change: Fourth quarter revenue declined 5% on a 4% increase in volume, with lower diesel prices year-over-year significantly impacting revenue per unit by 7%.
Speaker Change: Our domestic intermodal business performed well for the quarter, converting traffic from over the road, even in this challenging truck market.
Speaker Change: We have many initiatives underway, including continued growth in our direct business, new volume related to our Myrtlewood interchange, future improvements in double stacking capabilities into the Mid-Atlantic, and many others that make us optimistic about our growth ahead.
Speaker Change: Within International, quarterly performance remained robust, allowing us to deliver strong growth for the full year as we gain from alignment with our key customers.
Overall, we continue to compete and win intermodal business.
Speaker Change: Our inland port initiatives remain on track, and we're excited about the prospects of closer alignment with our channel partners.
Speaker Change: As the political and trade landscape shifts, we will remain in close contact with our customers, ensuring that we will be able to adapt to their needs.
Speaker Change: As we look ahead to 2025 and beyond, there's a lot to be excited about.
With that, let me turn it over to Sean.
Sean Pelkey: Thanks, Kevin. And good afternoon reported operating income and earnings per share both fell by 16% in the fourth quarter impacted by a $108 million or 4 cent impairment of goodwill related to quality carriers.
Sean Pelkey: I now speak to the fourth quarter income statement on an adjusted basis, excluding the goodwill impairment charge.
Sean Pelkey: Revenue was lowered by about $140 million or 4%. Declines in fuel and export coal benchmark prices, as well as business interruption from the hurricane, drove a combined impact of around $200 million.
Sean Pelkey: Despite these challenges, the team delivered an eighth consecutive quarter of 3 plus percent growth in combined merchandise and intermodal revenue excluding fuel.
Sean Pelkey: remain focused on operating efficiently and delivered an adjusted expense reduction of 2% with more details on the next slide.
Sean Pelkey: Interest and other expense was stable compared to the prior year.
Sean Pelkey: Adjusted income tax expense decreased $33 million. The effective tax rate of 22% included a $26 million benefit, largely driven by the revaluation of the state deferred tax liability. Our expected tax rate going forward continues to be 24.5%.
As a result, Adjusted Earnings Per Share fell 3 cents.
Sean Pelkey: including a six-cent combined impact from hurricanes, net fuel price, and lower export coal benchmarks.
Sean Pelkey: Let's now turn to the next slide for a closer look at expenses.
Fourth quarter adjusted expenses decreased $40 million.
Sean Pelkey: Turning to the individual line items, labor and fringe was $26 million lower driven by lower incentive compensation expense and other items partly offset by inflation.
Sean Pelkey: As expected, headcount increased slightly from the third quarter attributed to the timing of train and engine employee hiring, aiming to qualify the new employees ahead of the 2025 summer vacation season.
Sean Pelkey: We expect to absorb volume growth in 2025, with average headcount remaining stable versus current levels, while cost per employee will be higher year over year in line with labor inflation.
Sean Pelkey: Purchase services and other expense increased $43 million. The variance includes approximately $25 million of smaller impairment charges, which were largely offset by a favorable legal settlement.
Sean Pelkey: Additional variances were driven by inflation, expenses related to the timing of locomotive modernizations, and storm recovery costs.
Sean Pelkey: Fuel cost was down $86 million, driven by a lower gallon price and a fourth consecutive quarter of year-over-year efficiency savings.
Sean Pelkey: Finally, equipment and other rents increased by $7 million, while property gains were $5 million unfavorable in the quarter.
Sean Pelkey: Now, turning to the discussion of full-year adjusted results on slide 14, revenue finished 1% lower for the year on 2% volume growth.
Sean Pelkey: Well, adjusted operating income was 3% lower and adjusted earnings per share increased by one cent.
Sean Pelkey: This includes over $400 million of operating income headwinds from the discrete items we have discussed throughout the year.
Sean Pelkey: As a result of our increasingly collaborative approach with customers, consistent operational execution and cultural improvements flowing to our frontline employees delivering the service product, our customers are rewarding us with steady and profitable volume growth.
Sean Pelkey: In fact, volume increased in all four quarters for the first time in 10 years.
Sean Pelkey: While full-year merchandise and intermodal pricing gains were once again above cost inflation.
Sean Pelkey: At the same time, we remain highly focused on controlling costs, eliminating waste, and improving efficiency.
Sean Pelkey: PS&O costs increased by just $50 million versus 2023, inclusive of headwinds from prior year insurance recoveries as well as storm-related costs in 2024.
Sean Pelkey: Korpi and his PSNO expense was stable in the face of inflation and 2% higher volume, benefiting from numerous initiatives across operating and G&A functions.
Sean Pelkey: PS&O will be pressured in 2025 by the Howard Street Tunnel Project, as well as ongoing locomotive modernizations and cloud computing expense, but we are committed to unlocking further savings.
Sean Pelkey: Our headcount stabilized during 2024 with volume gains outpacing employee growth over the second half of the year, and we expect to continue delivering labor productivity gains going forward.
Turning our attention to 2025.
Sean Pelkey: This company is headed in the right direction. We're building a strong culture, serving our customers at high levels, pairing new business wins and industrial development opportunities with ongoing efficiency to deliver strong bottom line performance and investing for the future.
Sean Pelkey: That said, the three considerations listed on this slide could drive significant net unfavorable impacts this year.
Sean Pelkey: As we enter the year, export coal benchmarks and fuel prices are working against us.
Sean Pelkey: And if they remain stable, would result in a combined $300 million impact versus 2024, with nearly half of that in Q1 alone.
Sean Pelkey: On the flip side, we expect a roughly $50 million net operating income benefit from cycling unique events, including hurricanes and the Key Bridge collapse, net of anticipated higher incentive comp in 2025.
Sean Pelkey: Finally, as we've outlined before, major construction projects on the Howard Street Tunnel and Hurricane-impacted Blue Ridge Subdivision will drive an incremental $10 million per month net impact into Q4.
Sean Pelkey: Q1 operating income will be our trough, well below prior year.
Sean Pelkey: Results will improve from there, and we expect to return to year-over-year growth in the second half.
Sean Pelkey: At Investor Day in November, we presented a theme of a proven model with powerful momentum and profitable growth.
Sean Pelkey: Despite the discrete pressures, the OneCSX team remains confident in our long-term guidance.
Let's now discuss cash flows and distributions on slide 16.
Sean Pelkey: Investing in the safety and reliability of our infrastructure is our highest priority use of cash.
Sean Pelkey: Additionally, 2024 capital spending included increased allocations towards rolling stock and other return-generating investments that support a pipeline of future growth and efficiency opportunities.
Sean Pelkey: The 2024 infrastructure figure also includes around $50 million of initial spend on our Blue Ridge Subdivision following the devastation caused by Hurricane Helene.
Sean Pelkey: We now expect total costs to exceed $400 million before insurance recoveries as we work diligently to reopen this important route that will serve our customers for generations to come.
Sean Pelkey: Strong cash flow also supported close to $3.2 billion in shareholder returns for the year, including over $2.2 billion in share repurchases and $900 million of dividends.
Sean Pelkey: The share repurchase program once again outperformed, with CSX purchasing shares at a 2% discount to the market price in Q4, delivering value to ongoing owners.
Sean Pelkey: Economic profit finished lower for the year, largely due to the discrete items mentioned on the prior slide. Our goal is to increase economic profit over time, which has been shown to strongly correlate with outside shareholder returns.
Joe Hinrichs: With that, let me turn it back to Joe for his closing remarks.
Joe Hinrichs: All right. Thank you, Sean. We'll finish up our prepared remarks by discussing our expectations for 2025.
Kevin Boone: As you heard from Kevin, many markets remain uncertain as we look ahead at the full year. Operationally, we are undertaking substantial projects to rebuild the Blue Ridge Subdivision after Hurricane Helene and expand the Howard Street Tunnel in Baltimore. That said,
Kevin Boone: The momentum we have built with our leading customer service gives us confidence that we can deliver volume growth in the low to mid single digit range, driven by our merchandise and intermodal business.
Kevin Boone: We expect volumes in the first quarter to show the effects of weather and a slow start for the auto industry and then build over the course of the year.
Kevin Boone: Given the schedule of coal plant closures and a number of mine production issues, we do anticipate coal volumes to be lower year over year in 2025.
Kevin Boone: Next, consistent with our commentary over the last few months, we expect full-year revenue to be impacted by lower global benchmark pricing for coal and reduced fuel surcharge, particularly in the first half of 2025.
Kevin Boone: This will also be a factor as the intermodal business has the lowest RPU but is likely to show the fastest growth this year.
Kevin Boone: Our efforts to drive efficiency improvements and manage controllable costs will continue. As Sean discussed, the Blue Ridge Rebuild and the Howard Street Tunnel project will add expense over the year, but our team is working hard to deliver productivity gains.
Kevin Boone: Given our current outlook, we expect to hold our headcount effectively flat for the year.
Kevin Boone: We plan on CapEx being roughly flat year-over-year, excluding spend on the hurricane recovery, which we'll report out throughout the year.
Kevin Boone: And finally, our capital allocation priorities remain unchanged. We will continue to invest in the safety and fluidity of our network, execute on high return growth projects, and opportunistically distribute excess capital to our shareholders.
Kevin Boone: To sum up, I am proud of how the OneCSX team responded to the challenges that we encountered over 2024. There are great opportunities ahead in 2025 and the longer term. We will execute and deliver on them on behalf of our customers and our shareholders.
Speaker Change: I have no doubt that CSS will continue to move forward, and we look forward to keeping you updated on our progress. I'll now be happy to answer your questions. Matthew, let's begin the Q&A process.
Matthew Korn: Thank you, Joe. We will now proceed to our question and answer session. Now, 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, we're ready to start the process.
Speaker Change: Thank you. And 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. If you would like to withdraw your question, simply press star 1 a second time.
Speaker Change: And if you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And your first question comes from the line of Tom Wadowitz with UBS.
The line is open.
Thank you. Bye.
Yeah, good. Good afternoon.
Speaker Change: We wanted to see if you were pretty clear on some of the headwinds, and it sounds like a lot of those are in one cue in first half.
Speaker Change: How do you think about full-year margin performance? And, you know, if you if you kind of come out with some strengthening in volume in second half, can you see it potentially improve? Or is that is that tough to do, given, you know, how meaningful some of the headwinds are?
Speaker Change: Hey Tom, it's Sean. So yeah I mean I think clearly the headwinds are going to be concentrated here in the first half of the year, worse in Q1 than Q2. So first half of the year I think margin improvement is is sort of out of the question unless something changes with
Speaker Change: commodity prices or what have you. As we get to the second half, yeah, I mean, I think it's, it's quite possible we see, you know, not only growth in operating income, but margins as well in the second half, assuming that the environment that we're operating in remains stable, the core fundamentals remain in place, we're going to grow volumes low to mid single digits, and that will be very supportive.
Speaker Change: to, you know, operating income and margin growth over time, particularly as some of these headwinds ease given the capacity that we have on the network to absorb that growth.
Thank you.
Speaker Change: And your next question comes from the line of Scott Group with Wolf Research. Your line is open.
Scott Group: Hey, thanks. So similar question, but not about margin, just about operating income dollars.
Speaker Change: Do you think we grow operating income this year or is that, I get down a lot in the first quarter.
Scott Group: Sounds like up in the back half. When you add it all up, do you think we grow operating income this year?
Scott Group: Hey Scott, so you know obviously we didn't give specific guidance on what that's going to look like over the course of the year. What I would say is...
Scott Group: If those headwinds that we outlined of $350 million weren't there, we would deliver pretty solid growth in operating income this year. A load of mid-single-digit volume growth at 50-70% incremental margins that we talked about at the Investor Day is a good setup.
Scott Group: We do have some other challenges this year in terms of some of the utility coal headwinds that Kevin outlined, the mine issues that we've got right now, as well as some of the closures later on in the year. So that makes this year a little bit worse, but going forward.
Scott Group: We feel pretty good about being able to hold those coal volumes relatively stable with some opportunity in export. So, you know, on an adjusted basis, what I would say is if you were kind of looking at our investor day guidance of mid to high single digit operating income growth.
Scott Group: This year we'd be, you know, towards the lower end of that, if you adjust for the discrete headwinds, and then in the following years we'll see a bit of a rebound, particularly as we cycle some of the issues around, or some of the costs related to the construction projects we've got going on this year.
David Oglenski, David Oglenski, David Oglenski,
Speaker Change: And your next question comes from the line of Stephanie Moore with Jeffries. Your line is open.
Speaker Change: Great. This is Joe Hafling on for Stephanie Moore. Thanks for taking our questions.
Speaker Change: Maybe stepping away from the guidance for a second, you know, relative to when we last spoke on your investor day, you know, I was wondering if you could highlight any incremental conversations you guys have had with customers related to the industrial development pipeline, if there's any tangible things you can point to.
Speaker Change: You know, just relative conversation with customers you've been having, you know, over the last couple of months, post-election, thanks.
Speaker Change: Yeah, I think, you know, when we're coming into this year, obviously given the political landscape changing pretty rapidly here, we thought there might be a pause in activity and
and new projects going out for bid.
Speaker Change: We've actually seen quite the opposite. We've seen that really stay healthy and we're
Speaker Change: We're a number of new new projects have come our way that we're working on and the group is very very busy So I think you know, that's a big positive for us. Obviously, there's a long tail to those projects You have to get them permitted and then get them underway, but we see that strength that we noted at the investor day
really continuing in the first quarter here.
Speaker Change: Hopefully accelerating with some of the, obviously, policy that may take place here in the next few months.
Speaker Change: And your next question comes from the line of Chris Weatherby with Wells Fargo. Your line is open.
Thanks. Good afternoon.
Speaker Change: Chris, I'll start and then maybe kick it over to Kevin on the pricing side. Yeah. So essentially what I was saying there is if you take those 350 million of headwinds, assuming commodity prices on the coal and fuel side remain flat.
Speaker Change: you've got the network disruption as well as some of the things recycling from last year and adjust for that we'd be you know roughly in the in the kind of lower end of the mid to high single digit range plus or minus a little bit depending on what happens over the course of the year with the economic environment but we feel good very good about pricing and I'll give Kevin an opportunity to speak to that.
Kevin Boone: Yeah, I think on the merchandise side, you know, nothing really changing there. We continue to compete in the market and really leverage the service product that we have. You know, the biggest difference versus last year, obviously, as you've seen on the
Kevin Boone: commodity price for coal. So that's, you know, met coal prices have come down. As you know, our contracts reflect move with those prices.
Kevin Boone: and so we've seen that. Hopefully we'll see some strength pick up.
Kevin Boone: but that's, you know, that market is very, very dynamic. And I will say on the intermodal side, it's encouraging to see at least some stabilization.
Kevin Boone: and maybe some contractual rates starting to move up slightly. So, you know, I'm not here to call the cycle. I think others are better prepared to do that. But as we see, hopefully through the year and into the back half, we might see a little bit more support than what we certainly saw last year in 2024.
Speaker Change: And your next question comes from the line of Ari Rosa with Citigroup. Your line is open.
Ari Rosa: Great, good afternoon. So I just actually wanted to stay on that line of questioning. Maybe you could talk about the impact of tightening truck capacity and what's what's usually the lag in terms of where we would expect to see that reflected in results and specifically I assume it would be reflected primarily in intermodal but if you could talk about kind of other areas where we might see that impact kind of flow through results would be appreciated. Thanks.
Ari Rosa: Yeah, you know, the most obvious one is intermodal, but there's a lot of work that the team is doing on the merchandise side from a truck conversion point of view.
Ari Rosa: that there's not a lot of momentum to do that. Going into this year, I think some of our discussions are on the merchandise side.
Ari Rosa: and really accelerate as customers are looking for additional cost savings and we can really lean into that. So I'm
Ari Rosa: I'm optimistic that's going to be the case and that's the market that we can have a little bit of a supportive market which we've been fighting, you know, the last couple of years here will be very beneficial to us.
Ari Rosa: In the modal, you know, when we look at our pricing, it does lag the market a bit here. So contracts, you know, even the shorter duration ones can be a year and a lot of that takes place in the, you know, in the first part of the year. And so
Ari Rosa: If we start to see some momentum, the bigger impact probably starts next year, but we could see some benefit as we exit this year.
Speaker Change: And your next question comes from the line of Brandon Obolensky with Barclays. Your line is open.
Brandon Obolensky: Hey, good afternoon, everyone. Thanks for taking the question. Joe, I'm sure, you know, investors are excited here at the opportunity long-term for growth, but obviously.
Brandon Obolensky: You know, some of the earnings headwinds when GDP is up, that might be a little frustrating in the near term, but maybe can you talk to what this tunnel project will ultimately yield?
Brandon Obolensky: You know, getting beyond some of the hurricane damage in the Blue Ridge region. And should we be thinking that 2026 could actually be that much better when you think about margin opportunity, incremental margins, pricing, volumes, etc.
Thanks, Brandon. Yeah, I mean, I think...
Brandon Obolensky: Well, you've heard from, including other transports, is that, you know, while the GDP's been growing, the industrial side of the economy has been flat or down over the last couple years, which, you know, more closely aligns with certainly the merchandise side of our business.
Brandon Obolensky: So the interest rate sensitive parts, automotive, it's still well below, you know, pre-pandemic levels, housing market and steel, other things like that.
Brandon Obolensky: So we're obviously looking forward to hopefully, whether it be interest rates coming down or other policy changes that will help the industrial side of the economy, and maybe we'll see a little bit of growth this year for the first time in a couple years.
Brandon Obolensky: So certainly that will impact us. I think at a higher level you know, the Howard Street Tunnel project is one of the most important projects in this company and
Brandon Obolensky: As Mike highlighted in his commentary, we've been waiting for a long time to do this and we had a
Brandon Obolensky: plan that was going to be a three-year plan that we've now
Brandon Obolensky: accelerated into one year which is going to be done in the 2025 calendar year. That, of course,
Brandon Obolensky: It means 2025 will have a lot more expense tied to it for the rerouting costs and taking care of our customers while we do that. But we get the benefits much sooner than originally planned, which helps in 26 and 27. And those benefits include the ability for us to run double stack.
Brandon Obolensky: all the way up and down the East Coast, including, you know, places from Chicago. I mean, there are trains we can't take right now from Chicago double-stacked to the East Coast because we can't get through the Howard Street Tunnel and some bridges around that area.
Brandon Obolensky: So you can go all the way, all the way out to our interchange with our Western rails and talk about the advantages that will help us. It's one of the
Brandon Obolensky: Probably it's not the largest competitive disadvantage we have right now on our modal business has been the inability to double stack and be able to reach the high population density sectors of the East Coast because of that. So this is a big deal. I mean actually if you step back
Brandon Obolensky: between the MNBR interchange that's now open, which was one of the other competitive disadvantages we had on Intermodal and other parts of our franchise. And now the Howard Street Tunnel, we're gonna take care of probably the two biggest.
competitive advantages we had in our network.
Brandon Obolensky: It was by the end of 2025, so we're really excited about that. And that's a big deal because right now we have to double stack, we have to route basically up through upstate New York and down, so you can imagine all the weather in the winter doing that. But also the outer route miles are tremendous.
Brandon Obolensky: to grow profits in 26 and 27, along with other things that are going on, including industrial development, including the efficiency actions we're taking across the network, and including all the work that we're doing with our customers.
Brandon Obolensky: We continue to be very excited about the potential of this business and support the targets and the stuff that we outlined at our Investor Day in November. And if you can do the math now and say, okay, as Sean highlighted, 25 is going to be the lower end of that.
Brandon Obolensky: We still very strongly believe in our plan that 26 and 27 will be more supportive of making that happen. Thanks.
Speaker Change: And your next question comes from the line of Brian Ossenbeck with J.P. Morgan. Your line is open.
Good afternoon. Thanks for taking the question.
Speaker Change: So I guess maybe one for Mike. Should we expect as this tunnel project gets underway, there are going to be some meaningful ...
Speaker Change: deterioration or adjustments that we're going to see in some of the service metrics just trying to figure out
Speaker Change: how that would play out, considering it is such a big undertaking in a compressed period of time. And then maybe just also get your thoughts on just the general health of the network having absorbed.
Speaker Change: a couple hurricanes, a couple port strikes, or one near miss, and just your thoughts on staffing levels, because it sounds like you're already pretty well staffed up into next year. So getting through all this in the near term, how do you feel like the network's positioned to hit that growth when it does come back, perhaps in the back half of the year?
Thanks.
Speaker Change: Thanks for the question Brian. I'm not going to get you to repeat the first part but I can barely remember it now. I'm just kidding.
Speaker Change: In terms of the tunnel, Brian, we have already taken steps in the fourth quarter to start to move traffic and reroute it off the tunnel. And so we're prepared. The cost Sean is talking about really is reflective of what we have to do to maintain some of our customer commitments.
Speaker Change: and Detour somewhere else that we're paying a haulage for. But effectively, I don't think the metrics are gonna be affected that dramatically. We've pretty much moved everything off. So what you see is what you have now.
Speaker Change: In terms of the network, yeah, look, it was an interesting year. You know, we started off in the second quarter.
Speaker Change: really trying to focus on crew starts and looking at looking at our capacity was our trains you know how they were operating and our focus was to was to basically take crew starts down in line with the service offering we had to make and we started to do that
Speaker Change: right up until you know and then we saw again as you reduce the crew starts or the train starts your dwell goes up so we made adjustments and if you look in the middle of the year going into that third quarter the first set of hurricanes
We were running very well.
Speaker Change: and you know on and those so those fundamental principles are still there you you keep if you look there's pockets weeks where we didn't have the disruption from the hurricanes that we're I'm very very happy with the performance of the railroad overall outside of those things
Speaker Change: Going forward, yeah our headcount is stable. We do have more productivity improvements.
Speaker Change: Right in front of us once we get in the look we do we just had three days of snow two days of snow and record and all that once we get through this, we're back on track because going in, excuse me going into the Christmas shutdown.
Speaker Change: We're in very good shape and we really, really took action working with our customers as they reduced their needs to really, really, you know, reduce more starts and that's our focus is, first of all, to run a safe railroad that employees know and come prepared for work and are able to do it. Number two, service those customers.
Speaker Change: Productivity is extremely important for us because we've made some great steps.
Speaker Change: We fought off the battles that we've had with these storms, and then the team is very entrenched in the principles that got us to where we were before the storm started. So I'm very happy with the network. We've got work to do with all the different stuff going on right now, like we always will. But overall, fundamentally, we're on the right track.
[inaudible]
Speaker Change: And your next question comes from the line of John Chappell with Evercore ISI. Your line is open.
Speaker Change: Thank you. Good afternoon. Sean, hate to get into minutiae on certain model line items. You said cost per employee will be up, you know, aligned with labor inflation, so I assume you mean like four-ish percent.
Speaker Change: That said, you have a really tough comp in 1Q24 where it was up 7% and then a super easy comp in 4Q24.
Speaker Change: was down 4% because of the incentive comp. So do we think about it as 4% on average, but try to get the quarterly cadence more aligned with typically kind of lower cost per employee in the first quarter and peaking in the fourth quarter due to annual bonuses and incentive comp?
Speaker Change: Yeah, John. So here's how I think about it. I would take the Q4 number. I would add back the incentive comp adjustment. So that's about $1,500 an employee.
Speaker Change: but also it looks like likely lower health and welfare costs that kick in here this year.
Speaker Change: Then as we get to the second half, take that first half run rate, add 4% to that, which is what I would expect for second half wage inflation. That should give you a good way to model it for the full year.
Speaker Change: And your next question comes from the line of Ken Hexter with Bank of America. Your line is open.
Ken Hexter: Hey, great. Good afternoon. Two quick ones to clarify, and then my question, I guess, clarifying. Kevin, did you say met coal at these levels, the 191, is that down 3% sequentially? Is that based on these levels, or does it go lower if rates hold at these low levels? And then...
Ken Hexter: You mentioned some outages, some mine outages. Does that include the recent fire at one of your mines? I presume that's what you meant when you said some mine outages. And then I guess, Sean, my big question is,
Ken Hexter: You kind of talked mid-single-digit growth, I guess that would have been about $260 million add to EBIT.
Ken Hexter: offset by about 300 million discrete items. So I just want to understand, are you sending the, I just want to send your messaging, is it that the base case EBIT is down 50 million from the 5.35 billion that you've got for the target? I'm just trying to put together all the numbers you're throwing out there. Thanks.
All right, well, that was a lot.
Ken Hexter: So, let's start with the coal question. Yeah, at current levels, that's where we see, that was the guidance at current levels, what we see here. Hopefully, we'll see some, as we get in the second, third quarter, more reflective of kind of the cost curves of our producers and global producers. Quite frankly, we think it's probably under market right now, and that should hopefully balance out above 200 as we get in the back half of the year. We'll see if that happens.
Ken Hexter: And then the other question was the outage that you mentioned. Yes, that's related to the recent one. We expect that to come back online in the second half of this year. I will say that
Ken Hexter: The team is doing a great job of looking for other sources and we do expect some of that to be made up at other mine locations to basically backfill the demand that still remains out there.
Sean Pelkey: We don't expect that to be a full loss. We'll find other opportunities to offset hopefully a lot of that and more than half of that headwind that we'll see. Over to Sean.
Sean Pelkey: Yeah, Ken. So I mean, your math is awfully precise. You know, it's, it's too early in the in the year to kind of give you that close of a range. But I think generally speaking, kind of the way you're looking at it, if you take the, you know,
adjusted number for 2024, the non-gap adjusted number.
Sean Pelkey: You know, you subtract the 350 and then look at sort of mid-single-digit-ish growth.
Sean Pelkey: And, you know, I would say that there's some things this year that could make that that can make it a little bit worse than that. And that's really the coal challenges as well as, you know, the incentive comp piece that probably adds another 30 to 40 million of expense this year versus 2024. But.
Sean Pelkey: You know, there's a lot of other variables in there as well. We're very, very focused on the cost side to try to make sure we can manage through the first half of this year as we've got some big headwinds to manage with. And so, you know, there's levers that we can pull, but there's obviously things that we're watching in the economy as well. So there's a range of...
Sean Pelkey: outcomes that we could could model from here and as we go through the year we'll get you know much more line of sight to exactly where that lands and can give you a little bit more color there.
Speaker Change: And your next question comes from the line of David Vernon with Bernstein. Your line is open.
Speaker Change: Hey, thanks guys for taking the question. So we've probably kicked this a couple times, but Kevin, is there any way you can help us understand the 300, how much of that is volume, how much of that is price?
Speaker Change: of what you're making in there, roughly, slices of pizza, and I need sliced pie kind of thing. And then, you know, if you think about.
Speaker Change: You know, the outlook, you know, as we look into, you know, merchandise intermodal, it feels like the Q4 numbers ended a little bit below the full year numbers, and I'm just wondering if...
Speaker Change: If you're also seeing some volume pressure because some of the Blue Ridge outage and maybe even some volume because of the service issues that might be happening with the Howard Street Tunnel, should we be thinking that there's some additional sort of volume headwinds building into 2025 here with related to stuff, or is it just purely just operating costs? Thank you.
Speaker Change: We handled that first part. That was quite a bit, again. The $300 million that Sean highlighted in his opening comments was related to the Metcol price, and then obviously the fuel surcharge was. So those two items, not a volume comment in that market. And then I'll hand it over to Sean.
Sean Pelkey: Yeah, and I think, David, what you're pointing to in terms of the momentum there in Q4, you got to remember the hurricanes were a pretty big impact. You know, we talked about a $50 million impact with, you know, roughly 30 of that.
Sean Pelkey: being revenue. The revenue number was probably even a little bit higher than that when all was said and done so you know that that that was a big piece of it. I don't I mean
Sean Pelkey: Mike and Kevin, you correct me if I'm wrong, but I don't think we're anticipating any volume disruption from the shutdown of the Howard Street Tunnel. In fact, the work that we're doing and the costs that we're adding are to preserve that volume and allow us as we clear up that
Sean Pelkey: pinch point in our network to actually be able to identify and pursue some growth opportunities that Kevin and the team are looking at.
Sean Pelkey: Yeah, I think with the Blue Ridge, there's small but immaterial, maybe some volume that would move off temporarily, just given the additional length of haul. But the majority of it, given the great work by the team and Mike's team and Kerry and others to come up with a solution, really preserved that largely for us.
Speaker Change: And your next question comes from the line of BASC Majors with Susquehanna. Your line is open.
BASC Majors: Thanks for taking my questions. Can you talk a little bit about the regulatory opportunity under the new regime, either at the FRA and the STB, and anything that has been held up or slow-played that could generate needle-moving productivity for CSX in 2025 or 2026? Thank you.
Joe: Baskin. This is Joe. I'll take that one. I think, first of all, you already saw some activity on the waivers that have been, you know, longstanding. That's important. We need to...
Joe: having plenty of work for our teams to do. That's a big one. I think if you look at, obviously, Patrick Fuchs being named as to be chair, we know Patrick well.
Joe: you know, very much involved and engaged in our industry along with the other board members. So looking forward to that. Working with the STB that's really focused on, you know, the data and what we can do to grow this business in a positive way.
Joe: The FRA, I mean, David Fink, you know, he was running Pan Am when CSX purchased it before my time, but so obviously knows the business. And some of the stress points that the railroads faced in technology and...
Joe: and also investment and capital and that kind of thing. So we're feeling really good about a supportive environment for the industry when it comes to safety and technology.
Joe: and working together to advance. I mean, I think everyone is aligned that the best thing we can do is work together collectively to get more volume on the railroads. It's better for safety, better for efficiency of our economy.
Joe: It takes trucks off the road, it reduces taxpayer funding for the roads a little bit, and it also is more efficient and better for the environment.
Joe: Although I think the people that we're working with now understand all that and so I would say that the you know Certainly next several years look very supportive for us working together to make more advancements than we made in the last four
Speaker Change: And your next question comes from the line of Ravi Shankar with Morgan Stanley. Your line is open.
Ravi Shankar: Great. So it's a couple of years of a meaningful amount of discrete items now and I recognize that a lot of these things are either issues outside of your control or investment in the future, but were your conversations with customers like on some of these bottlenecks and about the understanding, is there a risk of share shift as a result of this or how do you think this plays out in the coming years?
Thanks for tuning in. We'll see you next time.
Ravi Shankar: Yeah, I think from our customer discussions, there's a lot of excitement. You heard, you know, the service is not really going to be impacted. There's additional costs we have to absorb to maintain the service and maintain the...
Ravi Shankar: level of service that we have provided. But these are significant investments that are going to allow them to reach new markets that they haven't had the opportunity to move on on the CSX network.
Ravi Shankar: I think there's a lot of excitement for our customers to see that we're willing to invest in our network, quite frankly, and that always hasn't been the case. So we continue to invest in the core infrastructure and invest there, but we're actually extending our network and creating single line service that we haven't
Ravi Shankar: have the opportunity to deliver in the past, so there's a lot of excitement and I know our teams are excited to kind of deliver on that growth.
Joe: Yeah, this is Joe. Let me add real quickly to that. I mean, I'm really proud of the team, how both our operating and marketing sales teams have worked together. I mean, if you look at the third and fourth quarters, we had two pretty impactful hurricanes and some other things. But if you look at the data from our customers, actually our net promoter scores in third quarter and fourth quarter were consecutively the best we've ever had.
Joe: And that, even though we had some disruptions and we had issues and you see it in some of the data.
Joe: The work we're doing to put the customer first, along with safety, of course.
Joe: and to really work on finding solutions, even if we have issues.
It goes a long way to them.
Joe: seeing the commitment we have, and that's really important for long-term growth, that the customers see that we're committed to, when we have disruptions or have issues, that we're proactively communicating with them, we're working to find solutions, and that makes them feel a lot better about, you know, investing back into rail and looking for longer-term growth, and we're seeing that play out. So,
Joe: Yes, we've had a lot of three items, as you mentioned, for a couple years now.
Joe: But we're continuing to see volume growth, and that's consistent exactly with what we're hearing from our customers. Our service levels are leading to volume growth. That volume growth has strong pricing with it, and we're continuing to get efficiency gains. We get some of this noise out of the system, I think you'll see the power of this network.
Thank you for joining us.
Speaker Change: And your next question comes from the line of Jordan Alger with Goldman Sachs. Your line is open.
Jordan Alger: Yeah, hi. Sorry, I just wanted to come back to the EBIT growth question again, you know, where you had suggested, you know, taking that $350 net headwind off of the adjusted 2024.
Jordan Alger: and then growing by mid-single-digit, which is sort of the low end of the mid-to-high-single-digit that you talked about at your Investor Day.
Jordan Alger: You know off that base like I'm just curious like what gets it to the to the upper end of that mid to high single Digit is it more of a volume issue is it a productivity issue like like just sort of curious how you think about framing the range
Yeah, thanks for the question, Jordan. I think...
Jordan Alger: Assuming commodity prices are not the driver, good or bad, versus where they are right now.
Jordan Alger: what makes the year a little bit better. I think it's us continuing to push to drive even more efficiency across.
Jordan Alger: all of the groups between operations and G&A. We were able to hold purchase services and other costs essentially flat on a core basis last year. That takes a lot of work when you've got volume growth and you've got inflation up against you. So keeping a very, very close eye on those things, we've got initiatives built into the plan, but we're
Jordan Alger: sitting down every day looking at ways that we can continue to sort of...
Jordan Alger: find opportunity, negotiate new agreements that help us on the purchase service side to reduce costs. So that's one. And then the other I would say is, you know, on the volume side, you know, certainly looking at the economy, but also
Jordan Alger: You know, the momentum on the trucking side, as Kevin talked about, do we start to see that turn? And, you know, these industrial development opportunities are coming online and the ramp in those volumes, the customer wins that we've got, we've got a number of those in the pipeline for this year. If our hit rate's higher, that obviously helps us grow operating income as well.
Walter Spracklin: And your next question comes from the line of Walter Spracklin with RBC Capital Markets. Your line is open.
Walter Spracklin: Thanks very much, everyone. Good afternoon, everyone. So I just want to come back to the Investor Day three-year forward compound annual growth rate targets that you gave, particularly on earnings per share. So you gave us high single-digit to low double-digit.
Walter Spracklin: If we look at that and just take the midpoint at 10% off 2024, it gets us to 243 for 2027, which is where consensus was.
Walter Spracklin: My question, I guess, is with the dip down now in 2025,
Walter Spracklin: It would imply you're going to have to run at a low team for 26 and 27 to get back to that 243. And my question is that, is the investor date target of 243 still relevant, given where we are in 20, where we're kind of stepping down in 2025?
Walter Spracklin: therefore have that low team growth rate in 26 and 27 or do we say no this you know the world's changed a little bit since investor day and and we should really model off off a lower growth rate than that.
Walter Spracklin: Yeah, Walter, I appreciate the question, but as I said in the script, no, we're sticking with the guidance, and so the numbers that you walked through, those are reasonable, high single digit to low double digit EPS growth.
Walter Spracklin: A couple things I would just clarify, one is the $10 million a month of network disruption costs that we have this year.
Walter Spracklin: You know, that's a headwind to this year, but that completely reverses in 2026 and turns into a net benefit for us as we grow volume and drive efficiency.
Walter Spracklin: when all the construction is done. And then just the other sort of modeling point I would put out there is that the the three-year guidance assumes that over that three-year period
Walter Spracklin: We have stable commodity prices, both export coal and fuel. So we're at a lower point today on both of those than we were on average in 2024. Our hypothesis, our modeling framework is that, you know, by 2027, we're kind of back to where we were on average in 2024. Obviously, if that doesn't happen and, you know, met coal stays below 200, it's going to be tough to hit the numbers. But adjusting for that, we still feel very good about our three-year guidance.
Thank you for joining us. Thank you.
Speaker Change: And your next question comes from the line of Daniel Imbrough with Stevens. Your line is open.
Hey, good evening, guys. Thanks for taking the questions.
Speaker Change: Kevin, maybe one more on the volume outlook. I guess there's a lot of headwinds out of your control, but I was going to ask one on the auto side. We've navigated elevated inventories for a few quarters.
Speaker Change: here and it's weighing on autos and metals. I guess any updates on when your customers are expecting that production to actually return to growth this year? Inventories rationing down out there in the field, just what are you hearing or seeing from your field as you think about that segment hopefully returning to growth at some point in 2025?
Joe Hinrichs: Maybe I'll take it and give Joe, you know, he's obviously an expert in it as well.
Speaker Change: You know, look, we have seen a slower start to the year. That's shown up in everybody's car loads. It's out there. Certainly the weather and loading autos and this kind of weather is a challenge as well. So that hasn't helped the volumes.
Speaker Change: that we've seen here. We do expect them to improve from where we are at the levels that we've seen here over the last few weeks, but it is a...
Speaker Change: You know, I think it's an open question of where rates go and affordability and and those things. I don't, I wouldn't, I don't sit here and say there's a lot of optimism here. I don't think there's
Speaker Change: A lot of pessimism that it's going to get significantly worse.
Speaker Change: It feels like more of the same, basically, but we'll see how it plays out the rest of the year.
Speaker Change: Yeah, thanks, Kevin. Well said. I mean, think about it right now. I think the estimates are for sales this year to be in the low 16 million range and the production to be in the mid fifteens.
Speaker Change: So that maybe adjusts some inventory or just takes into account, you know, everything that happens with imports and everything but
Speaker Change: You know, before the pandemic, those sales, you know, SARS were 17 million plus for a number of years in a row.
Speaker Change: and production was, you know, pretty close to that. And so...
Speaker Change: There's a lot of potential there. We just have to see it realized and that means interest rates have got to come down and it has to be a balance between all those things. So you have an administration now that, you know, is very focused on autos and U.S. manufacturing and interest rates. So let's see how that plays out. Probably...
Speaker Change: It isn't a big an issue for 25, but what could it look like for 26 and 27 is a big opportunity.
Speaker Change: And your final question comes from the line of Jeff Kaufman with Vertical Research Partners. Your line is open.
Jeff Kaufman: Okay, thank you, and thank you for squeezing me in. I'm going to go back and beat the dead horse a little bit here, but from a slightly different angle. You've talked a lot about the costs associated with Howard Street and Blue Ridge weighing on this year, and that cost is coming in a bunch of different areas, the out-of-route miles and the fuel burn.
Jeff Kaufman: The extra crew, the asset related costs, extra locomotive, extra cars.
Jeff Kaufman: Can we talk about, I guess, kind of the same way, once Blue Ridge is fixed, once Howard Street is done,
Jeff Kaufman: Can we try and quantify the savings on the other side? So, for instance, you're going to have double stack where you didn't before. You should be able to drive more cars through there with fewer trains, fewer assets. You should get to go out there and play for business that you weren't really eligible to do before.
Jeff Kaufman: As I look at the net unwind of these projects and the opportunity for 26, can you do anything to quantify that benefit the same way you quantified the cost of 25?
Speaker Change: Yeah, Jeff, I appreciate the question and and you know, you're right obviously as we get past this it's going to turn into a very nice positive for us if we if we sort of look at
Speaker Change: The cost savings opportunity and then combine that with the growth opportunity that's out there taking a
Speaker Change: kind of a midpoint of what we think that revenue opportunity is, I would say within
Speaker Change: a couple of years, uh, we will have fully recovered that a hundred million dollars of, um, you know, call it roughly a hundred million dollars of operating expense that we're going to take on this year. So, and you know, that's just, that's just the initial growth opportunity. There's obviously more capacity that we're adding beyond that. So, um, you know, to my earlier point, it does turn into a nice positive for us over the three-year period.
Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.