Q1 2025 CSX Corp Earnings Call
Krista: Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation first quarter 2025 earnings conference call.
Krista: All Lions have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Krista: If you would like to ask a question during that time, simply press star, followed by the number one on your telephone keypad.
Speaker Change: And if you'd like to withdraw your question, simply press star one again. Thank you. And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. Matthew, you may begin! .
Matthew Korn: Thank you, Christa. Hello, and good afternoon, everyone. We're very pleased to have you join our first quarter conference call. Join me for the leadership team, our Joe Hinrichs, President and Chief Executive Officer, like Cory, EVP and Chief Operating Officer, Kevin Boone, EVP and Chief Commercial Officer, and Sean Pelkey, EVP and Chief Financial Officer. Thank you, sir.
Matthew Korn: In the presentation accompanying this call, which is available on our website, you will find slides with a further looking disclosures and or non-GAAP disclosures for your review. With that is now my pleasure to introduce Mr. Joe Hendricks. All right, thank you, Matthew and whoever won, thank you for joining our first quarter call.
Joe Hinrichs: Since I came to CSX, we have been clear about our commitment to lead with service. Consistent, reliable, excellent service is what shareholder. We've got strengthens our relationships with customers, expands our markets, and ultimately drives proper growth.
Joe Hinrichs: Now, before that come into this quarter, the start of the year typically brings operational challenges that we manage the network through the worst winter weather.
Joe Hinrichs: That these challenges will be more difficult this year because of the constraints associated with our two major infrastructure projects, the Howard Street Tunnel, and the Bluewood Sun Division rebuild.
Joe Hinrichs: Unfortunately, our performance fell short of our expectations as a result we left good business on the table to produce our revenues and our inefficiencies met we incurred more expense
Joe Hinrichs: We take full accountability for our performances quarter, and we are not standing still. The team is aligned, our expectations are clear, and we are taking actions to stabilize our operations, improve efficiency, and enhance coordination across the entire one CSX team.
Joe Hinrichs: All that said, I want to reiterate the underlying strengths of our business.
Joe Hinrichs: This is still the same great network and one CSX team. Our customers relationships are strong and the fundamentals of our strategy are sound. I want to thank our employees for resilience and our investors for the continued support as we move forward with urgency and clarity.
Now let's go over some highlights.
Joe Hinrichs: A start with slide one, but we feature some of the key results from our first quarter. Total volume decreased 1% compared to last year, that we did see intermodal volumes increased 2% on the quarter as we saw an uptick in port traffic.
Joe Hinrichs: Total revenue with $3.4 billion for the quarter, down 7% from the same period last year. As we anticipated, much of this decline would do the commodity effects of lower benchmark coal prices and reduced fuel search charge.
Joe Hinrichs: Ownings for a share decreased by 24 percent, reflecting the effects of our margin from reduced revenues and our challenge network performance.
Joe Hinrichs: We know that trust has earned no consistency. One quarter doesn't define us, but define us as how we respond, how we learn, and how we come back stronger. That is our focus. We're committed delivering better results, and most importantly, to executing in the quarters ahead. Thank you very much.
Mike Cory: Now I will turn the call over to Mike to provide details around our operational performance.
Mike Cory: Thank you, Joe, and thanks to all of you for taking the time to participate today.
Mike Cory: As Joe highlighted in his opening remarks, this was a difficult quarter for the CSX Network and the team. We've talked about how we have two major infrastructure rebuilds and progress that are causing us to reorganize and reroute a significant amount of our daily traffic.
Mike Cory: As a result, we're hit by severe weather and face to other tough, frustrating challenges is become more complicated for us to recover and is just taking us longer to stabilize our operations.
Mike Cory: These effects are clear in our service metrics as all of you have noticed.
Mike Cory: Let me say this as firmly as I can, improving the fluidity of the network is essential in order to deliver on our promises to our customers and we are committed to getting this done.
Mike Cory: We expect our performance to improve from first quarter even as we manage the ongoing infrastructure project.
Mike Cory: I'll talk more in a moment about what steps we're taking, but let's first discuss safety results for the quarter. The first quarter saw a third straight sequential decline in our FRA injury rate, which also brought us lower on a year over year basis.
Mike Cory: The continued education and mentorship programs that we've put in place are having a measurable effect, helping our employees understand how to reduce their risk of exposure every day that they're on the job.
Mike Cory: and Pleased that our FDA train accident rate also declines sequentially and improved you over a year.
Mike Cory: Our team sees this as an encouraging affirmation that our Safe CSX program is taking hold in driving positive results. We'll continue our work to build a safety focus culture here at CSX, always with the goal of everyone returning home safe and sound after every day. Let's move to the next slide.
Mike Cory: At the top of this page, you'll see metrics reflecting our network fluidity.
Mike Cory: After working through the storms in the second half of 2024, our velocity was affected early in the first quarter of 2025, after closing the Baltimore tunnel, and it continued to be challenged as we managed through the after effects of harsh winter weather.
Mike Cory: Duel demonstrated a similar unfavorable trend over the last several weeks as yard congestion persisted, making it difficult for trans to depart on schedule.
Mike Cory: We're working hard to address the increase in cars online. It's having excess inventory has slowed the network with particular flooding on our Southwest and Midwest regions, Nashville and Cincinnati in particular, we have much to do in this regard.
The charts on the bottom show important customer-facing metrics.
Mike Cory: Undermodal business is highly service sensitive. We have to get this right to stay competitive in this market.
Mike Cory: Is this chart shows our interval trip plan compliance rebounded nicely in the first quarter after the hurricane related disruptions that hit last fall?
Mike Cory: The team has worked hard to keep our terminals fluid and minimize the amount of time drain. Drainage drivers are waiting to drop off or pick up boxes.
Speaker Change: We're encouraged by this result, but we didn't do nearly as well with Carlo TPC, which was negatively impacted from the quarters fluidity constraints. This is a primary area of attention for the team. We have to deliver here in order to support our current merchandise business and the substantial amount of new business that Kevin and his team won and expect to win going forward. [inaudible]
Speaker Change: Finally, our CSD, or first mile, last mile measure, shows fairly steady performance, but we know that for our customers every percentage point represents important freight that they've entrusted to CSX.
Speaker Change: We're not going to get back to our true potential until we get these major projects completed, but we are doing the hard work to drive incremental improvement step by step as we go through the year.
Speaker Change: When the first things we're doing is to get the resources in place that will enable us to run a consistent operating plan even with the two major closures to work around.
Speaker Change: We're bringing online a modest number of locomotives which will help get the network in balance and reduce train delay This is scheduled rarely when trains leave on schedule everything else is able to fall in place
Speaker Change: We're also taking steps, drive our asset utilization, our field leaders are connecting with our customers to identify and flush cars off our network. This car is accumulated network fluidity declined, so we're working closely with our customers and taking immediate action to get these levels back to where they need to be. .
Speaker Change: Finally, we're making sure that everyone in this organization acts according to the priority that we at CSX place in delivering customer service. There's no single measure for the railroad that accounts for everything, but for years TPC has served us as a very good guide to effective statistics.
Speaker Change: When we miss, we hold ourselves accountable, find a solution and make it right with our customers.
Speaker Change: We have a lot of work to do, but remember this, we have the same people and the same assets that we had a year ago, and we take a lot of pride knowing how to apply the core principles of an effective schedule.
Speaker Change: hundreds of railroads across the network use our top everyday to strengthen communication and support faster more effective decision making. The bottom line is that we're aligned across the team and we're going to deliver for our customers and our shareholders. With that, I'll turn it over to you, Kevin.
Kevin Boone: All right, thank you, Mike. Right now, CSX and our customers are navigating elevated levels of macro uncertainty.
Kevin Boone: Clearly, there's an added market volatility when global trade policy is shifting day-to-day .
Kevin Boone: They're staying close to our customers to understand the changing landscape, partnering to ensure our supply chains remain resilient and efficient, as well as looking for opportunities to grow together, including investments in U.S. manufacturing. [inaudible]
Kevin Boone: You to date, end market demand has remained relatively stable. While some areas are clearly stronger than others, we have not seen any major negative inflections. That said, we are unsatisfied. The disruptions we face across the network resulted in missed opportunities as some of our key end markets. [inaudible]
Kevin Boone: As you've heard, our entire team is 100% engaged and we have confidence that we will show improvement as a year progresses.
Kevin Boone: As an example of our commitment, I want to crickly highlight the CSX's TDSI Automotive Terminal Team, set a record with four terminals, winning the Auto Industries Premier Awards for Origin and Destination Operations, as recognized by the AAR.
Kevin Boone: We are incredibly proud of our TDSI team and how they represent service excellence here at CSX.
Now let's turn to the slides [inaudible]
Kevin Boone: Starting with our merchandise business as shown on slide 6, and total for the first quarter, both revenue and volume declined 2%. RPU increased 1% year-to-year as higher-core pricing gains offset lower fuel surcharge and the effects of negative mix.
Kevin Boone: Looking across the different end markets, Federalizer volume was up 2% compared to last year, benefiting from modest improvement in short haul, bone valley shipments, a revenue was flat as RPU was affected by this mixed shift.
Kevin Boone: Market demand was strong for agon food, but operational challenges limited our ability to meet this demand, reducing our shipments compared to the market opportunity.
Kevin Boone: Minerals volume was lower by 1%, as weather impacted aggregate shipments, but underlying construction activity remained robust.
Kevin Boone: cement volume was favorable over the quarter, supported by the ramp-up of new production, which contributed to favorable RPU mix and helped lift revenues by 4% for the quarter
Kevin Boone: Chemical's revenue was up 1% against a 1% decline in volume. We saw positive demand and plastics and energy related areas such as propane and LPGs, but cold weather had an impact on asphalt shipments.
Kevin Boone: Force products volume decline 4%, reflecting an uncertain building products environment when considering interest rates and changing trading policies.
Kevin Boone: As I said before, based on what we observed from our merchandise customers now, demand across merchandise is relatively steady.
Kevin Boone: There are even some encouraging recent signs with a good seasonal pickup in aggregates, strong in market demand at some of our ag markets and some early favorable effects from terrorists as steel prices have improved.
Kevin Boone: At Markets Hold, we see opportunities to capitalize on improved network performance, allowing us to capture and fulfill more of the demand in some of our key markets.
Kevin Boone: Now let's turn to slide seven to go over the cold business.
Kevin Boone: Cole revenue declined 27% on 9% lower volume as a team navigated lower export prices.
Kevin Boone: Producer Issues and Operational Challenges in the Quarter All in Col RPU declined 20% year of a year and fell 4% sequentially, slightly more than the 3% decline that we anticipated last quarter.
Kevin Boone: We saw every year declines in both our export and domestic businesses. Export turned into decline by 12%, partially driven by the impacts of two significant temporary mine outages.
Kevin Boone: While domestic tonage was lower by 4%, we did see positive demand trends through the quarter. Utility demand has been supported by higher natural gas prices, and we see positive signals from some of our key customers for increased demand into the summer and beyond.
Kevin Boone: Domestic shimmings to steel mills were also down year by year, reflecting soft conditions in the metals market start to year.
Kevin Boone: For pricing, the Australian benchmark averaged $155.85 per ton over the first quarter and currently sits around that level.
Kevin Boone: On a lag basis, this would be a modest headwind RPU in the second quarter, although we could see a slight positive yield offset if we're able to increase our deliveries to the southern utility customers.
Trim to slide eight, review the Intermodal business.
Kevin Boone: This quarter revenue was down 3%, despite a 2% increase in volume. RPU was lower by 5%, with a 3% impact due to lower fuel surcharge, and the remainder largely due to stronger international shipments.
Kevin Boone: The volume growth for the quarter was driven by international activity as we saw positive trends in container import flows sourced from our global partners.
Kevin Boone: While some of this may have been due to moderate pull forward ahead of anticipated tariffs, we do not see any real step change in the trend line until we approach the end of March.
Kevin Boone: Domestic was effectively flat, with crane and our rail access shipments and new initiatives offsetting mixed results among some of our other channel partners.
Kevin Boone: Again, we're encouraged by what we've seen over the quarter, but visibility is low into the rest of the year. The trucking market has not inflected but does not seem to be past the bottom, but does seem to be past the bottom, which is moderately favorable for the intermodal overall. Overall.
Kevin Boone: Finally, let's turn to Slide 9 for an update on industrial development at CSX. [inaudible]
Kevin Boone: It's been very encouraging to see how our overall program has continued to progress.
Kevin Boone: As you've heard us say at recent conferences, inbound calls to our team remain at very high levels, and our total pipeline of projects continues to grow, reaching nearly 600 by quarter end.
Kevin Boone: Even better, one quarter of these projects are already under contract or nearing the final site selection.
Activity within this pipeline continues to move forward.
Kevin Boone: with 24 new facilities going live on our network over the first quarter. These new plans and expansions will ramp up over the next few years contributing to our positive outlook on growth.
Kevin Boone: We expect to keep this momentum up through the rest of the year with up to 50 additional facilities scheduled to start service over the next nine months.
Kevin Boone: We remain confident that as the program continues to mature and accelerate, we are on track towards realizing the volume growth path we outlined at the November investor day.
Speaker Change: We've been very excited about this unique growth opportunity and we'll continue our efforts to attract more and more customers who will benefit from growing their business on the CSX Network. With that, let me turn it over to Sean.
Sean Pelkey: Thank you, Kevin, and good afternoon. Looking at first quarter results, revenue fell by 7% or $258 million. From a 1% drop in volume, as well as lower export coal benchmark prices, lower fuel recovery and declines in other revenue and trucking.
Sean Pelkey: Expenses increased by 2% and I'll discuss the line-out in details on the next slide.
Sean Pelkey: Interest in other expense was $14 million higher compared to the prior year and we expect this amount to step up slightly following our dead issuance in March.
Sean Pelkey: Income Tax Expense, fell by 76 million on lower pre-tax earnings [inaudible]
As a result, earnings per share decreased by 11 cents. [inaudible]
Sean Pelkey: Declines and export coal benchmarks and net fuel prices drove a four cent headwind to EPS.
Sean Pelkey: We expect a similar commodity price headwind in the second quarter, which should ease throughout the back half of the year.
Sean Pelkey: Going into the year, we knew that Q1 would represent an earnings trough both on a year over year and an absolute basis.
Sean Pelkey: Then, difficult operating conditions faced during the quarter led us to miss our own expectations for both revenue and expense.
Sean Pelkey: Despite new challenges from storms and flooding early in the second quarter, our team of railroads is working tirelessly to clear congestion and deliver the service product our customers deserve.
Sean Pelkey: which will drive revenue and expense benefits moving through the year.
Sean Pelkey: Let's now turn to the next slide and take a closer look at expense.
Total first quarter expense increased by 2% or $38 million dollars. [inaudible]
Sean Pelkey: This includes around 45 million of additional costs related to network disruptions, congestion and severe winter weather.
Sean Pelkey: These headwinds, plus the impact of inflation, were partly offset by savings from lower fuel prices.
Sean Pelkey: Turning to the individual line items, labor and fringe was up 16 million, primarily due to inflation.
Sean Pelkey: Headcount has remained stable over the last year and we expect it to be about flat through the year.
Purchase services and other expense increased by $54 million.
Sean Pelkey: About half of this increase was tied to network disruptions and weather with inflation and other items driving the remainder.
Sean Pelkey: Depreciation was up $15 million due to a larger asset base. [inaudible]
Sean Pelkey: Fuel cost, decreased 50 million, driven by a lower gallon price and savings from efficiency and lower volume.
Sean Pelkey: gallons per GTM has now improved on a year of your basis for five consecutive quarters driving over 50 million in cumulative savings over that period.
Finally, Equalment and Rent increased by $3 million.
Now, turning to cash flow and distributions on slide 13. Thank you.
Sean Pelkey: Investing for the safety, reliability, and long-term growth of our railroad continues to be our first priority use of capital.
Sean Pelkey: Q1 property additions were higher, including 133 million of spending towards the rebuild project on our Blue Ridge subdivision.
Sean Pelkey: For the full year, our expectations are unchanged with non-blue rate spending roughly flat to 2024 and the total blue rate rebuild expected to exceed 400 million before insurance recoveries.
Sean Pelkey: Three cashflow was stable in the first quarter, as lower earnings were offset by cycling a previously postponed tax payment in the prior year.
Sean Pelkey: Now as a reminder, cash outflows in the second quarter will include a roughly $425 million tax payment that was postponed from 2024 due to hurricane-related tax relief.
Sean Pelkey: After fully funding Kauffell investments, we are committed to returning cash to shareholders.
including nearly a billion dollars in the first quarter. [inaudible]
Sean Pelkey: Our approach will remain balanced and opportunistic, factoring in an attractive current share valuation while closely monitoring shifts in demand for our services and the broader economic climate.
Joe Hinrichs: With that, let me turn it back to Joe for his closing remarks.
Okay, thank you, Sean.
Joe Hinrichs: Now we will conclude our remarks on walking through our updated guidance for the full year 2025.
Speaker Change: First, we continue to expect overall vime growth for the full year. As Kevin said, demand remains fairly stable. But the near-term effects of rapidly changing trade and terror policies are uncertain. This makes it difficult to project a reasonable range.
Speaker Change: That said, we remain very well positioned to facilitate and benefit from the continued long-term trend toward expansion of U.S. manufacturing capacity. As we have caught out in the past, our revenue will reflect the challenges of lower commodity prices and changes in mix.
Speaker Change: The year-over-year impact of lower expert club benchmark should be smaller than what we reported in the first quarter [inaudible]
Speaker Change: Sean Highlighted, we expect first quarter the tough to be the trough for our probability for this year as we improve the public fluidity of our network and we continue to drive our greater efficiency and deliver labor productivity.
Speaker Change: we should see sequential improvement. A capex forecast is unchanged, as you heard from Sean, and as you've seen this past quarter, a balanced opportunistic approach to capital returns also remains in place.
Speaker Change: To conclude, Wallace Korn did not meet our expectations, I appreciate the commitment, focus, and the efforts of our entire one CSX team, that said, we recognize that the effort must translate into better outcomes.
Speaker Change: And that is where our attention is right now. We are fully committed to running a safer, faster and more reliable railroad. And we know that doing so consistently is the path delivering the long-term popular growth we expect to ourselves.
Matthew Korn: Thank you, Joe. Now proceed to the question and answer session. We want to make sure that everyone has the opportunity to participate in the time that we have. We ask you to please limit yourselves to one and only one question.
Matthew Korn: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Your first question comes from a line of Tom Waterwitz with UBS, please go ahead.
[inaudible]
Yeah, good afternoon. Wanted to see if you could get up.
Matthew Korn: I don't know, break down into maybe high level, but kind of buckets of the operational challenges.
Matthew Korn: You know, you obviously make making the strategic move with Howard Street Tunnel on the investment there and that's an effect. Is that, you know, is that half of the the challenge on the operating side or how do you view that was at a greater impact? Yeah, Eric.
Matthew Korn: And then you talked about weather, I don't know how big that is, I guess the other piece would seem to be, I don't know if there's some that's from like, you know, kind of longer trained strategy that maybe there's noise related to that or, or maybe just, just not as good as good execution, but
Matthew Korn: Just wanted to see if you could kind of attribute a little bit more, and then also give a sense of how quickly maybe you can see improvement in the operating performance. Thank you.
Speaker Change: Thank you for the question, Tom. We've got no excuses for where we are. What we're dealing with are the results of significant compounding events, basically, that have built over several months. You know, right up to last week's flooding and line closure of one of our most critical lines.
So...
What we're doing? [inaudible]
Speaker Change: Is really focusing on a series of things and it's first of all reducing the cars online and that's what's accumulated through all these events and there was like six of them and they're every month coming up to this point. [inaudible]
Speaker Change: We're working really close with our customers to identify first of all the excess cars in our serving yards and our active inventory and then we're working with them where we can to provide extra service to work these cars off and also providing enough service so they understand and can reduce their pipelines to help us create the fluidity we need. [inaudible]
Speaker Change: Lastly, you know, we always have embargoes as an option, but that's not really our preferred move.
Speaker Change: The next thing is we're adding locomotives into areas that we know we're congested and we need that ability to be flexible to be able to move the traffic that we have. And we're also placing additional mechanical folks out in the field to reduce the amount of time to cycle back locomotives to go to major shops. The next thing we're going to do is, we're going to do a little bit more. We're going to do a little bit more. We're going to do a little bit more.
Speaker Change: In terms of our crews, we're transferring employees from other jurisdictions as they become available into these affected terminals, we're temporarily adjusting our planned capital track and structures program to reduce activity in those affected areas that will allow us again to provide more flexibility or more capacity.
Speaker Change: and, you know, to get back, really Tom, again, it's have no excuses to where we are than a buildup of a series of significant events that really...
Speaker Change: Took away the capacity that we had planned once we took down the Howard Street Tunnel If you remember, it's about 17-18 trains each way prior to that with the Blue Ridge gone And we've been affected severely in our other two westernmost routes and that's what we're working through
Speaker Change: So it's not an effect of any plan we had in terms of long trains or anything else. This is just a series of events that we have got to work through.
Speaker Change: And that's what the team is absolutely committed to, and we will improve.
Speaker Change: through this quarter, and our goal is to get to the summer where we see, you know, normal seasonality of some traffic tapering off, whether it's auto or egg, to allow us to fully reset ourselves into Q3, but it's going to take the time and definitely it's going to get the effort from everybody from me on down. [inaudible]
I hope that answers you.
Speaker Change: Your next question comes from the line of Brandon Oglenski with Barclays. Please go ahead.
Brandon Oblensky: Hey, good afternoon, and thank you for taking the question. Mike, maybe if we can follow up there, so it sounds like this is gonna take maybe longer than a quarter to resolve and you might need to see...
Sean Pelkey: I guess thinking about this from a margin perspective, sorry, maybe the question is more for Sean but...
Sean Pelkey: Normally you see like a 400 basis point improvement from one Q to two Q operating ratio or operating margin, however you want to look at it. Is that on the table here or with these additional resources maybe taking longer time to recover? Is that kind of off the table at this point? [inaudible]
Speaker Change: Brandon, thanks for the question. You know, I think Q1 versus Q2, typically Q2 is always better, right?
Sean Pelkey: The magnitude each year is a little bit different depending on how challenging the winter was in Q1 and other factors that go through there. Our expectation is that clearly Q2 results are going to be better than Q1 this year.
Sean Pelkey: I want to clarify one thing, which is Mike talked about, putting a couple of resources here and there, really not adding costs. These are very small things that at the end of the day when we run more fluid, we actually save costs, it's cheaper. And not only that, we wanted to make it clear that there's a revenue opportunity there as well, there's demand. .
Sean Pelkey: that we weren't able to meet in Q1, that as operations begin to improve, we're going to be able to go get those opportunities, assuming that the demand environment remains stable. So those things will help, and I think the pace of...
Speaker Change: Your next question comes from the line of John Chappell with Evercore ISI. Please go ahead.
John Chappell: Thank you, Sean, and stick with that topic a little bit here. I mean, investor day and in January , you lead out a bunch of, you know, one-off [inaudible]
John Chappell: Pacific Items for this year, that 45 million that you laid out in side 12. Is that all incremental?
John Chappell: to 1Q, so we know what an appropriate starting point is for 2Q. Thank you.
John Chappell: or I guess there's some overrun and Mike just mentioned another...
John Chappell: Flooding situation last week. So just again, trying to figure out how much of this is incremental to the already one-off things and how we think about two cues starting going forward.
John Chappell: Sure, thanks John . So the 350 million, the biggest part of that is the commodity price headwind of about 300 million. We still think that's a good number for the year.
John Chappell: You know, hopefully found a bottom here, but we'll see a big impact again year over year in Q2 probably pretty similar. We'll see you in the next video.
John Chappell: to what we saw in Q1 from the commodity price perspective. When it comes to the cost side that $45 million that we called out, that includes the 10 million a month that we expected due to rerout costs around both the Howard Street Tunnel and the Blue Ridge. .
John Chappell: You have to remember in the first quarter, we had two months of Howard Street rerout cost with that project beginning February 1st. So call it 20 to 25 million dollars of rerout cost.
and then another 20 to 25 million dollars of...
John Chappell: Wether congestion, lack of fluidity, that's the opportunity for us.
John Chappell: Going from Q1 to Q2, I don't think you're going to see that whole 20 to 25 million come out, particularly given some of the challenges we've had to start the quarter but you'll see it improve as we continue on in the next couple of months.
Speaker Change: Your next question comes from the line of Ari Rosa with City Group, please go ahead.
Ari Rosa: Great. Good afternoon. So you mentioned some of the lost customer contracts. I was just hoping maybe you could quantify that and then either Joe or Kevin, if you could talk about kind of where customer conversations are on the tariff impact and kind of how you see customers positioning for kind of the policy uncertainty that we're kind of working through right now, you know, I think that would be helpful. Thanks. You
Speaker Change: Yeah, I want to clarify that is a important point. There's no lost contracts that we've seen.
Ari Rosa: In fact, it's more about being able to lean into some of the growth opportunities that were out there for us to capture and a lot of that was on our unit train side of our business So that's where it's concentrated but there's other instances and
Ari Rosa: I will also point out that we've done, you know, given the communication that we have with the operating team and the great job that Shannon, who runs their customer service group does, we really mitigated the real, really issues at the customer sites and continue to, you know, prioritize where it really makes sense, those, those shipments and making sure those things are getting delivered and we're not creating disruptions for our customers, but it was really about leaning into further growth opportunities.
Ari Rosa: On the tariff side, it changes every day. There's a lot of conversations. Joe, myself, I've been spending a lot of time with our customers. We've had a number of them.
Ari Rosa: Converse is another events and it's obviously a fluid situation.
Ari Rosa: There's a lot of positives that can come out of this and clearly there's um...
Ari Rosa: There's some uncertainty on the consumer side and what that means were...
Ari Rosa: and basic consumption in the U.S., but there's obviously a longer term if you see more industrial production coming to the U.S. That's a very, very big positive for the U.S. and our network because we're well positioned to capture a lot of that activity given where we are in the Southeast and Midwest primarily. [inaudible]
Ari Rosa: So I think right now we're trying to stay as close as we can and each one of these markets trying to understand how the freight blows are going to change. Clearly with these tariffs, they will change.
Ari Rosa: I think you can see a lot of benefits from decoupling from China, that could...
Ari Rosa: Kenneth at the East Coast, potentially, and we're watching that and making sure we're staying in front of it both with our investments and how we're thinking about that and really working with our customers to position them so they can capture the markets as they change.
Joe Hinrichs: Yeah, let me just add real quick, this is Joe, you know, I think last earnings call we talked about we had
Joe Hinrichs: During the 4th quarter of last year, we had our highest ever knit promoter score from our customers.
Joe Hinrichs: We were really proud of that because that happened during a very difficult time period during the hurricanes and and everything. We saw it while it declined a little bit in the first quarter. We still have one of our highest scores ever and significantly up from year before. Thank you for your hard work.
Joe Hinrichs: When we were running a lot better, frankly, so it's a testament to the work that's going into our customer service and the focus we have on communicating with customers. Thank you very much.
Joe Hinrichs: Prioritizing where they tell us to prioritize and making sure that they know what we know so that we can plan our business accordingly. So that's a major improvement that we've made as an organization over the last several years.
Joe Hinrichs: that connectivity with the customer and that conflict communication so when things don't go as planned we're still in touch and we're all making sure we adjust and they adjust as appropriate.
Speaker Change: We'll continue to prioritize that. As Kevin mentioned, the biggest opportunity we left on the table was really on unit trains, really coal in January . We had much better performance in coal in March.
Speaker Change: and then really the grain throughout the quarter because we had so many issues through that Midwestern corridor that's been where all the traffic is pushed over from the east, given the shutdowns we have right now. But we'll get back on that as whether it certainly cooperates better, but also as our network is better. Thanks.
Speaker Change: Our next question comes from the line of Brian Ossenbeck with JP Morgan, please go ahead.
Brian Ausenbeck: Thanks for leaving, so maybe just to clarify the revenue opportunities that is still sitting there, you can go after again and just wasn't, they'll be picked up on service or did
Brian Ausenbeck: Did you potentially lose them? They're just kind of getting back to normal. So...
Speaker Change: First clarification, and then secondly, Lady Sean, and if you can update us on...
Brian Ausenbeck: The guy who gave last quarter, which was at the low end of the...
Brian Ausenbeck: of the target mid single to high single digit EPS or I'm sorry, EBIT growth from the investor day for this year when you back out the sort of the normalization that you called out. So given everything that's happened, just wanted to see if you could update us on that as well. Thanks.
Brian Ausenbeck: Yeah, I'll start all of fun. You know, some of that revenue, I think you could say it was perishable, but a lot of it is getting back up to the demand levels that the markets are seeing right now. And so that's an opportunity in the second quarter where we see strong demand and some of these specific markets that we're meeting that demand level and they're not having to use alternatives. And so some of it was perishable, but there's a big opportunity in 2Q versus 1Q.
Brian Ausenbeck: Brian , I would just add on the second part of it. [inaudible]
some of the second part of the question. [inaudible]
You know, I think...
Brian Ausenbeck: Given what we did on the volume guide, you know, in the uncertainty that's out there, I think, you know, it's that bleeds over into sort of what we're thinking when it comes to EBITR operating income as well as margins. [inaudible]
Brian Ausenbeck: I think it's challenging to pin down exactly how things are going to play out over the course of the year. There's opportunities there for sure as Kevin's outline here and Mike's talked about in terms of improving the fluidity of the network. Both of those things are important, the demand environment is important as well and all of that will feed into how well we're able to do on a full-year basis. That being said, [inaudible]
Brian Ausenbeck: When you look at what we're hit with this year, some of the things that relate to the outages we've got and the costs associated with that, but also what we were hit with here in the first quarter. It's all temporary impacts, right? These are things that will cycle. So as we exit 2025 and think forward to the next couple of years, we still feel good about the guidance that we gave in November on the three-year carriers down the line. And so we're going to continue on the three-year service. We're going to continue on the three-year service.
Christian Weatherby: Your next question comes from the line of Christian Wetherbee with Wells Fargo. Please go ahead.
Yeah, thanks, good afternoon, guys.
Christian Weatherby: Sean, maybe a quick follow-up on that and then one for Kevin, I guess, just to make sure I understand I think you guys talked about potentially growing profit in the back half of the year. I guess what you think about that is if that's something that is maybe a little bit harder to do with the sort of uncertain volume environment and maybe thinking about that separate from some of the costs that you're carrying from the service challenges that you're facing. Thank you very much.
Christian Weatherby: and I guess just for Kevin, when you, I think you said in their marks earlier that maybe something on the intermodal side had changed a bit in early April just want to get a sense of, you know what that was or if I heard that correctly.
Christian Weatherby: Yeah, Christian, we'll stay away from guidance quarterly or a full year guidance. Of course, that being said, the Joe outlined the commodity price headwinds that we're facing will ease as we go through the year, assuming that, you know, medical prices remain stable, fuel prices remain relatively close to where they are right now. The cops get a little bit easier in the back half and, you know, we also had the hurricane impacts from last year in the fourth quarter. So that makes your.
River Year Growth, a little easier in the second half of the year, but a lot depends on what happens in the macro and of course the improvement in the operations. [inaudible]
Christian Weatherby: Yeah, on the intermodal side, the point was we saw some acceleration in late March and kind of continuing in through this month and we believe you know a portion of that's probably related some pull forward related to the tariff so some strength in the international market that we're seeing currently.
Ken Hexter: Your next question comes from the line of Ken Hexter with Bank of America. Please go ahead.
Ken Hexter: Hey, good afternoon. Joe, maybe just talking about that same thing that the big picture here on volume, we're talking positive volume growth.
and one cue was mentioned to be trough, but...
Ken Hexter: You know, I guess if we start thinking about that maybe a cliff of volumes, it seems like if China's down 20, 25%. When you mentioned things like, hey, we can pick up some industrial activity I presume that's longer term, or are you suggesting that there are things near term that can kind of offset that?
Speaker Change: And then I just a quick number question for Mike that the on-time arrivals of 55% and origination of 68% is that adjusted for the construction projects or is that just weather impacts? I'm just trying to understand what normal would look like. Thanks.
Speaker Change: Hey, you can't know that's that's regular schedules that's not adjusted for any of the any of the outages that's just a performance that we have right now and that we need to improve.
Speaker Change: Kenneth Oh, thanks for the rest, you're a part of your question. I mean, first of all, we have to remember and recognize that the industrial part of the economy has been in kind of a negative growth environment for better part of almost two years.
Speaker Change: and so there may be some opportunity as that it has starts to pick up. What we're seeing in real time is our order is coming from steel plants is going up. As you might imagine, there's a lot. [inaudible]
Speaker Change: of discussion around increased deal production in the US, given the terrors that are happening.
You know, you could see a scenario where...
Speaker Change: The US, certainly you expect to see a scenario where the US auto production depicts up in the United States, maybe not North America in total.
Speaker Change: in the US, and that will drive both steel and aluminum, but also other parts, but also, of course, finished vehicle deliveries. You can see that scenario playing out. Housing is still, as Kevin mentioned, is remarks still down and, you know, I'm not going to be wanting to try and predict. [inaudible]
Speaker Change: When that recovers, but you could start to see a little bit of when it's certainly in the auto space, and as we'll watch that one very carefully, especially for us in the east, you know, where a lot of the US plants are in our footprint. We'll see you in the next video.
Speaker Change: The medium term, we're still bullish on industrial development projects that we continue to talk about, and as Kevin mentioned, the first quarter was a lot of activity, even in increased level of activity for their team, which that's a good sign. [inaudible]
Speaker Change: And so that's going to continue. We talked about it's already, you know, 20 some coming online in the first quarter and more coming online this year, so. Thank you.
Speaker Change: You know, we're watching to see what happens on the industrial part of the economy that could be helpful. But to reiterate, coal demand, volume-wise, is still there.
Speaker Change: I mean, certainly Met Cole Price have come down, but export volumes, we've had some my allergies which affected us a little bit, but there's still some increased activity now on the domestic utility size, so co volume still there. [inaudible]
Speaker Change: It was a very strong grain harvest, especially in a lot of grain needed to move to the southeast, so the grain volume has continued to be strong. Aggregates [inaudible]
Speaker Change: We expect to continue to be strong. Minerals should, you know, and minerals should be, should be okay with all the
Speaker Change: Construction products and things going on so we go sector by sector by sector.
Speaker Change: Obviously, there's some weakness in some areas. You watch chemicals very closely because they're the largest sector and...
You know, that one was kind of, you know, kind of...
Flat year over year in the first quarter, but you can see [inaudible]
Speaker Change: Your next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.
Jordan Ellinger: Hi, yeah, I just wanted to come back to the industrial development. It seemed pretty optimistic. I'm just sort of curious.
Jordan Ellinger: I know it's still early probably with the tariffs and potential boost to domestic industrial production but are you starting are you actually hearing that maybe there's some thought about accelerating decisions to go ahead and then secondly have you
Jordan Ellinger: I thought about the previous tail when you talked about for the project's long term I think was about 2% I mean are you thinking maybe there could be some potential upside to that thanks?
Jordan Ellinger: Yeah, you know, in terms of the upside, I think the potential is these current projects are brought online quicker and ramp up faster if the demand environment supports it, you know, we look at the metal side and obviously
Jordan Ellinger: Timing could be very, very good when you think about tariffs and needing domestic production there on aluminum and other parts where we are well positioned to really benefit from that.
Jordan Ellinger: That's what we're watching. I don't think at this stage given that it's a very fluid situation that we're seeing a lot of acceleration of decision making. I think the rules need to be set.
Jordan Ellinger: for that to happen, but clearly the administration is looking pointing to trying to incentivize domestic production and that would be a very good thing for our network.
Speaker Change: Your next question comes from the line of Jason Seidl with TD Cowan. Please go ahead.
Thank you, our partner Joe and team. Good afternoon, everyone.
Speaker Change: I wanted to focus a little bit on the Intermodal side and how we should think.
Speaker Change: about the reported yields going forward because if you take a look at the...
Speaker Change: International trade, the booking numbers are down pretty drastically so there could be a shift coming your way soon and you know one of the major general model players was
Speaker Change: You know talking about at least some of the slightly disappointing numbers on the pricing side of the domestic market so something maybe you could work through that with us for the modeling purposes.
Speaker Change: Yeah, we've largely gone through bidding season and I think you've got some pretty good commentary through already one that's already reported and that is a partner of ours.
Speaker Change: So, you know, probably we are where we are for the remainder of the year, probably not a huge opportunity for an inflection in the back half of the year from a pricing perspective.
Speaker Change: If you saw more strength in domestic versus our international business, you know that generally is a positive from a yield from an RPU perspective.
Speaker Change: And so we'll see if that plays out as we get through the year and if domestic business picks up that would be a positive from that aspect, but there's a lot of moving parts right now.
Speaker Change: And we're just working with our customers and our partners to make sure that we're meeting the demand and looking at the free flows and if they're changing, working with Mike and his team to make sure we're on top of that.
Ravi Shankar: Your next question comes from the line of Ravi Shanker with Morgan Stanley . Please go ahead.
Ravi Shankar: Great good afternoon. Just a couple of housekeeping that items here. Can you just remind us of the updated coal contracts if there is a floor to pricing on the benchmark price?
Ravi Shankar: I think there was before or not. And second, any color on the other revenues into a little bit of a step down here? What's a good run rate for the rest of the year?
Ravi Shankar: Yeah, you know, every contract's unique, so there's not a certain floor, but yeah, we're above those four levels today.
Ravi Shankar: But they all have floors embedded in it and hopefully we don't touch those floors where we are.
Ravi Shankar: based on what we've seen here recently with some a little bit of stabilization over the last couple of months.
Ravi Shankar: and Ravi on the other revenue. Yeah, it came in a little bit lower. I'd say, you know, there's a lot of items that go into that line item from subsidiary revenue to storage to revenue reserves. So it can be a little bit more challenging to predict. I'd say, you know, where we are now is a pretty good run rate going forward maybe plus or minus a little bit from from the 115 that we saw in Q1. [inaudible]
Speaker Change: Your next question comes from the line of Daniel Imbro with Stephen's Inc. Please go ahead.
Yeah, hey, good evening. Thanks, guys.
Speaker Change: Um, maybe you'd want to dig it on the call side a little bit here on headcount specifically. I think, you know, volume has been softer to start the year. I think last quarter of the expectation was maybe flatish headcount this year. Sean, if you talk about how volume dependent that that headcount trajectory is through the year, could you flex it lower if volume remained? Yeah.
Sean Pelkey: Yeah, thanks for the question. I'll answer it. Mike, if you have anything to add, feel free, but on the on the head count side, I mean I think where we are in Q1, yeah, we didn't move as much volume but because the network's not as fluid as it should be. [inaudible]
You're using your crews inefficiently, so as...
Sean Pelkey: The service recovers, volume goes up, and the crews are working more efficiently and running the trains on schedule. So I think we're in a good spot when it comes to crews, we're in a good spot really across the support functions as well.
Sean Pelkey: Clearly, if there's a major drop-off in volume, we adjust to that and we flex, but that's not the base case for us. So, you know, I think we'll see had count remain relatively flat through the year. There'll be some timing impacts with training and all of that, but nothing significant.
Sean Pelkey: from quarter to quarter. And then in terms of copper employee, I think you hit on it in terms of second half. You'll see the 4% wage increase hit. That's really the only difference between first half and second half. You know, the expectation would be that going from Q1 to Q2. We should see a little bit of a decline in copperhead, especially when you consider, you know, some of the overtime we were running related to, you know, whether issues and and storms in the first part of the year. So, but but then in second half just really just.
of the Inflation.
Speaker Change: Your next question comes from the line of Rika Harnane with Deutsche Bank. Please go ahead.
Speaker Change: Hey everyone, thanks for the time. I guess just one on the revenue opportunity that was sort of...
West Behind, I guess, can you quantify that maybe further, and how easy I appreciated the comments around the...
Speaker Change: The Net Promoter Score is being still very, very good despite some of the disruptions you face in the first quarter. But how easy is that share shift opportunity to come back to your network?
David Oglenski, Brian Ollenski, Brian Ollenski, Brian Ollenski, Brian Ollenski,
Speaker Change: Yeah, you know, we've obviously done a lot of work internally with the math and with the math with successes, you know, somewhere.
Speaker Change: Million Plus, a day in revenue opportunity, if you look at cycle times that were more normalized in some of these markets, so...
Speaker Change: You know, sometimes you don't know the exact demand, because you're not up against it, but that's, you know, that's rough math that we've done here internally and then...
Speaker Change: on the, you know, on the, on the net promoter score, I think we've earned a trust. We have some great relationships with our customers and, you know, the team has done a great job of staying in front of them, communicating. [inaudible]
Speaker Change: sharing when we're going to have issues, when we have storms on the network, our communication levels have never been better about getting in front of it so our customers can plan. So we have every expectation as we run better that the customers have stayed with us they trust. So.
Speaker Change: You know what we're doing, we're over communicating where we can and we really built that trust with our customers so we expect and I mentioned before you know the contracts we've continued to maintain our share in the market we believe and you'll see that as we improve our network operations.
Speaker Change: Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Please go ahead.
Walter Spracklin: Thanks so much, Robert, Eric. Kevin, you called out a favorable partner, Alive, and your international and our modal side as an opportunity. Can you expand a bit on that, and if that's going to create any additional opportunities as any of those?
Speaker Change: partner alignments, perhaps get a little bit more or get deeper or if you can expand them to other partners as well.
Speaker Change: I wasn't necessarily being specific to any one specific partner relationship. I think we are well positioned when you look at our portfolio on the international side longer term with
Speaker Change: Some partners that are really focused on growth, and we think our winners in the market, so that wasn't a specific reference to any new contractor or anything like that on that side, but we are well positioned there, and we're doing a lot of the unique things I think from an inland port perspective and other things are really. [inaudible]
Speaker Change: Work with our customers to find growth opportunities for them. You know, we're thinking a lot about the shift away from China, and you know, certainly that we believe that helps the East Coast and working with the ports there and. [inaudible]
Speaker Change: really making sure we're positioned to, you know, where there's opportunity and where Freightflow's want to come into the east and move further into our network that we're well ahead of it and have the capabilities, quite frankly, to handle that business.
Speaker Change: Your next question comes from the line of David Vernon with Bernstein, please go ahead.
Yeah, good afternoon, guys, and thanks for taking the question. Thank you very much.
Speaker Change: So Mike, as you think about the resiliency part of restoring service levels, is this a resource issue? Is it just a scheduling issue and a lack of weather issue? I'm just wondering if you're going to be able to kind of get the service metrics back on track here before some of the work is done in like Howard Street or whether we're going to be kind of living with this. [inaudible]
These challenges for the rest of the year.
Speaker Change: Thanks for the question, David. It is going to be a...
Speaker Change: gradual process to get the network back. And so it's not going to be overnight. Our focus is really over this next quarter to get us into position to take advantage of some of the tapering of some of the commodities.
Speaker Change: Again, the compounding weather that's affected us is really, is really made us.
Bascom Majors: Your next question comes from the line of Bascome Majors with Susquehanna. Please go ahead.
You know as
Speaker Change: As you work through a lot of disruptions, you know many of them out of your control, some of them chosen like Howard Street and dig out and also face
Speaker Change: You know, a demand picture that's more uncertain today than it was a month ago. I mean, cruelly 2025 is gonna be a challenging year in a lot of ways, but Joe as we look to next year is
Speaker Change: 2026, the year that investors should judge the financial output of your strategy.
Speaker Change: Or do you think it makes more sense to look to 2027 and year three of the three-year plan to really get a clean comp at enough time to really have the outcomes that you've driven? Thank you.
Jordan, thank you. Yeah, Basco, thanks for the question.
Speaker Change: I'll answer the question, but first I want to take a step back because we've been on this journey for over two and a half years. And if you look at now that we have some of our segment reporting in our 10 queue and then we had the 10k, you can kind of see more clearly the trucking in the rail side of the business. Thank you very much.
Speaker Change: If you look at it in 2023, our margins were 40% best in the in the rail margins were 40% best in the industry last year were 39% second best in the industry and so our strategy if you want to call it that has been working and leading and providing leading levels of customer service and margin.
Clearly, when you start to look at the data. You're up.
Speaker Change: Late fall of last year or fall of last year, our cars online started to go up a little bit, and our draw started going up a little bit, and then the hurricanes hit. And then you've seen the data since then you can do a direct correlation between the dwell, the cars online, the trips and compliance and what's happened and you know we're all committed to getting back to those levels. We're all done.
Speaker Change: The three-year kind of thesis we laid out in the investor day in November .
It's still...
Speaker Change: Some of them we believe in and we actually feel we can and we'll deliver. Obviously we had a, you know, first quarter then we were expecting to be sure, but the fundamental of the first quarter that we are projecting still held true, you know, lower net coal prices, lower fuel surcharge. [inaudible]
Speaker Change: You know, the Howard Street Tunnel and the Blue Ridge rebuilds, you know, having some impact on our network.
Speaker Change: and so as we cycle through all that and we continue to execute the levels we know we're capable of doing, getting the, getting the dwell, the velocity back to where it was prior to the hurricanes, getting the cars on line down. I'm, I'm, I'm, I'm, I'm,
Speaker Change: Getting realized in the potential of the fluidity of this network and how we focus on customer service and relationships we have with customers we haven't lost a major contract and really proud of that because it's really important as we build the future. Thank you.
Speaker Change: All those fundamentals should continue to deliver exactly what we talked about in November and yesterday. So it's a 2627 story to be sure our expectation is of course.
Speaker Change: Sean laid out in November that we see and Kevin, we saw some industrial production improvement over that time period and if you take out all the volatility of met coal prices and fuel we should see those kind of improvement levels that we talked about.
Speaker Change: Now we have a more near-term probate scenario which is we got to...
Demonstrate to you and...
Speaker Change: and to all of our shareholders, and to all of our stakeholders that we can get ourselves out of this situation we're in.
Speaker Change: and I feel confident we'll be able to do that and we have the team to do that.
Speaker Change: We know what it takes, we know how to do it. Actually, we did it in the fall of 22, pretty, pretty quickly without the power feed tunnel and the bluish issues, but we had two of people.
Speaker Change: So tune in on how to do this and Mike and his team are working around the clock seven days a week on on looking at everything that we can do to make that happen. So in your term, we need to show you we can get a network back to the kind of. [inaudible]
Speaker Change: Up to industry leading levels in service and margins, and then realize that growth and volume that we believe will come from industrial development, and from industrial production and hopefully economic growth as well. So I'd say 26, 27, but in the near term, we got to get our network back and give you confidence. Thank you very much.
that we can deliver those minds. Thanks.
Speaker Change: Your next question comes from the line of Jeff Kauffman with Vertical Research Partners. Please go ahead .
Jeff Kaufman: Thank you very much and thank you for squeezing me in.
Jeff Kaufman: A question more for Kevin, and it might be a tough one to answer, but if you were to try to put some circles around buckets of preship or some terrific, accelerated, related business, you may have seen, what's your best...
I shot at that.
Jeff Kaufman: Yeah, that's a tough one. I think, you know, obviously, it's probably concentrated on the international and our modal side.
on the Container's side.
Jeff Kaufman: You know, it's consumer products, things like that, if you can, but you know, they lead times on these things where she got to get, you know, you got to put the order into the factory, it's got to get to the...
Jeff Kaufman: We see the port where it's being manufactured, and then it takes weeks on a on a on a ship and so.
Jeff Kaufman: The ability to really get ahead of this is probably pretty limited, but I did want to recognize this probably a few points.
Couple points that we're seeing probably on our international side here currently related to some of that dynamic. I do think you know from an export perspective as things. [inaudible]
Jeff Kaufman: Really shift, we're thinking more and more about the advantages of these ghosts versus the West. Obviously the West has been very leveraged to China.
Jeff Kaufman: and as Frey Flows change, if Ag products don't want to go to China, where are they going to go? Are they going to go to Europe and other places as those are supplemented from other areas? So there's a lot of moving parts. I think some of these things could really benefit where we're positioned as a network, but. [inaudible]
Jeff Kaufman: All these things are very, very fluid right now. We're just trying to stay ahead of it and make sure we're actively thinking about it with our customers. And so we can deliver the solutions when they decide where these workflows want to want to go that we're there for them.
Speaker Change: Your final question today comes from the line of Scott Group with Wolf Research. Please go ahead.
Speaker Change: Good evening, this is Ivan Neon for Scott, thanks for the time. Last question related to Terracegan, what roughly what percent of your volumes or revenues are in fact tied to China? Imagine it's mostly international or modal, but is there any material China exposure and any other commodity segments? Thank you.
Speaker Change: Yeah, we don't, you know, obviously given our East Coast position, we're really not as leveraged to China as others, so it's pretty, you know, it's probably concentrated on that, that in our mobile side for us, that comes over the West Coast and in our network.
Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect next.