Q2 2025 CSX Corp Earnings Call
Hello. And thank you for sending by my name is Tiffany and I will be your conference operator. Today at this time I would like to welcome everyone to the Q2 2025 CSX Corporation earnings call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question during that time, simply press star, then the number 1 on your telephone keypad. I will now like to turn the call over to head of investor relations and strategy. Matthew Korn Mr. K. Please go ahead.
Matthew Korn: Thank you Tiffany, good afternoon everyone. We're very pleased to welcome you to our second quarter conference call joining me from the leadership. Team are Joe Hendricks, president and chief executive officer, Mike Corey EVP and Chief Operating Officer. Kevin Boone EVP and chief commercial officer and shun pelky EVP, and Chief Financial Officer. In the presentation. Accompanying this call which is available on our website. You'll find slides with our forward-looking disclosures and our non-gaap disclosures for your review with that. It is my pleasure to introduce Mr. Joe henrix.
Speaker Change: All right. Thank you. Matthew and whoever 1 and thank you for joining us for our second Corner call.
When we last spoke, we acknowledge the challenges we were facing on our Network and we made a commitment to act. Decisively to turn it around, what you'll see in the numbers, and the momentum behind them is a result of deliberate and effective actions taken to return our Network back to the efficient railroad operation needed to provide Superior Service for our customers. This quarter shows what is possible when you pair clean prior, clear, priorities with decisive action, and results are a testament to the 1 CSX culture. We've been instilling a cross the business,
Speaker Change: now trying to slide 1 as we think about what we accomplished in the quarter and what we see out in front of us 4 things come to mind,
Speaker Change: First. As I've already highlighted, we are proud of how our Network performance has bounced back from the challenges of the first quarter. As Mike will cover later on our velocity dwell trip plan compliance and other metrics have steadily trended upward in some areas, we are approaching or surpassing some of the best levels. We've seen in recent history, this recovery reflects the strength of our operations, and the team's ability to overcome challenges, we have to keep pushing but this has been a great result. Second the entire CSX team's commitment to working efficiently helps us deliver improved cost performance that supported meaningful. Sequential margin expansion. We will continue this Focus throughout the year.
Third, we are very pleased with the progress being made at our Howard Street tunnel and Blue Ridge rebuild projects. We expect completion in the fourth quarter, which will remove 2 key constraints from our Network finishing. These 2 projects will open back up 2 of our 4, North South routes. And as you know, we're excited about removing the last impediment to double stack in a modal on the n95 corridor.
Speaker Change: Finally, as Kevin will discuss, we know that our customers are facing mixed markets with activity. Holding strong in certain areas and slowing in others. That said at CSX, we will continue to drive forward across all of our initiatives. Will not sit back and wait for the markets to turn.
Speaker Change: Now let's turn to slide 2 where we feature some of the most important results from our second quarter. Total volume was flat compared to last year and we saw 4% sequential increase in the quarter given by merchandise and Improvement in total coal shipments. Total revenue with 3.6 billion dollars for the quarter down 3% from the same period last year largely due to lower coal and fuel prices.
Quarter over quarter. Total revenue improved 4% in line with the increase in volume.
Speaker Change: I reported operating margin which includes our trucking business declined by 320 basis points compared to the second quarter of 2024, but increased by 550 basis points sequentially supported by the solid cost, performance that accompanied our operational Improvement.
Speaker Change: Earnings per share decreased by 10% year-over-year. But grew by 29% quarter over quarter.
Now after a difficult start to the year, I am proud of all that we have accomplished but we also cannot let our foot off the gas. We are committed to maintaining this momentum now that our network has stabilized. We are positioned to pursue more opportunities to grow the business to do that. We will run safer faster and more consistently, we will provide attractive profitable solutions for our customers, even when economic conditions are uncertain,
Mike Corey: Profitable growth with that. Let me turn the call over to Mike to discuss our operational performance.
Mike Corey: Thank you, Joe and thanks to all of you for participating today. So after a difficult first quarter, the team is effectively responded to a recovery plan that we presented on our last call.
While we still have many opportunities for improvement. I'm really proud of the work. The team has accomplished so far and truly appreciate their efforts. So let's go over to the next slide throughout challenges of late, winter, and into the spring. We remained committed to safely running, our operations leading with our safe CSX values. Our focus on eliminating significant injuries as resulted in a reduction of both life-changing injuries and missed. Work days. Also, improved alignment and engagement in safety. Leadership, is our current throughout the operations organization.
Our managers and crafts employees are learning how to have meaningful conversations about exposure, reduction, leading to a culture that is eager to identify and mitigate hazards before they become exposures. However, improvement in our train accidents, have not followed suit. Most of our incidents occur in the slow speed environment of our yards and result in little damage to infrastructure or equipment. However, they still are disruptive to the operations of our Network.
Mike Corey: We continue to further Implement yard inspection drones. That will assist in identifying conditions that lead to track caused derailments in our yards and we continue to work on improvements to our Wayside car Health, monitoring systems to prevent impact from equipment failures. An important area we have seen great Improvement on is our human factor derailments which continued to decrease.
Mike Corey: Over the next slide.
Train velocity continues to improve, while being affected by the rerouting of traffic off our 2 cores, our cars online and dwell continued to improve and our back at levels experienced prior to our disruptions reducing cars. Online was a key. Focus during our recovery period. But we did. So in a way that minimized customer supply chain impacts by avoiding the use of disruptive embargoes. We conference, all of this while experiencing weekly volumes in line with our prior years, our recovery is a real true Testament to the hard work and dedication of every Railroader at CSX. As we move into the third quarter, our efforts are concentrated on operating efficiently across our Network.
Mike Corey: Over the next slide, our efforts over the last quarter have improved our service measures. But while we're not yet at the TPC performance, we strive for our view is these measures will continue to improve as we improve our dwell and trainable velocity, but the completion of our Network projects. We expect these numbers to improve with respect to our local Service delivery. We continue to work very closely with our customers to make sure our service to them is everything they need for success.
Kevin Boone: None of the last slide at. At this time both are major projects are tracking on schedule, the Howard Street tunnel portion of our, I 95 project will be done in time for the fourth quarter and the Blue Ridge Subdivision used primarily for access to and from the Carolinas will also be ready for the fourth quarter with these projects unlock while these projects unlock significant capacity for the entire network. We're also upgrading our capacity and throughput at our yard in Indianapolis with the extension of the hump pullback, while this project is small in nature relative to the other 2 will give us the ability to hunt more cars with less handlings at a very critical yard in our Network. The entire team is accomplished much more over the last or much over the last 3 months, but we're not done with converting opportunities that we have to make this railroad run better. And with that, I'll turn it over to Kevin.
Kevin Boone: Thank you. Mike first, I want to thank the entire operations team for their hard work. Our service levels are approaching record levels and our ability to communicate across our teams and react to any disruptions has never been better.
Kevin Boone: Many of the industrial markets. We serve continue to face challenges with uncertainty around tariffs trade, interest rates, and the overall direction of the economy. Our Focus remains on the customer and driving, strategic discussions, that deliver value to our customers and new growth opportunities to the CSX Network.
Now, let's review our end markets.
Kevin Boone: Turning the slide 9 merchandise in the second quarter saw both revenue and volume decline up 2%.
Rpu, was flat as lower fuel, surcharge and negative mix were all set by core pricing gains.
Kevin Boone: Our Metals market and Equipment volume was up. 3% while Revenue was down. 3%, we captured volume from positive Trends in the steel Market while lower equipment and higher. Scrap volumes did impact rpu.
Kevin Boone: Continued infrastructure demand in the Southeast and strengthened new cement production led to 5% Revenue growth for the mineral segment.
Kevin Boone: Aen food volume was up 2% compared to last year. As operational execution enabled us to fully capitalize on strong grain demand into the Southeast region of our Network.
Kevin Boone: Partially all set by weaker consumer demand and food products including alcoholic beverages.
For the quarter, volume gains from a contract, win with a new North American Auto Plant for more than offset by lower overall industry, demand and production in production challenges that some CSX serve plants.
Kevin Boone: Forest Products has been impacted by challenges in the housing market in an overall sluggish demand environment. We continue to see industry, plant consolidation along with several extended plan. Outages concentrated in the second quarter,
Looking at the second half we anticipate less downtime and expect to continue to drive incremental opportunities through our strategic Partnerships with industry leaders.
Kevin Boone: Chemical volumes decreased due to lower shipments of export Plastics, impacted by an extended unplanned outage at a customer location as well as a decline in chloride Alkali shipments.
Kevin Boone: Fertilizer shipments, declined 6%. As we experience softer, phosphate volumes due to customer production issues. The revenues remain flat due to positive, core pricing and mix.
Kevin Boone: As we move into the third quarter, we will continue to monitor tariff policy and expect to see mixed demand within and markets including Auto and housing which remain well below long-term demand levels.
Kevin Boone: 1 area of the business that we continue to see reasons for optimism, despite the uncertainty in the economy is our Industrial Development pipeline.
Kevin Boone: We are still seeing great progress in that area with another 25 projects that went into service. In the second quarter, bringing the total for the year to 49.
As we look to the back half of the year, we have another 30 that are nearing completion and additional projects on top of that, which may go in service depending on permitting and construction timelines.
Kevin Boone: These facilities, consume raw materials or produce finished products for a wide range of markets, including natural gypsum. Aggregates rolled aluminum steel, and food, and beverage. And with support from recently passed tax legislation, we expect to continue to see more projects added to the roster for years to come.
Kevin Boone: Now, let's turn to slide 10 to review the coal business, coal Revenue declined, 15% for the quarter on 1% higher volume.
As we continue to face headwinds from lower Global Benchmark, pricing.
Kevin Boone: All in col rpu. Declined 16% year-over-year and fell 2% sequentially slightly below. Previous expectations.
Kevin Boone: The Australian Benchmark average 184 dollars per ton in the quarter versus 242 in the same period last year.
Kevin Boone: Our export business was also impacted by production, constraints.
Kevin Boone: We knew 2025 would be challenging for this Market but we remain hopeful. We will benefit from mine restarts towards the end of the year.
Kevin Boone: Our domestic markets were mixed as a utility coal. Segment was well supported by high burn rates higher natural gas prices in Faster cycle times at the same time our steel and Industrial markets were impacted by unfavorable Source shifts in softer steel Market fundamentals.
Moving forward. We expect the domestic segment to be supported by Growing Power demand in the deferral of coal plant closures.
Joining the slide 11 to review the inner motorul. Business second quarter Revenue. Decline. 3% on a 2% increase in volume as lower diesel prices and unfavorable mix dragged on rpu.
Our international business performed. Well,
Kevin Boone: With solid year-over-year unit growth supported by increased activity ahead of tariffs.
Kevin Boone: Especially early in the quarter.
Kevin Boone: And recent weeks we've seen a pickup in container arrivals as we expected with exporters reacting to change and tariff policy.
domestic volumes were effectively flat year-over-year as the ongoing soft Trucking Market remains a drag and interchain business from West Coast arrivals softened
Kevin Boone: Looking ahead. We're excited with the momentum. We're building and expect to drive several New Opportunities including truck conversions through the new Myrtlewood interchange.
Kevin Boone: Overall, just as Joe described, we're facing mixed markets into the second half of the year, but are taking a proactive approach with our CSX specific initiatives.
Kevin Boone: our service levels are allowing the team to drive positive engagement with our customers, as we continue to convert wallet, share opportunities,
It's important to highlight that our total net promoter score with customers over this last quarter. Was the highest it's ever been.
Kevin Boone: It is clear that they see the and appreciate our return to industry-leading service.
Kevin Boone: And that we accomplish this through teamwork and great communication across the 1 CS team.
We are also excited about the reopening of the Howard Street tunnel in Blue Ridge Subdivision, later this year, that will improve on the positive service levels customers are experiencing today.
Kevin Boone: Sex network to New Markets and drive incremental growth opportunities.
Kevin Boone: Now, with that, let me turn it over to Sean to discuss financials.
Sean: Thank you, Kevin and good afternoon.
Sean: Looking at second quarter results, Revenue fell by 3% on flat volume as weaker export coal, Benchmark pricing lower fuel recovery and unfavorable mix. All contributed to lower yields.
Sean: Expenses increased by 2% and I'll discuss the details on the next slide.
Sean: Interesting, other expense was 9 million higher compared to the prior year while income tax expense fell by 40 million on Lower pre-tax earnings.
Sean: As a result earnings per share. Fell by 5 cents.
Sean: Included in these numbers is quality carriers, which as you know, has a continued margin drag on our results and has been impacted by a challenge Trucking Market.
We are working closely with the team to drive improved results.
Sean: I also want to touch on sequential performance against the first quarter. As Joe mentioned, our railroaders worked tirelessly to help our Network recover from an extremely challenging start to the year and these efforts carried through to our financial performance.
Sean: Operating income increased 242 million from q1 and margins improved by 550 basis points, both well ahead of normal sequential seasonality.
Sean: This reflects strong momentum. Particularly when you consider that April was challenged by flooding across the Midwest, with the gradual recovery and operating performance through the month, that resulted in a strong May and June, let's now turn to the next slide and take a closer look at expenses.
Sean: Total second quarter expense increased by 2%, or 38 million against the prior year.
This variance includes around 10 million per month of network, disruption costs.
Sean: Plus the impacts of inflation and higher depreciation.
Sean: Partly offset by savings from lower fuel prices.
Sean: Looking on a sequential basis, our service recovery during the quarter was complemented by improved. Efficiency as expenses, fell 4% for over 90 million dollars from the first quarter. Despite a 6% increase in gross ton miles.
Mike and the team delivered for our customers while. Also driving improved Rolling Stock utilization and operating with a rail headcount that was lower versus the first quarter.
Sean: Turning to the individual expense line. Items labor and Fringe was up. 25 million year-over-year, mostly driven by inflation.
Sean: An additional increase is attributed to our trucking business where headcount was higher primarily due to the conversion of previously, independent affiliates with offsetting Savings in a PSO line.
Sean: Rail headcount was lower on, both a year-over-year and sequential basis.
Sean: Despite a higher workload with fewer employees monthly overtime. Expense fell by over 15% in May and June relative to the first 4 months of the year.
Sean: Also, as a reminder cost per employee will step higher in Q3 as the majority of our Union employees. Now, covered by new labor agreements received, a 4% wage increase effective on, July 1st and labor expense will include a crude wage increase in the remaining employees.
Sean: This will result in roughly a 20 million sequential increase to labor, infringe expense in Q3
Joe Hendricks: Third quarter. Labor infringe will also include a charge of 15 to 20 million related to the management restructuring Joe mentioned earlier.
Which will help position our Workforce for 2026 and Beyond.
Joe Hendricks: annualized expense savings should be approximately 30 million, resulting in minimal net impact this year when you account for the Q3 charge
Joe Hendricks: Purchase services and other expense increase, 19 million year-over-year which includes about half the total Network, disruption costs as well as inflation and volume related expenses.
Joe Hendricks: Partly offset by multiple net. Favorable variances.
The line also saw significant improvement from the first quarter, benefiting from lower locomotive costs and other items on top of normal seasonal trends.
Joe Hendricks: Depreciation was up 17 million due to a larger asset base.
Joe Hendricks: Fuel cost was down 32 million driven by a lower gallon price partly offset by additional gallons consumed due to network reroutes.
Finally equipment and rents increase by 9 million a year reflecting costs from seasonally higher volume and other items that were partially offset from the benefit of sequential improvements in payable Car Cycle times of 5% and 12% in our merchandise and Automotive fleets.
Joe Hendricks: We're encouraged that both operational improvement from T1 as well as structural efficiency opportunities are resulting in cost momentum.
Joe Hendricks: As we continue to invest in emerging Technologies, we expect to deliver further savings that will support strong incremental, margins in 2026 and Beyond.
Joe Hendricks: On slide, 15.
Joe Hendricks: Investing in the safety, reliability, and long-term growth of our railroad continues to be our highest priority use of capital.
Joe Hendricks: Year-two date. Property editions are higher including around 295 million of spending towards the rebuild project on our Blu-ray. Subdivision.
Excluding Blueridge Capital spending is still expected to be roughly flat to the prior year at 2.5 billion.
Joe Hendricks: Free cash flow is lower year to date as a result of the increase, total capex and a decline in net earnings as well as a smaller impact from the relative size of previously. Postponed, tax payments in each year.
Joe Hendricks: As we look forward second half cash flow will be meaningfully stronger than first half and is partially supported by now permanent bonus depreciation.
Joe Hendricks: This should positively impact our cash flow by approximately 250 million in the second half and we expect continued benefits in future years.
Joe Hendricks: After fully funding our Capital Investments, we are committed to returning cash to shareholders including close to 1.7 billion year to date.
This reinforces our ongoing balanced and opportunistic approach to shareholder returns.
Joe Hendricks: With that, let me turn it back to Joe for his closing remarks.
Joe Hendricks: All right. Thank you. Sean, we'll conclude our remarks with a review of our guidance, which is effectively unchanged from the previous quarter.
Joe Hendricks: And we continue to expect overall volume growth for the full year. As we have discussed markets are mixed overall with some very stable While others are showing some signs of softening.
Joe Hendricks: With our fluidity improved and the incremental contributions expected from new projects and new service offerings we we feel very good about our momentum.
Joe Hendricks: On consistent, with our past statements, there will be a smaller year-over-year impact from lower coal and fuel prices. Over the second half of the year as expert, coal, benchmarks and Diesel moderate over the back half of 2024
Joe Hendricks: Our intense focus on efficiency, including labor productivity will continue through the rest of the year.
Joe Hendricks: Summing up, we are encouraged by the progress made this quarter, our team did a great job at working together and responding effectively to the tests we faced earlier in the year.
Joe Hendricks: They delivered a strong operational recovery and truly, demonstrated, the benefits of the 1 CSS culture that we have been building.
Joe Hendricks: And finally, we know there's been a lot of rumor and speculation about consolidation. The railroad industry in recent weeks.
Joe Hendricks: While we cannot comment, we want to be clear that the CSX we are absolutely focused on delivering shareholder value and are always open to anything that can help us achieve this objective.
Joe Hendricks: We have a strong franchise that we believe is the best in the East and we are making it stronger every day.
Our customer service is industry-leading, and we have exceptionally strong relationships with those customers.
We are working closely with numerous Partners to help accelerate the buildout of industrial capacity on our Network.
And our commercial team is actively developing new solutions that will help us expand our reach and gain share.
We are driving forward with major Network projects that will prove to be valuable Investments for how our street internal projects will allow us to compete in key markets.
Joe Hendricks: The Blue Ridge rebuild will ensure Network balance and our operations team continues to unlock added efficiency yard by yard and region by region.
Joe Hendricks: While we are confident in CSX path forward, we welcome all opportunities that would allow us to deliver value for our shareholders Drive profitable growth and serve our customers better. We actively evaluate these opportunities for their upside potential. This has been and Remains the focus of our management and our board with that Matthew. We're ready to take questions.
And answer session of those opportunities to participate in the time that we all, we have to intercept the Run, start the process.
Speaker Change: At this time, if you would like to ask a question, press star, then the number 1 on your telephone keypad to withdraw your question, simply press star 1 again.
Speaker Change: We kindly ask that you limit yourselves to 1 question. For today's call, we will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Brian.
Austin Beck: Austin Beck with JP Morgan. Please go ahead.
Hey, good evening. Thanks for taking the question.
Speaker Change: There's a lot of momentum currently and you've got some initiatives across the network, but where do you think there's some opportunity to add more value that shippers? Don't really have right now, you might be able to do uh, through something more strategic.
Austin Beck: Thank you.
Speaker Change: There's a lot there, Brian. Thanks for the questions. Um, I mean, first off, you're right. I spent over 30 years in the Auto industry and was a, you know, a long time customer of the Rails. Um, and I'll go back to, where, where I started when I came here which is that our, our thesis is all along has been, um, that you know, improved customer service.
Speaker Change: And making it easier to do business with railroads are are Paramount and important to support profitable growth for our industry.
Speaker Change: And we're not going to speculate or talk about, you know, any kind of merger or anything of that of, that kind. Um, but clearly customers are looking for railroads to provide better service more reliable dependable repeatable, and also looking for us to be easier to do business with as far as, you know, getting rates and not to do business with all of us.
Speaker Change: opportunities there throughout to work together with all the real ecosystem to improve that
Speaker Change: You know, from my from this seat here today and almost 3 years on the job, I continue to to have that same feeling that there's an opportunity for us to continue to work together in this industry to serve customers better and to properly grow the business and to compete with trucks on a broader scale. So again, I'm not going to talk about how we do that or how are those. And as we said in our in our remarks,
Speaker Change: We're open to all those possibilities, and all those conversations. How we could? We do that, how we could best create value for our shareholders properly, grow the business and serve those customers better, and look forward to those opportunities. Thanks.
Speaker Change: Your next question comes from the line of arri. Rosa with the city group, please go ahead.
Arri Rosa: Hi. Good afternoon. Uh congrats on the uh strong quarter here, uh folks maybe for Mike or Joe. Uh it it would be helpful. I think, if you could just talk about what you're doing differently, uh that drove the Improvement in service uh to what extent was that kind of a function of uh better weather versus uh, proactive steps that you took. And how do you think about the sustainability of that service performance? Uh, and how much can we seek kind of a further step up, uh, when the construction projects are finished. Thanks
Mike Corey: Hi are, it's Mike. Thanks for the question.
Arri Rosa: Um, look, it, it started with weather improving, but we were at it far before that took place. And that was, you know, mid April, by the time, the weather came around, but really we did 4 things. First thing we focused on was the cars that we had online. And so whether they were at involved with the customer, so their plants, their serving yard our pipelines or whether they were actually in our yards. We took action, we worked with our customers to make sure that we were providing extra service where possible to work off. Uh, the loads, the, the pipeline work with them, to reduce their pipeline moderated for us, but help us get fluidity on our main line. And then,
And in our yards, we did everything from senior coverage around the clock to a senior coverage in our war room. Making sure we're going through every standard. We're following up on every area of opportunity to to minimize the misses because we knew we were, we were over capacity.
Along with that, we added some locomotives selectively. We made sure our bulk network was looked after. So the coal and the grain without going into our, our merchandise Network that allowed our yards to stay fluid because of regular power flow. And then, we did other things like Craig capacity, online and road to shifting, our engineering work gangs out. So again, we had that ability to run you remember, we're compressing anywhere from 17 to 20, 222 trains that were traveling on other tracks onto 2, you know, onto other tracks to we lost that capacity. Um, so really, that's what we did. But, you know, Ari, that's kind of what we do. We we got set back pretty bad from the weather and then compounded with the shutdowns especially the Howard Street but this this Remains the way we operate today. It's how we maybe, you know, we operated before but really with more focus on the connectivity between the fields, the network, the seniors, the people in the field. Giving them information that we we have that war room set up still. Um, so I I see from
Going forward with the, uh, with the 2 out coming back to us, just improve metrics, all around the ability, not only to grow, but to make sure that our customers benefit from the service, we're providing, and Kevin and the team can get out there and get more business. We're creating capacity and I see more of that coming once we get the, uh, closures over with
Mike Corey: Your next question comes from Brandon Oakland.
Speaker Change: Please go ahead.
Brandon Oakland: Levels. Um, is that, you know, I think you called out some outage unexpected, outages and 2 Q. So is, is this kind of some of those um, items coming back online? Or are you starting to see, um, any momentum kind of across the business lines and just relatedly? Um, if you do see volumes improved sequentially as I believe the um, the guidance implies for 3 Q. Uh do you think you'll be able to improve um operating margin? Uh as well. Thank you.
Speaker Change: Let me handle that first part of that and I'll hand it over to Sean on the, on the margin side of it. Look, I think um, you know, it was an unusual quarter for us broadly across. Um, the second quarter we had um a number of outages, you know, quite frankly across several different, uh, business units, you know, I can think of, you know, in the metal side, we we had, we experienced some of that impact, uh, on the fertilizer side, you know, we're looking at a market today, that has pretty good fundamentals, from a demand perspective, and we're really hopeful that we'll see Improvement, uh, from some of our core customers there that, um, have experienced some production issues in those areas and we expect that to kind of start to impact Us in the third quarter into the fourth, uh, Forest Products. Um, that's another example, where we saw an unusually, high amount of just unplanned outages, uh, that we see improving as we move into the third and fourth quarter, particularly on the paper side Paper Mill Side, and that in that area. And then on the chemical side, um, similarly, uh, seems like a lot of these, um, instances. We, we saw a large customer on that end.
Speaker Change: That had some production issues that we see hopefully improving as we get in the third and fourth quarter, and we already see the the start of that happening. So, yes, uh, I think the short answer is yes. Some of its driven by some of those factors I just mentioned. And then the other factor is we did see some of these markets start to um uh experience some demand, headwinds in the back half of last year, and so we'll start to lap those. So, maybe a little bit easier comparisons for some of these markets, uh, there and then some expectation along with some of the things that the teams doing the drives and conversions. And we, you know, despite a very very uh,
Speaker Change: A weak truck Market. We're still seeing conversions. And I, it's credit to the team to really go out there and find those and so those will, uh, impact us as well.
Yeah, just to add on in terms of the margins, this is Sean. Um, you know, obviously the volume helps and anytime we're able to grow volumes and, you know, keep cost discipline, keep the resources, the same or lower that's going to help from an incremental margin perspective. Um, that said, you know, normal seasonality Q2 to Q3 Q2 is typically kind of the peak for, for both operating income and operating margin. Um, you know, part of the reason for that is you've got the wage increases that go into effect in Q3 that will happen again this year at Quantified that at about 20 million. We've also got that restructuring charge, that'll hit in Q3 15 to 20 million in labor. And then, you know, on the cost side 1. Other thing I'd point to is, you know, we talked about net, favorable items in in
Speaker Change: Services and other in the quarter. Um, that's probably going to be about a twenty million dollar headwind going into Q3 versus Q2 as well. So those will be a couple of things that work against us and then you know export coal pricing will be a factor as well. Um we'll see where that goes from here.
Speaker Change: Your next question comes from the line of Stephanie Moore with Jefferies LLC. Please go ahead.
Absolutely, thank you. Um, I wanted to to circle on the commentary about reorganizing management resources, if you could just talk a little bit about, um, you know, what, drove, maybe those decisions is this, uh, in an effort to go after maybe some incremental business, um, you know, being able to respond to customers more quickly. Any additional color there would be helpful. Thank you.
Speaker Change: Sure, Stephanie thanks. This is Joe. Um you know, we recognized in the first quarter that you know whether due to the fuel prices or export coal prices or even some of our operational issues that our Revenue wasn't coming in at the level that we were expecting. So, months ago, we we embarked on a process that we've been working on for a while, which is around, how can we be, how should we be structured to efficiently operate the business? And so we challenged each of the different business segments within CSX to, to find about 5% of efficiency, um, by reorganizing and um, prioritizing where we were going. But also then having to stop doing some things and reorganizing. So but
In early July. Again, it's all part of the discipline of the cost structure of our business. And you saw that in the operations in the quarter, you saw that in the decisions we made on management structure and you'll continue to see us be disciplined in costs. We watch our Revenue versus our costs very carefully and we'll take actions as appropriate. Thanks.
Speaker Change: Your next question comes from Scott.
Speaker Change: Research.
Scott: Hey thanks, um afternoon. So Sean just want to stop the the, the sequential costs comments were helpful. Um, but maybe I would just like April was certainly look like a challenging month. Maybe even made it to some extent, meaning like the operating metrics seem to get so much better throughout the quarter. I I presume that means that costs got better throughout the quarter. So is there any way to like, think about? Like the
Scott: Exit cost run rate, relative to the average cost rate is that an offset to some of the cost items that that you flagged or, or are we thinking about this wrong? And then, maybe just separately. Kevin, you sound a little different about coal, just given everything going on with power and maybe just your expanded thoughts on do we need to think about coal a little bit differently going forward.
Speaker Change: Hey, Scott. I I'll take that first part. Um, I think you're you're you're in the right direction there. In terms of yes, April was, um, more challenging from both the weather perspective and operational fluidity. Um, yeah, we carried a, a little bit of extra cost but it was it was pretty small in the grand scheme of things. You didn't hear us call it out here in the results that 30 million dollars of kind of reroute costs that we had includes a little bit of overhang in April. Um so yeah May and June we're better. Um we got a lot of focus in terms of cost discipline which you know the the actions that we took in terms of the management restructuring. Some of the things we're doing on the operating side, I mentioned overtime reductions. There there's a lot of things throughout the business that we're focused on that have already yielded some results here in Q2. So it wouldn't necessarily model, you know significant run rate improvements from Q2 into Q3 I think we're in a good spot as we stand right now. We feel good about how this sets us up going into next year as well. Uh when when you know we
Speaker Change: Really see a good opportunity, not only to kind of grow the, the top line, but also to see that flow through into strong earnings growth.
And I'll add on the, um, cold side. I think it's got your referring to the on the domestic side. I will say, um, I think it's absolutely true that we're seeing more positive Trends, uh, above, you know, what we had planned for, for this year. And you know, when we broadly look across our utilities, uh, particularly the ones in the South, you you're sitting at around 40% utilization today. And we're seeing
Activity, that could suggest that that, uh, utilization rate goes up and, uh, we're encouraged by that. We're seeing signs that, uh, a number of specific, uh, uh, utilities that we serve today. In fact, I know Mike and his team were working through the operation plan to, to make sure we're we're putting up enough coal against those uh, plants today. So, uh, we're also um, we're hearing about you know, extensions of life. Um, on some of these, uh, plants that had been targeted for closure, uh, in the years ahead. So, I think all of that is encouraging, um, and obviously offset. Some of the pressure that we have seen on the export side, um, driven by, obviously the price that we've seen this year but also the 2 temporary, mine. Outages that we've seen that would hopefully will see later in this uh, you know, rather in the probably in the fourth quarter to come back online for us.
Jonathan Chappelle: Your next question comes from Jonathan Chappelle with evercore.
Isi: Isi. Please go ahead.
Jonathan Chappelle: Good afternoon. Um, Sean. I know trying to forecast commodity prices is, uh, Fool's game. But, uh, in Prior quarters you typically give, uh, the sequential outlook on coal rpu, which is obviously very important. And then also, is there any way to quantify the quote, unquote, smaller Revenue, headlines from the combination, both at Cold Benchmark and use the prices as we think about 2 H versus 1.
Speaker Change: Yeah, Jonathan, I think when you think about total coal rpu, you know, mix can play into that, for sure, but based on kind of what we're seeing right now, probably, see a similar rpu and Q3 versus Q2, maybe down a little bit, depending where the Benchmark heads. Um, but it'd be modest decline in total col rpu and then, um, in terms of those headwinds, you know, I between commodity prices, you're, you're looking at 200 million in the first half, um, that that's going to be, you know, more like a 100 million in the second half with, you know, about 2/3 of that concentrated in Q3. The comps are a little bit easier as we get into Q4, which is why, you know, we think there's a there's a good opportunity to return to year-over-year growth in Q4.
Tom wits: Your next question comes from Tom wits with UBS. Please go ahead.
Speaker Change: Uh, yeah. I so I wanted to ask, um, you know, on the, you know, Joe you've talked a lot about, uh, you know, kind of make make the railroads easier to deal with you mentioned earlier in the call, he's doing business. Um, I guess, you know, when, when you think about, uh, the ease of working with the single line, railroad versus working with Inner Line Service, do you think he's he's a business? Is it a difference between those 2? That's something that, you know, kind of a lot of times people say, oh, it's, you know, it's tougher. Tougher to work with 2 different railroads, do you think that's true or are? You think that's
Tom wits: Uh, doesn't really have an effect on the shipper experience.
Speaker Change: yeah, Tom I'm not going to really comment on, you know, anything that has to do with
Speaker Change: A merger Transcontinental Railroad. I'll just stick by what I said before. We think there are all kinds of opportunities to work together.
Speaker Change: To, to make it better for our customers and we're open to to talking about all those possibilities.
Speaker Change: Again, we're focused on creating value for our shareholders and and and looking to raise a properly grow. And we think that better customer service helps you do that. There are different all kinds of ways to deliver that, that better customer service. So we're looking forward to all those conversations and and making that stuff happen. Thanks.
Ken Hexter: Your next question comes from Ken hexter with Bank of America. Please go ahead.
Ken Hexter: Hey Craig, good afternoon. Um, certainly a lot going on Joe appreciate those thoughts and insights. Uh maybe Kevin the thought on the state of the consumer you know we heard a lot about air pocket of of volumes that that stalled in our model and then it wasn't really as big or quick of a snapback. Looks like your volumes are trending up 2% overall for the for the quarter of the date. Um, sounds like you're, you're targeting a little faster, maybe just dig into that house. The consumer doing and then the Howard Street tunnel delay. It sounded like 2 Q 26 is when you expect that to open, is that a delay from your end? It sounded like the project will be done in in 4 q but you expect volumes in 2 Q, just trying to understand the the timing of when we'd see in our model ramp on that. Thanks.
Ken Hexter: Yeah, that was that's a good question. On the Howard Street, we will be able to run trains through the Howard Street tunnel in the fourth quarter, when we will get double stack capability. We have to there's 2 bridges that remain uh that will have to have clearance on the the introduce, the new double stack capability. So we basically be able to go back to status quo before and then we'll have the new capability on the inner motor side uh, into the in the next year. So. And that's what uh, focus on introducing uh, new service. Uh so you know State of the State of the consumer uh is a real loaded question and you know, I think we're all trying to figure out where that is, you know, the reality is 2 very important in markets for us, our autos and
Ken Hexter: And housing and I think we all appreciate where those markets are today. Um, our hope is, you know, coming into the year. That those would be more helpful than they have been, uh, to our business Trends. And they touch a lot of the markets that we serve. And, you know, despite that, um, to your point, I think we've held up relatively well, at, at some point we'll have the wind at our back with those markets. You know, a lot of talk on interest rates and, and those things and obviously lower interest rates are extremely impactful for those 2 markets. So, um, you know, the Intermodal has been been volatile with the, the tariffs. And so, we, that's a watch item for us. What does peak season look like, and we'll defer to our Trucking, Partners on that side to make that call. But, uh, you know, we're encouraged, we're encouraged because, uh, we're doing a lot of things to convert business, uh, and find new opportunities for us, and not waiting around for the markets to turn. We're, we're trying to be proactive. We are being proactive, and, and finding those opportunities. And while I share opportunities for us,
Speaker Change: Your next question comes from Robbie Champs.
Hey thanks. Uh, just a couple of housekeeping here. Uh, can you just talk about kind of other Revenue run rate uh, and and kind of what that things like, uh, what that could Trend like in the next couple of quarters uh and also going to thanks for the the 2 key to 3 Q walk. But just to uh to wrap that in a bow uh was there anything in 2q? That's the price to the upside going to have towards the end of the quarter. I'm not just talking about service but kind of based on some of your in quarter commentary. It looks like the oh performance was much better.
Robbie Champs: Better than expected. So kind of any kind of lumpy items that that we need to keep in mind, you know, going from that 2 to 3 year, thank you.
Robbie Champs: Rejects somewhere between 1:15 to 120 million. A quarter on the other Revenue line is, is probably our best guess outside of any unique items that pop up there. Um, and then, in terms of other items in the quarter that were unexpected and unique, I did mention within purchase services and other, we did have, you know, a number of different moving Parts which were net favorable to us in the quarter. Um, you know, things like some favorable casualty results. Um, real estate sales that were relatively minor, but but positive on a net basis. Add that together, that's probably about a 20 million dollar headwind going into Q3. So those are the 2 things I point to. Um, but broadly speaking, you know, I think what you're seeing is a, um, you know, a team that's really energized around, uh, the progress that we've made in operations and how that's translating to service to the customer. Um, how we're being able to, you know, able to sell that and then, you know, focused on costs up and down uh, the business from from operations, all the way into GNA and Technology.
Robbie Champs: And other areas.
Speaker Change: Your next question comes from.
Robbie Champs: Is inid with TD Cohen, please go ahead.
Speaker Change: Thank you, our operator. Uh, afternoon everyone. Uh, Mike I want I want to stay on service a little bit. So congrats on the turnaround for sure. You know. How should we think, uh, about sort of trip plan compliance for 3 Q given that you had a rough start to 2 q but you know you you put in some sequential gains on the car load side. Are you guys looking to sort of match the price?
Robbie Champs: Your numbers and I guess on an off-topic 1, Joe since you have your ear, so close to the ground. Are you hearing anything? And in terms of the potential appointment for a fifth board member for the stb?
Speaker Change: Thanks Jason. I'll take the first 1.
Robbie Champs: uh,
Robbie Champs: um, yeah, the to answer your question. Yeah, we expect to get our trip plan compliance in both um, both the merchandise and the Intermodal back to where they were even better. It certainly going to help once we we get our 2, uh, once we get our 2 projects done,
Robbie Champs: And we're tracking, you know, we're tracking well, but it's never good enough because this is the commitment to the customer so big Focus for us. But as we, as we get the railroad continue to improve continue to get capacity and fluidity, we expect those numbers to be better than they were.
Speaker Change: Yeah, thanks Jason. Um, I'm really encouraged by the trip plan compliance results so far in July, uh, you know, happy vacation period. So, it's been encouraging to see the continued progress there. And, as Mike said, we we expect even more progress. Once we get the projects done in Q4, um, regarding the stb. Uh, yes, we have a great relationship with the FTB board. Uh, in fact, 1 of the things that that was really exciting to hear from the FTB, was that during the first quarter. When we had some of our challenges, they did not hear from 1 customer.
Speaker Change: About CSX, in fact, they heard they had customers call them and complimenting CSF. And how we were handling that, they they had no complaints, uh, which The Testament to how the team worked together to take care of our customers. Even though we weren't performing the levels, we expect, um, we're not going to comment and speculate on the fifth board member, uh, you know, that's for someone else to talk about. But we're looking forward to continuing to work forward to create value for our shareholders. Thanks.
Speaker Change: Your next question comes from Chris Weatherbee with Wells. Fargo. Please go ahead.
Speaker Change: Hey Kevin, I think you talked a little bit about this before but maybe you could dig a bit into the sort of outlook on the volume side, what you think in the second half is sort of where where the opportunities for growth for you to get to that full year back to positive. It sounds like there's a couple of moving Parts here. Obviously, the consumer is tough to call but what's your take and as you think about the season,
Speaker Change: Yeah, you know, I kind of touched on it before. We did see some of these markets, start to take it down, uh, down tick, uh, in the third and fourth quarter as of last year. So, there there is an element of, um, a bit of easier comps and some of these markets, uh, and I did, you know, I touched on the sum of the outages. Uh, we had a, you know, unusual, second quarter and the activity levels that we saw, um, you know, focused in Forest Products and focused in chemicals. But we do see opportunities in the markets, like, the fertilizer with, um, with good demand, fundamentals for for production to pick up, which would be a very good thing for our business and, and volumes and for our customers. So,
And we see that continuing into the second half of the year and then on the export side, we we highlighted it but we do expect a couple of Minds to come back online. Uh and have that additional volume that that will be helpful as we move into the fourth quarter. So all those are factors. The good news is, it's pretty Diversified across a number of markets for us.
Speaker Change: Your next question.
Speaker Change: Please go ahead.
Speaker Change: Thank you very much. Um I just want to go back to the the detail, on the cost uh of inconvenience here. Uh you've mentioned 10 million a quarter, but does that capture everything? The reroute miles, the Lost Revenue, the extra Crews, the extra uh time. Uh Etc. I'm just trying to get a a profile of what costs will melt away in 42. What costs will melt away next year. What costs if any of you may melt away in 3 Q,
Speaker Change: Hey Jeff. Yeah, just to clarify its 10 million a month. Um and so that that's been going on pretty much all year long, well that will continue um until these projects get completed. Um, you know, I think that. Yes and and it's all in it includes all the cost of the reroutes. There really isn't much lost Revenue. We've done a really good job of, um, finding solutions for our customers to minimize the loss Revenue impact. Um,
Speaker Change: Earlier in the year, in first quarter, in addition to those reroute cost we had weather in congestion costs that were probably 20 to 25 million on top of that. So when you think all in, you know, 100 120 to 125 million of impacts that go away. As we turn the page to 2026, not to mention the fact that, you know, we should see a benefit to the network and overall fluidity. Uh, as we as we open those projects up and as as Kevin talked about, you know, the Howard Street's got benefits that come along with it. Um, we will get, uh, operational benefits from day 1, when we start double stacking next year and then we'll be able to sell into that, uh, capacity that we've created as well. So a lot to be excited about in uh, in 2026 and Beyond.
Speaker Change: Your next question comes from Walter. Spracklin with RBC Capital, please go ahead.
Walter Spracklin: Yeah. Thanks very much and, and that actually Dubbs in the M. Very nice into my question. When I go back to your investor day targets of City. Roughly 10%. Um, you know, looking how you're trending this year, perhaps down, and the negative 5 to 10% range, can we use your? Can we go back to your investor date, guidance and use that as a a guide post. Now for how we look at 2026 as as we we sharpen our pencil on on your on your earnings growth for for next year. Uh taking it into perhaps from a 2-year perspective
The iron out, some of the 1 time or or discrete items you had this year, would it be out of the realm of possibility to say, you know, next year should be up mid te, uh, when we look at your, uh, your earnings growth for next year. Hey, Walter. I the question, um, I I assume when you say, 10%, you're talking about EPs, and or guidance, there is high single digit to low double digits. So that that's certainly within the range. Um, and we would need, you know, strong growth in 26 and and a good year in 2017 to get there with uh, some of the challenges that we faced this year. So we recognize that um it's probably too early to project exactly where we're going to come out next year but I just walked through it uh with Jeff's question kind of going through some of the the things that go away, the opportunities that we have kind of right off the bat, which is going to get us to load them in single digits, you know, operating income growth and and, and, you know, EPS growth without without doing anything, without lifting a finger, we've got the industrial
Development pipeline, that that Kevin talked about 50-ish projects in place already another 30 coming on in the second half. Uh, hundreds of projects that are out there, uh, over the next couple of years, that'll that'll come to fruition. So when you think about
Walter Spracklin: Some relatively easy comps from earlier in this year, some of those headwinds that go away. They get sets up for you know a year that's that in 2026, that should be double digits. I'm not going to I'm not going to, you know, go further than that yet until we get a better view on the economy and and how things are shaping up there, but uh, we'll certainly update you as we get a little bit closer.
Your next question comes from, Richa hornean with Deutsche Bank, please go ahead.
Richa Hornean: Yes. Thank thanks everyone. Um, so
Richa Hornean: It's a momentum around into the back half of the Year. Could we expect some positive results on like net pricing? Um, thanks.
Richa Hornean: I I can assure you, it's a uh, something we're highly focused on. Um when you have a great service product and you're adding value to the customer something, I think it's it's an easier conversation to have. Um it's something that's important obviously for us to cover our costs.
Richa Hornean: And but we got to continue to deliver value to the customer and can we turn their assets? Can we save them, uh, costs in other areas that really pay for that and they see value in that. So, um, I'm hopeful that we've, you know, this truck Market has bottomed. That's certainly a factor I think that'll play into this. And uh, certainly accelerate some of those conversations. Uh, there are opportunities quite frankly right now where, um, you know, the truck is, is hyper competitive. We were just with a customer last week that, you know, they noted, they've seen 3 straight years of, uh, Trucking, uh, their trucking rates going down. Um, they they realized that's not sustainable. Um, and so that will that will be a factor. I think, as we, uh, get into the back half of this year, hopefully, we'll see a little bit of momentum there and then we'll carry that in the next year.
Speaker Change: Your next question comes from David Vernon with Sanford. Bernstein, please go ahead.
David Vernon: Hey, good afternoon guys, thanks for taking the question. Um so as you can imagine we were getting a lot of questions on on sort of freight flow information. I just wanted to um see if I could get your help, Kevin understanding kind of what percentage of your Revenue today. Originates west of the Mississippi. Thank or west of St. Louis thanks.
You know, I think what we said is, you know, over half of our, um, business touches another railroad. I I don't think we'll go in more detail than that. Uh, currently we could certainly follow up, but I think we'll, we'll, we'll we'll leave it at that.
Speaker Change: Your final question comes from Oliver, Holmes with Rothschild and Company Redbarn. Please go ahead.
Oliver Holmes: Hi, thanks for having me on. Um, you've spoken about CSX specific projects supporting volume growth. I was just wondering have conversations with customers increase, paused or decreased as a result of the current Tire structure and perhaps within that, could you size the opportunity you have with the cpkc partnership and over what time frame it should ramp up and hit maturity. Thanks.
Yeah, I think, you know, the tax taxes, uh, policy is pretty new off the presses. It's certainly not unhelpful. Um, I think and I noticed this before clearing the, the tariffs on certainty is I think in a, hopefully unleash a lot of this investment, um, that I think we have, uh, some existing pent-up demand and, you know, more importantly, uh, you know, confidence in completing some of these projects that we already have in our pipeline. I think that's a big, uh, big opportunity for us on the, um, you know, the the cpkc Myrtlewood, uh, connection. Uh, you know, we, uh, we just had another cross functional. Uh, you know, team meeting, uh, the other day and there's a number of, uh, truck conversions and opportunities that I don't move over rail today, that we're really going after and targeting. So, we're excited about that. Uh, we're excited about the progress that we made so far. So we are seeing those conversions occur and it's a, it's a long, you know, it's a long sales cycle. So, um, we we're encouraged that, you know, in the near term that we've really capitalized on some things and we could seem continue to see it, uh, accelerate as we get in the back half of this year.
There are no further questions, ladies and gentlemen. That concludes today's call, thank you all for joining. You may now disconnect
Speaker Change: Please wait the conference will begin shortly.