Q2 2026 CSX Corp Earnings Call

July 22, 2026

Speaker #2: Good afternoon, and welcome, everyone, to the CSX Corporation second quarter 2026 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

Operator 2: Good afternoon, welcome everyone to the CSX Corporation Q2 2026 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Matthew Korn, Head of Investor Relations and Corporate Communications. Please go ahead.

Operator: Good afternoon, welcome everyone to the CSX Corporation Q2 2026 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Matthew Korn, Head of Investor Relations and Corporate Communications. Please go ahead.

Speaker #2: prevent any background noise. After If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad.

Speaker #2: If you would like to withdraw your question, press star 1 again. At this time, I would like to turn the conference over to Matthew Korn, Head of Investor Relations and Corporate Communications.

Speaker #2: Please go ahead.

Speaker #3: Thank you, Audra. Good afternoon, everyone. We are very pleased to have you join our second quarter 2026 earnings call. Joining me from the CSX leadership team are Steve Angel, President and Chief Executive Officer; Mike Corey, Executive Vice President and Chief Operating Officer; Kevin Boone, Executive Vice President and Chief Financial Officer; and Mary Claire Kenny, Senior Vice President and Chief Commercial Officer.

Matthew Korn: Thank you, Audra. Good afternoon, everyone. We are very pleased to have you join our Q2 2026 earnings call. Joining me from the CSX leadership team are Steve Angel, President and Chief Executive Officer, Mike Cory, EVP and Chief Operating Officer, Kevin Boone, EVP and Chief Financial Officer, and Mary Claire Kenney, Senior Vice President and Chief Commercial Officer. In the presentation that accompanies this call, which is available on our website, you will find slides with our forward-looking and our non-GAAP disclosures. We encourage you to review them. With that, I'm very happy to turn the call over to Mr. Steve Angel.

Matthew Korn: Thank you, Audra. Good afternoon, everyone. We are very pleased to have you join our Q2 2026 earnings call. Joining me from the CSX leadership team are Steve Angel, President and Chief Executive Officer, Mike Cory, EVP and Chief Operating Officer, Kevin Boone, EVP and Chief Financial Officer, and Maryclare Kenney, Senior Vice President and Chief Commercial Officer. In the presentation that accompanies this call, which is available on our website, you will find slides with our forward-looking and our non-GAAP disclosures. We encourage you to review them. With that, I'm very happy to turn the call over to Mr. Steve Angel.

Speaker #3: In the presentation that accompanies this call, which is available on our website, you will find slides with our forward-looking and non-GAAP disclosures. We encourage you to review them.

Speaker #3: And with that, I'm very happy to turn the call over to Mr. Stephen Angel.

Speaker #4: Good afternoon. Thank you for joining our earnings call. This quarter, CSX continued to make progress toward our goal of best-in-class performance. Stronger demand led to volume growth across our business, and we managed this growth while delivering strong safety and productivity outcomes.

Steve Angel: Good afternoon. Thank you for joining our earnings call. This quarter, CSX continued to make progress toward our goal of best-in-class performance. Stronger demand led to volume growth across our business, and we managed this growth while delivering strong safety and productivity outcomes. These results reflect the hard work and dedication of our railroaders as they serve our customers safely and reliably. For the quarter, volume increased 6%, and our revenue increased 10%, reaching a new quarterly record. At the same time, we improved operating efficiency and maintained strong cost discipline, driving substantial margin expansion and double-digit growth in operating income and earnings per share. Our objective is to build an organization that can consistently deliver strong performance over the long term.

Speaker #4: These results reflect the hard work and dedication of our railroaders as they serve our customers safely and reliably. For the quarter, volume increased 6% and our revenue increased 10%.

Speaker #4: We reached a new quarterly record. At the same time, we improved operating efficiency and maintained strong cost discipline, driving substantial margin expansion and double-digit growth in operating income and earnings per share.

Speaker #4: We are proud of our accomplishments so far this year, but our objective is to build an organization that can consistently deliver strong performance over the long term.

Speaker #4: There are many areas across the business where we can improve performance, and network fluidity and service are among them. Plans are in place to address opportunities for improvement, and we expect to see steady progress throughout the quarter while maintaining our focus on profitable growth.

Steve Angel: There are many areas across the business where we can improve performance. Network fluidity and service are among them. Plans are in place to address opportunities for improvement, and we expect to see steady progress throughout the quarter while maintaining our focus on profitable growth. Our solid volume growth this quarter reflects the benefits of our commercial initiatives, network investments, and the execution of our team across the railroad. Our priority is achieving profitable growth, not gaining market share for its own sake. I believe that industries that become too focused on market share eventually drive out profitability. At CSX, what's most important is that the business we add increases operating income, expands margins, and delivers good returns on invested capital. Mike?

Speaker #4: Our solid volume growth this quarter reflects the benefits of our commercial initiatives, network investments, and the execution of our team across the railroad. Our priority is achieving profitable growth.

Speaker #4: We are not gaining market share for its own sake. I believe that industries that become too focused on market share eventually drive out profitability. At CSX, what's most important is that the business we add increases operating income, expands margins, and delivers good returns on invested capital.

Speaker #4: Mike.

Speaker #5: Thank you very much, Steve. And good afternoon, everyone. The railroad made solid progress in safety and productivity this quarter, as shown on slide 5.

Mike Cory: Thank you very much, Steve. Good afternoon, everyone. The railroad made solid progress in safety and productivity this quarter, as shown on slide five. Our team continued its consistent and disciplined approach to managing risk and controlling cost, even as the amount of volume we handled grew substantially. The strength of our safety culture is the foundation for everything we do at CSX, and our year-over-year safety performance was impressive in the Q2. Our FRA injury rate improved by 19% compared to last year, even as our base of total people hours declined by 7%, and our train accident rate improved by 30%. We see opportunities to build on these results through continued focus on risk awareness, field-level engagement, and applied technology as we pursue best-in-class performance. We managed stronger than expected growth in the Q2, with volumes increasing 6% year-over-year.

Speaker #5: Our team continued its consistent and disciplined approach to managing risk and controlling costs, even as the amount of volume we handled grew substantially. The strength of our safety culture is the foundation for everything we do at CSX, and our year-over-year safety performance was impressive in the second quarter.

Speaker #5: Our FRA injury rate improved by 19% compared to last year, even as our base of total people hours declined by 7%. And our train accident rate improved by 30%.

Speaker #5: We see opportunities to build on these results through continued focus on risk awareness, field-level engagement, and applied technology as we pursue best-in-class performance. We managed stronger-than-expected growth in the second quarter, with volumes increasing 6% year over year.

Speaker #5: Handling this growth, while experiencing seasonal reductions in employee availability, created tightness in certain areas of the network. And while our average velocity improved 3% compared to the prior year, we also saw an increase in dwell.

Mike Cory: Handling this growth while experiencing seasonal reductions in employee availability created tightness in certain areas of the network. While our average velocity improved 3% compared to the prior year, we also saw an increase in dwell. We're taking clear steps to improve the consistent availability of our crews, and with the effective management of resources, we expect sequential improvement in our service metrics. Network productivity continued to increase this quarter. The metrics on the right side of this slide highlight the specific gains our team delivered. Our fuel efficiency improved year-over-year for the fourth straight quarter as we improved locomotive utilization and continued to maximize the use of Trip Optimizer. We increased the number of GTMs we generated per unit of horsepower for the sixth quarter in a row. Our employees were more productive, and we moved more tonnage per train compared to a year ago.

Speaker #5: We're taking clear steps to improve the consistent availability of our crews, and with effective management of resources, we expect sequential improvement in our service metrics.

Speaker #5: Network productivity continued to increase this quarter. The metrics on the right side of this slide highlight the specific gains our team delivered. Our fuel efficiency improved year over year for the fourth straight quarter as we improved locomotive utilization and continued to maximize the use of Trip Optimizer.

Speaker #5: We increased the number of GTMs we generated per unit of horsepower for the sixth quarter in a row. Our employees were more productive, and we moved more tonnage per train compared to a year ago.

Speaker #5: Overall, our team stepped up as customers brought more business to CSX. We ran safely and efficiently, and I expect fluidity to improve as the year progresses.

Mike Cory: Overall, our team stepped up as customers brought more business to CSX. We ran safely and efficiently, and I expect fluidity to improve as the year progresses. Kevin's now going to review our financial results, and over to you, Kevin.

Speaker #5: Kevin's now going to review our financial results. Over to you, Kevin.

Speaker #4: All right. Thank you, Mike. And good afternoon. As both Mike and Steve noted, the CSX team delivered another strong quarter, including higher volume, record revenue, and lower non-fuel expense.

Kevin Boone: All right. Thank you, Mike, and good afternoon. As both Mike and Steve noted, the CSX team delivered another strong quarter, including higher volume, record revenue, and lower non-fuel expense. These results reflect continued partnership across the business to improve safety and drive cost efficiencies while meeting increased demand from our customers. Total revenue increased 10%, benefiting from higher fuel surcharge combined with both volume growth and higher pricing across our merchandise, intermodal, and coal markets. Total expenses increased by 6% with a 2% reduction in non-fuel expenses. Putting it all together, operating income increased by 17% with operating margins improving 240 basis points despite 160 basis points of fuel price headwinds. This strong performance drove earnings per share growth of 23% in the quarter. Let's now turn to the next slide for a closer look at expenses.

Speaker #4: These results reflect continued partnership across the business to improve safety and drive cost efficiencies, while meeting increased demand from our customers. Total revenue increased 10%, benefiting from a higher fuel surcharge combined with both volume growth and higher pricing across our merchandise, intermodal, and coal markets.

Speaker #4: Total expenses increased by 6%, with a 2% reduction in non-fuel expenses. Putting it all together, operating income increased by 17%, with operating margins improving 240 basis points, despite 160 basis points of fuel price headwinds.

Speaker #4: This strong performance drove earnings per share growth of 23% in the quarter. Let's now turn to the next slide for a closer look at expenses.

Speaker #4: Total second quarter expenses increased by $138 million compared to the prior year. This includes an increase of $177 million for fuel, driven by higher diesel prices net of savings from our record-setting quarter fuel efficiency.

Kevin Boone: Total Q2 expenses increased by $138 million compared to the prior year. This includes an increase of $177 million for fuel, driven by higher diesel prices, net of savings from our record-setting quarter fuel efficiency. Labor costs increased by $40 million with a nearly $90 million combined impact from higher incentive compensation and inflation. These headwinds were mostly offset by savings from a 6% lower headcount, with declines across both management and craft employees. T&E headcount will increase modestly in the coming months to support our service product with improved demand while we expect to leverage process improvements and technology to absorb attrition in other areas of the business. PS&O expenses were lower again in Q2, with efficiency savings across each of our operating departments, as well as our G&A, and technology functions.

Speaker #4: Labor costs increased by $40 million, with a nearly $90 million combined impact from higher incentive compensation and inflation. These headwinds were mostly offset by savings from a 6% lower headcount, with declines across both management and craft employees.

Speaker #4: G&E headcount will increase modestly in the coming months to support our service product with improved demand, while we expect to leverage process improvements and technology to absorb attrition in other areas of the business.

Speaker #4: PS&O expenses were lower again in the second quarter, with efficiency savings across each of our operating departments, as well as our G&A and technology functions.

Speaker #4: Discretionary costs remain under intense review, and managers across the company are being empowered with tools and visibility to take action on wasteful spending and other cost opportunities.

Kevin Boone: Discretionary costs remain under intense review, managers across the company are being empowered with tools and visibility to take action on wasteful spending and other cost opportunities. For example, spend on third-party services across our operations team was lower by $23 million in the quarter, benefiting from better utilization of our internal maintenance functions and detailed reviews of contractor activity. That discipline also applies to our corporate functions with savings in external technology labor, corporate communication support, and legal fees. The business also demonstrated an ability to efficiently absorb higher volumes with a 12% reduction in our intermodal terminal costs per lift. Moving to Q3, incentive compensation expense will step lower sequentially, largely offset by the 3.75% union wage increase. Within PS&O, we expect fewer property gains and insurance recoveries, as well as higher costs for locomotive overhauls in H2 relative to H1.

Speaker #4: For example, spend on third-party services across our operations team was lower by $23 million in the quarter, benefiting from better utilization of our internal maintenance functions and detailed reviews of contractor activity.

Speaker #4: That discipline also applies to our corporate functions, with savings in external technology labor, corporate communication support, and legal fees. The business also demonstrated an ability to efficiently absorb higher volumes, with a 12% reduction in our intermodal terminal cost per lift.

Speaker #4: Moving to the third quarter, incentive compensation expense will step lower sequentially, largely offset by the 3.75% union wage increase. And within PS&O, we expect fewer property gains and insurance recoveries.

Speaker #4: As well as higher costs for locomotive overhauls in the second half relative to the first. As Steve noted, we are focused on our service product while embedding a culture of continuous improvement.

Kevin Boone: As Steve noted, we are focused on our service product while embedding a culture of continuous improvement. Our accomplishments year to date put us in a position to invest in initiatives that drive further productivity in 2027 and beyond. With that, I'll turn it over to Mary Kenney to review our revenue results.

Speaker #4: Our accomplishments year-to-date put us in a position to invest in initiatives that drive further productivity in 2027 and beyond. With that, I'll turn it over to Mary Claire to review our revenue results.

Speaker #2: Thank you, Kevin. And good afternoon, everyone. Before I get into the results, I want to recognize the hard work of our commercial and operations teams, who worked closely together to handle volumes that exceeded our expectations.

Mary Kenney: Thank you, Kevin, good afternoon, everyone. Before I get into the results, I want to recognize the hard work of our commercial and operation teams who worked closely together to handle volumes that exceeded our expectations. Heading into Q2, we saw favorable trends emerging in select markets. What started as a narrow, supply-driven improvement in market conditions broadened through the spring, resulting in strong volume growth across the business. Customers are increasingly turning to rail for their supply chain needs, we are focused on earning their business through competitive service offerings and reliable execution. Turning to slide 10, I'll walk you through Q2 volume and revenue performance. Overall, total volume was up 6% in the quarter, revenue was up 10%, revenue per unit was up 4%.

Maryclare Kenney: Thank you, Kevin, good afternoon, everyone. Before I get into the results, I want to recognize the hard work of our commercial and operation teams who worked closely together to handle volumes that exceeded our expectations. Heading into Q2, we saw favorable trends emerging in select markets. What started as a narrow, supply-driven improvement in market conditions broadened through the spring, resulting in strong volume growth across the business. Customers are increasingly turning to rail for their supply chain needs, we are focused on earning their business through competitive service offerings and reliable execution. Turning to slide 10, I'll walk you through Q2 volume and revenue performance. Overall, total volume was up 6% in the quarter, revenue was up 10%, revenue per unit was up 4%.

Speaker #2: Heading into the second quarter, we saw favorable trends emerging in select markets. What started as a narrow, supply-driven improvement in market conditions broadened through the spring, resulting in strong volume growth across the business.

Speaker #2: Customers are increasingly turning to rail for their supply chain needs, and we are focused on earning their business through competitive service offerings and reliable execution.

Speaker #2: Turning to slide 10, I'll walk you through second-quarter volume and revenue performance. Overall, total volume was up 6% in the quarter. Revenue was up 10%, and revenue per unit was up 4%.

Speaker #2: Total revenue per unit excluding fuel declined 1% compared to the prior year due to mix, as intermodal grew at more than double the rate of other business units.

Mary Kenney: Total revenue per unit, excluding fuel, declined 1% compared to the prior year due to mix, as intermodal grew at more than double the rate of other business units. In merchandise, volume was up 4% year over year, while revenue grew 8%. Merchandise RPU, excluding fuel, was 1% higher as solid pricing helped offset negative mix. Including fuel, RPU was up 4% year over year. Strength was broad-based across merchandise, with six of our seven business units growing or holding flat year over year. Chemicals volume increased 8% compared to last year, supported by plastics exports and demand for waste by rail. Metals and equipment delivered a standout quarter, with 14% revenue growth on 3% higher volume, driven by increased customer production at new plate mills and favorable mix from higher military and equipment moves.

Maryclare Kenney: Total revenue per unit, excluding fuel, declined 1% compared to the prior year due to mix, as intermodal grew at more than double the rate of other business units. In merchandise, volume was up 4% year over year, while revenue grew 8%. Merchandise RPU, excluding fuel, was 1% higher as solid pricing helped offset negative mix. Including fuel, RPU was up 4% year over year. Strength was broad-based across merchandise, with six of our seven business units growing or holding flat year over year. Chemicals volume increased 8% compared to last year, supported by plastics exports and demand for waste by rail. Metals and equipment delivered a standout quarter, with 14% revenue growth on 3% higher volume, driven by increased customer production at new plate mills and favorable mix from higher military and equipment moves.

Speaker #2: In merchandise, volume was up 4% year-over-year, while revenue grew 8%. Merchandise RPU excluding fuel was 1% higher, as solid pricing helped offset negative mix.

Speaker #2: Including fuel, RPU was up 4% year over year. Strength was broad-based across merchandise, with 6 of our 7 business units growing or holding flat year over year.

Speaker #2: Chemicals volume increased 8% compared to last year, supported by plastics exports and demand for waste by rail. Metals and equipment delivered a standout quarter.

Speaker #2: We saw 14% revenue growth on 3% higher volume, driven by increased customer production and new plate mills, as well as a favorable mix from higher military and equipment moves.

Speaker #2: Forest products volume was flat year over year, a significant improvement from the first quarter, as conversions increased on tighter truck capacity and higher fuel costs.

Mary Kenney: Forest products volume was flat year-over-year, a significant improvement from Q1, as conversions increased on tighter truck capacity and higher fuel costs. Intermodal continues to build momentum and was the largest contributor to unit growth this quarter, with revenue up 26% on 9% higher volume and RPU up 16% year-over-year, driven by fuel surcharge. Our diverse domestic business drove our volume growth as new service offerings continue to ramp and truck-to-rail conversions have accelerated. Faster service and expanded network capacity enabled by the Howard Street Tunnel have positioned us well to capture this business. Finally, coal revenue grew 9% on 4% higher volume. Coal RPU increased 4%, primarily due to strong domestic contract renewals, as Hampton Roads's benchmark prices were relatively stable during the quarter.

Maryclare Kenney: Forest products volume was flat year-over-year, a significant improvement from Q1, as conversions increased on tighter truck capacity and higher fuel costs. Intermodal continues to build momentum and was the largest contributor to unit growth this quarter, with revenue up 26% on 9% higher volume and RPU up 16% year-over-year, driven by fuel surcharge. Our diverse domestic business drove our volume growth as new service offerings continue to ramp and truck-to-rail conversions have accelerated. Faster service and expanded network capacity enabled by the Howard Street Tunnel have positioned us well to capture this business. Finally, coal revenue grew 9% on 4% higher volume. Coal RPU increased 4%, primarily due to strong domestic contract renewals, as Hampton Roads's benchmark prices were relatively stable during the quarter.

Speaker #2: Intermodal continues to build momentum and was the largest contributor to unit growth this quarter, with revenue up 26% on 9% higher volume and RPU up 16% year over year, driven by fuel surcharge.

Speaker #2: Our diverse domestic business drove our volume growth, as new service offerings continue to ramp and truck-to-rail conversions have accelerated. Faster service and expanded network capacity enabled by the Howard Street Tunnel have positioned us well to capture this business.

Speaker #2: Finally, coal revenue grew 9% on 4% higher volume. Coal RPU increased 4%, primarily due to strong domestic contract renewals, as Hampton Roads benchmark prices were relatively stable during the quarter.

Speaker #2: Export tonnage increased 12% year over year, driven by mine restarts and a best-ever four-month stretch of tonnage through Curtis Bay. Domestic tonnage declined 2% as lower natural gas prices and normalized customer inventories modestly tempered otherwise healthy demand.

Mary Kenney: Export tonnage increased 12% year-over-year, driven by mine restarts and a best-ever four-month stretch of tonnage through Curtis Bay. Domestic tonnage declined 2% as lower natural gas prices and normalized customer inventories modestly tempered otherwise healthy demand. As we look to H2, our commercial initiatives continue to create opportunities for us to grow the business, including new service offerings, the ramp-up of industrial development projects, and investments in our transload and terminal network. Our opportunities to convert business to the railroad continue to grow as tighter truck supply and higher rates are highlighting the value proposition of rail. On the merchandise side, this is most prominent in forest products, waste, and metals. We also expect strength in conversions to support domestic intermodal volume. Steady construction activity continues to support minerals and metals.

Maryclare Kenney: Export tonnage increased 12% year-over-year, driven by mine restarts and a best-ever four-month stretch of tonnage through Curtis Bay. Domestic tonnage declined 2% as lower natural gas prices and normalized customer inventories modestly tempered otherwise healthy demand. As we look to H2, our commercial initiatives continue to create opportunities for us to grow the business, including new service offerings, the ramp-up of industrial development projects, and investments in our transload and terminal network. Our opportunities to convert business to the railroad continue to grow as tighter truck supply and higher rates are highlighting the value proposition of rail. On the merchandise side, this is most prominent in forest products, waste, and metals. We also expect strength in conversions to support domestic intermodal volume. Steady construction activity continues to support minerals and metals.

Speaker #2: As we look to the second half of the year, our commercial initiatives continue to create opportunities for us to grow the business, including new service offerings, the ramp-up of industrial development projects, and investments in our transload and terminal network.

Speaker #2: Our opportunities to convert business to the railroad continue to grow, as tighter truck supply and higher rates are highlighting the value proposition of rail.

Speaker #2: On the merchandise side, this is most prominent in forest products, waste, and metals. We also expect strength in conversions to support domestic intermodal volume.

Speaker #2: Steady construction activity continues to support minerals and metals, and investment tied to power infrastructure and data center build-out is driving demand in domestic coal, frac sand, and heavy equipment.

Mary Kenney: An investment tied to power infrastructure and data center build-out is driving demand in domestic coal, frac sand, and heavy equipment. Agricultural exports are another area of strength, with record US corn shipments through Chesapeake continue through year-end. That said, we do see the potential for momentum to slow in some markets. Following a quarter of strong production in automotive, normalized inventories and summer shutdowns are leading to a softer start to H2 ahead of new model launches in Q4. In chemicals, we expect plastics volumes to moderate following pull-forward activity in H1. Meanwhile, coal fundamentals remain strong. Power demand and recent plant life extensions will support domestic utility burn. New business wins are driving growth in domestic steel and industrial markets. Export volumes are expected to remain steady, benefiting from improved mine supply.

Maryclare Kenney: An investment tied to power infrastructure and data center build-out is driving demand in domestic coal, frac sand, and heavy equipment. Agricultural exports are another area of strength, with record US corn shipments through Chesapeake continue through year-end. That said, we do see the potential for momentum to slow in some markets. Following a quarter of strong production in automotive, normalized inventories and summer shutdowns are leading to a softer start to H2 ahead of new model launches in Q4. In chemicals, we expect plastics volumes to moderate following pull-forward activity in H1. Meanwhile, coal fundamentals remain strong. Power demand and recent plant life extensions will support domestic utility burn. New business wins are driving growth in domestic steel and industrial markets. Export volumes are expected to remain steady, benefiting from improved mine supply.

Speaker #2: Agricultural exports are another area of strength, with record U.S. corn shipments through Chesapeake continuing through year-end. That said, we do see the potential for momentum to slow in some markets.

Speaker #2: Following a quarter of strong production in automotive, normalized inventories and summer shutdowns are leading to a softer start to the second half, ahead of new model launches in the fourth quarter.

Speaker #2: In chemicals, we expect plastics volumes to moderate following pull-forward activity in the first half. Meanwhile, coal fundamentals remain strong—power demand and recent plant life extensions will support domestic utility burn. New business wins are driving growth in domestic steel and industrial markets, and export volumes are expected to remain steady, benefiting from improved mine supply.

Speaker #2: Finally, on the outlook for revenue per unit, underlying core pricing remains at or above our plan. With most of our contract renewals for the year already complete, we expect fuel and mix to be the primary drivers of RPU in the second half, as any flow-through from truck-rate pricing to yields typically takes time to materialize.

Mary Kenney: Finally, on the outlook for revenue per unit, underlying core pricing remains at or above our plan. With most of our contract renewals for the year already complete, we expect fuel and mix to be the primary drivers of RPU in H2, as any flow-through from truck rate pricing to yield typically takes time to materialize. Overall, trends for H2 remain encouraging, and we're focused on converting those opportunities into long-term growth for the railroad. With that, I'll turn it back over to Steve.

Maryclare Kenney: Finally, on the outlook for revenue per unit, underlying core pricing remains at or above our plan. With most of our contract renewals for the year already complete, we expect fuel and mix to be the primary drivers of RPU in H2, as any flow-through from truck rate pricing to yield typically takes time to materialize. Overall, trends for H2 remain encouraging, and we're focused on converting those opportunities into long-term growth for the railroad. With that, I'll turn it back over to Steve.

Speaker #2: Overall, trends for the back half of the year remain encouraging, and we're focused on converting those opportunities into long-term growth for the railroad. With that, I'll turn it back over to Steve.

Speaker #1: Thank you, Mary Claire. Now we'll review our updated guidance for 2026 on slide 13. Based on our results year to date and our expectations for the balance of the year, we are adjusting our 2026 outlook higher.

Steve Angel: Thank you, Mary Kenney. Now we'll review our updated guidance for 2026 on slide 13. Based on our results year to date and our expectations for the balance of the year, we are adjusting our 2026 outlook higher. We now expect full-year revenue growth in the mid to high single digits, operating margin expansion of greater than 350 basis points, and free cash flow growth of greater than 80%. Our outlook for capital spending remains unchanged at less than $2.4 billion. The updated outlook reflects strong volume growth, improved financial performance, and the continued focus on productivity and cost control that you've heard about in today's call. We continue to see opportunities to strengthen service execution, improve productivity, and drive long-term efficiency across the railroad. Those efforts remain central to our goal of delivering sustainable improvement over time.

Steve Angel: Thank you, Maryclare. Now we'll review our updated guidance for 2026 on slide 13. Based on our results year to date and our expectations for the balance of the year, we are adjusting our 2026 outlook higher. We now expect full-year revenue growth in the mid to high single digits, operating margin expansion of greater than 350 basis points, and free cash flow growth of greater than 80%. Our outlook for capital spending remains unchanged at less than $2.4 billion. The updated outlook reflects strong volume growth, improved financial performance, and the continued focus on productivity and cost control that you've heard about in today's call. We continue to see opportunities to strengthen service execution, improve productivity, and drive long-term efficiency across the railroad. Those efforts remain central to our goal of delivering sustainable improvement over time.

Speaker #1: We now expect full-year revenue growth in the mid- to high-single digits, operating margin expansion of greater than 350 basis points, and free cash flow growth of greater than 80%.

Speaker #1: Our outlook for capital spending remains unchanged at less than $2.4 billion. The updated outlook reflects strong volume growth, improved financial performance, and the continued focus on productivity and cost control that you've heard about in today's call.

Speaker #1: We continue to see opportunities to strengthen service execution, improve productivity, and drive long-term efficiency across the railroad. Those efforts remain central to our goal of delivering sustainable improvement over time.

Speaker #1: Finally, I want to thank our railroaders for their hard work and dedication this quarter. These results were made possible by their commitment to safety, integrity, and serving our customers efficiently.

Steve Angel: Finally, I want to thank our railroaders for their hard work and dedication this quarter. These results were made possible by their commitment to safety, integrity, and serving our customers efficiently. Matthew will now open it up for questions.

Speaker #1: Matthew will now open it up for questions.

Speaker #3: Thank you, Steve. We will now proceed with the question-and-answer session. To ensure that we maximize everyone's opportunity to participate, we ask that you please limit yourselves to one, and only one, question.

Matthew Korn: Thank you, Steve. We will now proceed with the question-and-answer session. To ensure that we maximize everyone's opportunity to participate, we ask that you please limit yourselves to one and only one question. Audra, we are ready to begin.

Speaker #3: Audra, we are ready to begin.

Speaker #2: Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad, or raise your hand and join the queue.

Operator 2: Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll take our first question from Stephanie Moore at Jefferies.

Operator: Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll take our first question from Stephanie Moore at Jefferies.

Speaker #2: If you would like to withdraw your question, simply press star 1 again. We'll take our first question from Stephanie Moore at Jefferies.

Speaker #4: Great. Good afternoon. I appreciate the question. I guess I'll start with one of the last points here in the prepared remarks about the pricing opportunity in the back half.

Stephanie Moore: Great, good afternoon. Appreciate the question. I guess maybe starting on one of the last points here in the prepared remarks about just the pricing opportunity in the back half, understand the benefits you're seeing mix and fuel wise, maybe not necessarily seeing some of the truckload benefits yet. Maybe just help us understand when we would expect to maybe see some of those benefits come through as the underlying environment, certainly freight environment certainly has seemed to heat up a bit here in the last couple months or so. Thanks.

Speaker #4: I understand that the benefits you're seeing mix in fuel-wise and maybe you're not necessarily seeing some of the truckload benefits yet. So maybe just help us understand when we would expect to see some of those benefits come through, as the underlying freight environment certainly has seemed to heat up a bit here in the last couple of months or so.

Speaker #4: Thanks.

Speaker #2: Okay, thanks. Thanks for the question. So yeah, as we think about pricing, we've said earlier this year, and we reaffirm it today, that we expect our same-store sales pricing to be stronger this year than it was last year.

Mary Kenney: Hey, thanks for the question. Yeah, as we think about pricing, we've said earlier this year, we reaffirm it today, that we expect our same-store sales pricing to be stronger this year than it was last year. I think about our merchandise portfolio, the team recognizes the value of the service that we provide, they're leaning in, having conversations with customers and continuing to accelerate price. I think, there's a lot of, obviously, conversation out there in terms of the truck market. We did see truck capacity tighten, I say, in particularly over the course of the last couple of months with regulatory enforcement. I'd say on the intermodal side, we're near the tail end of the domestic intermodal bid season for 2026, I'm not going to get into 2027 at this point.

Maryclare Kenney: Hey, thanks for the question. Yeah, as we think about pricing, we've said earlier this year, we reaffirm it today, that we expect our same-store sales pricing to be stronger this year than it was last year. I think about our merchandise portfolio, the team recognizes the value of the service that we provide, they're leaning in, having conversations with customers and continuing to accelerate price. I think, there's a lot of, obviously, conversation out there in terms of the truck market. We did see truck capacity tighten, I say, in particularly over the course of the last couple of months with regulatory enforcement. I'd say on the intermodal side, we're near the tail end of the domestic intermodal bid season for 2026, I'm not going to get into 2027 at this point.

Speaker #2: I think as I think about our merchandise portfolio, the team recognizes the value of the service that we provide, and they're leaning in, having conversations with customers, and continuing to accelerate price.

Speaker #2: I think there's obviously a lot of conversation out there in terms of the truck market. We did see truck capacity tighten, I’d say particularly over the course of the last couple of months with regulatory enforcement.

Speaker #2: I'd say, on the intermodal side, we're near the tail end of the domestic intermodal bid season. For 2026—and I'm not going to get into 2027 at this point—but I would say we have seen pricing accelerate in our domestic spot segment, which is a smaller portion of our business, but we've also seen it on some of our recent rail asset contract renewals.

Mary Kenney: I would say we have seen pricing accelerate in our domestic spot segment, which is a smaller portion of our business. We've also seen it on some of our recent rail asset contract renewals. The team is constantly evaluating what marketing conditions look like I said, they recognize the importance of ensuring we're getting the value for the service we provide. I do think it's important, on the intermodal side, to remember that not all areas of that business have the same market dynamics. For example, I tell you, international, I think I've mentioned this before, is heavily concentrated, it's competitive, it's primarily contracted under long-term deals. That is not as highly coordinated to the truck market as you might see on domestic.

Maryclare Kenney: I would say we have seen pricing accelerate in our domestic spot segment, which is a smaller portion of our business. We've also seen it on some of our recent rail asset contract renewals. The team is constantly evaluating what marketing conditions look like I said, they recognize the importance of ensuring we're getting the value for the service we provide. I do think it's important, on the intermodal side, to remember that not all areas of that business have the same market dynamics. For example, I tell you, international, I think I've mentioned this before, is heavily concentrated, it's competitive, it's primarily contracted under long-term deals. That is not as highly coordinated to the truck market as you might see on domestic.

Speaker #2: The team is constantly evaluating what market conditions look like, and, like I said, they recognize the importance of ensuring we're getting the value for the service we provide.

Speaker #2: I do think it's important, on the intermodal side, to remember that not all areas of that business have the same market dynamics. For example, I'll tell you, international—I've mentioned this before—is heavily concentrated.

Speaker #2: It's competitive, and it's primarily contracted under long-term deals. So, that is not as highly coordinated to the truck market as you might see on domestic.

Speaker #4: We'll go next to Chris Wetherby at Wells Fargo.

Operator 2: We'll go next to Chris Wetherbee at Wells Fargo.

Operator: We'll go next to Chris Wetherbee at Wells Fargo.

Speaker #5: Hey, hey. Thanks. Good afternoon. Maybe one to Steve to get your perspective on productivity and cost control progress from here. Obviously, some really good momentum so far in these first two quarters of '26, particularly seeing it on the PS&O line.

Chris Wetherbee: Hey. Thanks. Good afternoon. Maybe wanting, Steve, to get your perspective on productivity and cost control progress from here. Obviously some really good momentum so far in these first two quarters of 2026, particularly seeing it on the PS&O line. I guess, as you think about the bigger picture opportunity, is this sort of just low-hanging fruit that you're capturing now? I guess you've been there a couple of quarters now, have a better sense of what maybe the bigger picture opportunity is. Wondering if maybe you can comment on what you think you can continue to sort of generate out of the business as we maybe look into the H2 and potentially beyond to 2027.

Speaker #5: I guess, as you think about the bigger-picture opportunities, is this just sort of low-hanging fruit that you're capturing now? I guess you've been there a couple of quarters now and have a better sense of what maybe the bigger-picture opportunity is.

Speaker #5: I was wondering if you could comment on what you think you can continue to generate out of the business as we look into the second half, and potentially beyond 2027.

Speaker #1: Kevin, I want you to take that one. Yeah.

Steve Angel: Kevin, why don't you take that one? Yeah.

Speaker #3: Yeah, I would say expenses and efficiencies are never low-hanging. There's a lot of work that goes into the efforts. Obviously, coming into the year, we had a plan, and we're delivering on that plan, which I'm encouraged about.

Kevin Boone: Yeah. I would say expenses and efficiencies are never low hanging. There's a lot of work that goes into the efforts. Obviously, coming into the year, we had a plan, and we're delivering on that plan, which I'm encouraged about. I could say we looked outward first. We're looking at all of our contractors, everything that we pay outside of the company first, and quite frankly, Mike and his team have come to the table with ideas on insourcing, and we found opportunities to insource activity and use our employees to do that work, and that's materialized into savings as well, and we see other opportunities there. The pipeline is robust. We're currently in the process of building out our 2027 plan and efficiencies, bringing the whole team together, we obviously have targets that we're setting for ourselves internally and goals there.

Speaker #3: And I could say we looked outward first. We're looking at all of our contractors, everything that we pay outside of the company first. And, quite frankly, Mike and his team have come to the table with ideas on insourcing, and we've found opportunities to insource activity and use our employees to do that work.

Speaker #3: And that's materialized in the savings as well, and we see other opportunities there. The pipeline is robust. We're currently in the process of building out our 2027 plan and efficiencies, bringing the whole team together.

Speaker #3: We obviously have targets that we're setting for ourselves internally, and goals there. I would say we're about halfway through that process and moving on, probably a lot earlier than we normally would in any other year that I've seen.

Kevin Boone: I would say we're about halfway through that process and moving on probably a lot earlier than we normally would in any other year that I've seen, and it's really about creating the muscle. It's about creating the accountability throughout the organization, ownership, common goals, and from a finance perspective, it's about us providing the tools and the visibility for Mike and his team and others to really go out and get those costs and understand where those cost opportunities are. A lot of collaboration. We're excited. We're reviewing those tomorrow. Again, a status update and more to come on that.

Speaker #3: And it's really about creating the muscle. It's about creating accountability throughout the organization, ownership, common goals. And from a finance perspective, it's about us providing the tools and the visibility for Mike and his team and others to really go out and get those costs, and understand where those cost opportunities are.

Speaker #3: So, a lot of collaboration. We're excited. We're reviewing those tomorrow—again, just our status update. And more to come on that.

Speaker #4: We'll go next to Scott Group at Wolfe Research.

Operator 2: We'll go next to Scott Group at Wolfe Research.

Operator: We'll go next to Scott Group at Wolfe Research.

Speaker #6: Hey, thanks. I just want to follow up on the pricing question. First question—I think you answered a lot about intermodal pricing. I want to ask about merchandise.

Scott Group: Hey, thanks. I just want to follow up on the pricing question. First question, I think you answered a lot about intermodal pricing. I want to ask about merchandise. We're seeing better volumes there. I'm sure they have some competition with truck market. Do you think merchandise price should be accelerating as well with intermodal? Maybe, in an aggregate basis, you said, Hey, we think same store pricing better in 2026 than 2025. Maybe it's too early to ask this, would you think we'd see another sort of acceleration in overall same store price in 2027?

Speaker #6: We're seeing better volumes there. I'm sure they have some competition with the truck market. Do you think merchandise price should be accelerating as well with intermodal?

Speaker #6: And so maybe on an aggregate basis, you said, "Hey, we think same-store pricing will be better in '26 than '25." Maybe it's too early to ask this, but would you think we could see another acceleration in overall same-store price in '27?

Speaker #2: Yeah, thanks, Scott. So, I would say yes, I'll reiterate: this year is better than last year. I would say we're constantly looking at the markets and having discussions with customers.

Mary Kenney: Yeah. Thanks, Scott. I would say yes. I'll reiterate, this year better than last year. I would say, we're constantly looking at the markets and having discussions with customers. They want us to reinvest in the business. They understand inflation. I would tell you, we have seen improvement in several markets as we've gone throughout the course of this year, too early to get into 2027 at this point.

Maryclare Kenney: Yeah. Thanks, Scott. I would say yes. I'll reiterate, this year better than last year. I would say, we're constantly looking at the markets and having discussions with customers. They want us to reinvest in the business. They understand inflation. I would tell you, we have seen improvement in several markets as we've gone throughout the course of this year, too early to get into 2027 at this point.

Speaker #2: They want us to reinvest in the business. They understand inflation. I would tell you we have seen improvement in several markets as we've gone throughout the course of this year, but it's too early to get into 2027 at this point.

Speaker #4: Next, we'll move to Brian Ostenbeck at JPMorgan.

Operator 2: Next, we'll move to Brian Ossenbeck at JP Morgan.

Operator: Next, we'll move to Brian Ossenbeck at JPMorgan.

Speaker #5: Good afternoon. Thanks for taking the time. Question for Mike. We see some of the KPIs, some of them moving in what we’d historically see is not a good direction to plan the cars as well.

Brian Ossenbeck: Hey, afternoon. Thanks for taking the time. Question for Mike. We see some of the KPIs, some of them moving in what we would historically see to not a good direction, the trip plan, the cars as well, but clearly setting record fuel, locomotive safety, and a solid result. Just wanted to see if you can kind of square the KPIs that we'd normally see maybe a little bit as a more mixed picture, and you still think there's some improvement. With sort of the impact on the business, is this really affecting pricing renewals? The service looks at least a little challenged in some areas, and was this any impact from the surprise in volume growth? Thank you.

Speaker #5: But clearly, setting record fuel, locomotive safety, and a solid result. So, just wanted to see if you can kind of square the KPIs that we'd normally see—maybe a little bit more of a mixed picture—and if you still think there's some improvement.

Speaker #5: With the impact on the business, is this really affecting pricing renewals? Does the service look at least a little challenged in some areas?

Speaker #5: And was there any impact from the surprise in volume growth? Thank you.

Speaker #1: Yeah. Thanks for the question, Brian. I'll turn the second piece over to Mary Claire for any effect it may have. But you're correct.

Mike Cory: Yeah, thanks for the question, Brian, and I'll turn the second piece over to Mary Kenney on any effect it may have. You're correct. Our service metrics aren't where we want them to be, and particularly terminal dwell and trip plan performance. The short version of that is that demand came in much stronger than we expected, and we were tighter on crews in some of our locations. Volume was up 6% across the network and higher in some individual locations while the headcount was lower than last year. We managed through that by being safer and more efficient. We increased our average tonnage per merchandise train by 5%, and we improved our workforce productivity. While we were doing that, it added pressure, obviously, to our service metrics, and I tell you, that's our area of opportunity, and we're extremely focused on it.

Speaker #1: Our service metrics aren't where we want them to be, particularly terminal dwell and trip plan performance. The short version of that is demand came in much stronger than we expected, and we were tighter on crews in some of our locations.

Speaker #1: Volume was up 6% across the network, and higher in some individual locations, while the headcount was lower than last year. But we managed through that by being safer and more efficient.

Speaker #1: We increased our average tonnage per merchandise train by 5%, and we improved our workforce productivity. While we were doing that, it added pressure, obviously, to our service metrics.

Speaker #1: And I tell you, that's our area of opportunity, and we're extremely focused on it. It's not a structural service issue, and certainly not to minimize the importance of it, but we're very productive—just not as fluid as we need to be.

Mike Cory: It's not a structural service issue, and certainly not to minimize the importance of it, we're very productive and just not as fluid as we need it to be. The forward work is pretty straightforward for us. A fluid network provides reliable service at the cost that we need. This isn't really about choosing one or the other. It's about meeting our customers' needs effectively and productively. We're going to keep improving on the safety and productivity gains we earned, our goal is to create the capacity where the demand profile requires it. That's going to include a little modest increase in our team head count to support that service product. However, we expect the productivity to increase. Again, we're being deliberate about it. We aren't going to overcorrect and reduce the productivity the team has really worked hard to earn.

Speaker #1: So the forward work is pretty straightforward for us. Fluid network provides reliable service at the cost that we need. And this isn't really about choosing one or the other.

Speaker #1: It's about meeting our customers' needs effectively and productively. We're going to keep improving on the safety and productivity gains we've earned, but our goal is to create the capacity where the demand profile requires it.

Speaker #1: So that's going to include a little modest increase in our T&E headcount to support that service product. However, we expect productivity to increase.

Speaker #1: And again, we're being deliberate about it. We aren't going to overcorrect and reduce the productivity the team has really worked hard to earn. We're focused on creating the consistency that our customers need and deserve.

Mike Cory: We're focused on creating the consistency that our customers need and deserve. Bottom line, the quarter showed that we can handle stronger volumes and do it safely and efficiently. While we count on those two things to continuously improve, our next step is really to convert that into more consistent fluidity and service, and that's going to prepare us for productive growth. That's what we're focused on, and I see us sequentially improving our operating and service metrics, no doubt about it. Over to you, Mary Kenney.

Speaker #1: So the bottom line: the quarter showed that we can handle stronger volumes and do it safely and efficiently. And while we count on those two things to continuously improve, our next step is really to convert that into more consistent fluidity and service.

Speaker #1: And that's going to prepare us for productive growth, so that's what we're focused on. I see us sequentially improving our operating and service metrics—no doubt about it.

Speaker #1: But over to you, Mary Claire.

Speaker #2: Yeah. And I'll just add that the team's obviously staying very close with customers and with our operating team. Mike and I spend a lot of time together.

Mary Kenney: Yeah, I just add that the team's obviously staying very close with customers and with our operating team. Mike and I spend a lot of time together. Our teams spend a lot of time together, and we're constantly reviewing service. We're talking through if we see an area that is an opportunity, how do we work through it together, and then making sure we're staying close to the customer.

Maryclare Kenney: Yeah, I just add that the team's obviously staying very close with customers and with our operating team. Mike and I spend a lot of time together. Our teams spend a lot of time together, and we're constantly reviewing service. We're talking through if we see an area that is an opportunity, how do we work through it together, and then making sure we're staying close to the customer.

Speaker #2: Our team spent a lot of time together, and we're constantly reviewing service. We're talking through it if we see an area that is an opportunity.

Speaker #2: How do we work through it together, and then make sure we're staying close to the customer?

Speaker #4: We'll move next to Ken Hexter at Bank of America.

Operator 2: We'll move next to Ken Hoexter at Bank of America.

Operator: We'll move next to Ken Hoexter at Bank of America.

Speaker #5: Hey, great, good afternoon. So, great job on the higher volumes, but I guess maybe just to clarify—the 350 basis point target, that includes the gain on sale, right?

Ken Hoexter: Great. Good afternoon. Great job on the higher volumes, but I guess maybe just to clarify that the 350 basis point target, that includes the gain on sale, right? What about $93 million this quarter? Then Mike, on that point of hiring faster, or do you need to hire faster given the 6% jump in carloads? Isn't this the time where you need to start planning ahead for not just what may come, but if the truck market keeps tightening and we keep getting a spillover, can you meet that with productivity, or do you need to start hiring faster given the lead time you have to start working on that? Thanks.

Speaker #5: So what about $93 million this quarter? And then, Mike, on that point of hiring faster—do you need to hire faster given the 6% jump in carloads?

Speaker #5: I mean, isn't this the time when you need to start planning ahead, not just for what may come, but if the truck market keeps tightening and we keep getting a spillover?

Speaker #5: Can you meet that with productivity, or do you need to start hiring faster given the lead time you have to start working on that?

Speaker #5: Thanks.

Speaker #3: Yeah, just to clarify on the margins side, it does include, obviously, the results that we reported in the first half, including some of the real estate gains, as you mentioned.

Kevin Boone: Yeah, just to clarify, on the margin side, it does include obviously the results that we reported in the H1, including some of the real estate gains, as you mentioned. It wasn't $93 million in the quarter. It was much less than that in the Q2. In the H1 of the year, it was about that amount.

Speaker #3: It wasn't $93 million in the quarter. It was much less than that in the second quarter. But in the first half of the year, it was about that amount.

Speaker #1: Let me take that. This is Steve. So any kind of headcount increase is very modest. And one thing that happened, I think Mike covered it, is the summer months are where we have a lot of vacations and all those people and those people have really come back.

Steve Angel: Let me take that. This is Steve. Any kind of headcount increase is very modest. One thing that happened, I think Mike covered it, is the summer months are where we have a lot of vacations, and those people have really come back, so it's concentrated in just a few months, and that's right at the same time that we saw that acceleration in demand. We kind of got caught a little bit there. Those people are back at work and any increases we're contemplating are going to be very modest. It will be in good shape going forward. In fact, as you look at our service metrics today, they're definitely improving.

Speaker #1: So, it's concentrated in just a few months. And that's right at the same time that we saw that acceleration in demand. So, we kind of got caught a little bit there.

Speaker #1: But those people are back at work. And any increases we're contemplating are going to be very modest. We will be in good shape going forward.

Speaker #1: And, in fact, as you look at our service metrics today, they're definitely improving.

Speaker #4: Our next question comes from Jonathan Chappelle at Evercore ISI.

Operator 2: Our next question comes from Jonathan Chappell at Evercore ISI.

Operator: Our next question comes from Jonathan Chappell at Evercore ISI.

Speaker #5: Thank you. Good afternoon. Kevin, you called out two cost line items somewhat specifically. So, on labor, it feels like it's going to be roughly flattish as the incentive comp declines, but then you have the annual wage inflation.

Jonathan Chappell: Thank you. Good afternoon. Kevin, you called out two cost line items somewhat specifically. On labor, it feels like it's going to be roughly flattish as the incentive comp declines, then you have the annual wage inflation. PS&O, I guess you kind of insinuated that's going to be higher without the gains on sales, some of the locomotive work, et cetera. We would typically, I think, maybe expect to see the Q3 margin improving, especially when you have this type of volume acceleration, the strong start that you've had to July. Given some of those cost things that you've just noted, maybe some of the hiring, fuel volatility again, would you expect to see a kind of normal seasonal trend as we go through the H2 of this year?

Speaker #5: And then PS&O, I guess you kind of insinuated that's going to be higher without the gains on sales, some of the locomotive work, etc.

Speaker #5: We would typically, I think, maybe expect to see the Q3 margin improving, especially when you have this type of volume acceleration, the strong start that you've had to July.

Speaker #5: Given some of those cost things that you've just noted—maybe some of the hiring, fuel volatility again—would you expect to see a kind of normal seasonal trend as we go through the second half of this year?

Speaker #5: Or maybe some of the lower-hanging fruit, or the heavy lifting, has already been done in the first half?

Jonathan Chappell: Some of maybe the lower hanging fruit or the heavy lifting has already been done in the H1?

Speaker #3: No, I wouldn't say that. I think we have a lot of good initiatives that we're going to continue to carry through on the PS&O side.

Kevin Boone: No, I wouldn't say that. I think we have a lot of good initiatives that we're going to continue to carry through on the PS&O side. I think you're spot on the labor side. Incentive comp largely will offset some of the labor increases that we have starting in 1 July with our union labor workforce. Otherwise, I think you'll see typically some of the same seasonality. I think typically you'll see Q3 maybe a little lower than Q2. The big factor here on the margin side will be the fuel. We've seen a lot of volatility in the fuel price. Certainly, we faced the fuel lag in the Q2 of the year, and that should go away. All bets are off on where the fuel could go. We saw a pretty dramatic increase this past week.

Speaker #3: I think you're spot on on the labor side. Incentive comp will largely offset some of the labor increases that we have starting July 1 with our union labor workforce.

Speaker #3: But otherwise, I think you'll see typically some of the same seasonality. I think typically you'll see third quarter maybe a little lower than second quarter.

Speaker #3: Really, the big factor here on the margin side will be the fuel. We've seen a lot of volatility in the fuel price. Certainly, we faced the fuel lag in the second quarter of the year.

Speaker #3: And that should go away. But all bets are off on where the fuel could go. We saw a pretty dramatic increase this past week, but all else equal, I think we'll see some benefit quarter over quarter.

Kevin Boone: All else equal, I think we'll see some benefit quarter-over-quarter, and that's probably going to help our margin story a little bit as well as we move from Q2 into Q3. Probably a little bit better than the typical seasonality when we see a little bit deterioration from an operating income perspective from Q2 to Q3.

Speaker #3: And that's probably going to help our margin story a little bit as well as we move from the second quarter into the third quarter. So probably a little bit better than the typical seasonality when we see a little bit of deterioration from an operating income perspective from second to third quarter.

Speaker #4: We'll move next to Tom Wadowitz at UBS.

Operator 2: We'll move next to Thomas Wadewitz at UBS.

Operator: We'll move next to Tom Wadewitz at UBS.

Speaker #6: Yeah, good afternoon. So, I wanted to swing back a little bit to the pricing side. I think maybe, Mary Claire, if I ask it in a way that you kind of frame where we’re at on merchandise pricing, maybe that’ll help us to think about what the upside could be.

Thomas Wadewitz: Good afternoon. I wanted to swing back a little bit to the pricing side. I think maybe Mary Claire, if I ask it in a way that you frame where we're at on merchandise pricing, maybe that'll help us to think about what the upside could be. If we think about a range of merchandise pricing you've achieved over time, I don't know if the low end's 1%, the high end's 5% or 6%, something like that. Obviously, if I'm off on that, please correct me. Where do you think you're at on the range of pricing gains in 2026? Just so we can have a sense of, as you see some of this tighter truck market and maybe some strength in your markets, how much upside is there in pricing when you look to 2027, in particular on the merchandise segment?

Tom Wadewitz: Good afternoon. I wanted to swing back a little bit to the pricing side. I think maybe Maryclare, if I ask it in a way that you frame where we're at on merchandise pricing, maybe that'll help us to think about what the upside could be. If we think about a range of merchandise pricing you've achieved over time, I don't know if the low end's 1%, the high end's 5% or 6%, something like that. Obviously, if I'm off on that, please correct me. Where do you think you're at on the range of pricing gains in 2026? Just so we can have a sense of, as you see some of this tighter truck market and maybe some strength in your markets, how much upside is there in pricing when you look to 2027, in particular on the merchandise segment?

Speaker #6: So, if we think about kind of a range of merchandise pricing you've achieved over time, I don't know if the low end is 1%, the high end 5 or 6, something like that.

Speaker #6: Obviously, if I'm off on that, please correct me. But where do you think you're at on the range? Do you have a sense, as you see some of this tighter truck market and maybe some strength in your markets, how much upside is there in pricing when you look to 2027?

Speaker #6: And in particular, on the merchandise segment.

Speaker #2: Yeah, thanks. So, we're not going to put out a number associated with pricing, but what I would tell you is the team is closely looking at it.

Mary Kenney: Thanks. We're not going to put out a number associated with pricing, but what I would tell you is the team is closely looking at it. I think in several markets, the fundamentals have changed over the course of the last several months, and it's something that we watch closely. We have a highly skilled team on the marketing side. They understand their markets. They're constantly having conversations with customers, and we're going to make sure that we continue to price at the value of the service and make sure that as people are looking to bring more to rail, we're taking that into account.

Maryclare Kenney: Thanks. We're not going to put out a number associated with pricing, but what I would tell you is the team is closely looking at it. I think in several markets, the fundamentals have changed over the course of the last several months, and it's something that we watch closely. We have a highly skilled team on the marketing side. They understand their markets. They're constantly having conversations with customers, and we're going to make sure that we continue to price at the value of the service and make sure that as people are looking to bring more to rail, we're taking that into account.

Speaker #2: I think in several markets, the fundamentals have changed over the course of the last several months, so it's something that we watch closely.

Speaker #2: We have a highly skilled team on the marketing side. They understand their markets. They're constantly having conversations with customers, and we're going to make sure that we continue to price at the value of the service.

Speaker #2: And make sure that, as people are looking to bring more to rail, we're taking that into account.

Speaker #4: We'll take our next question from Brandon Oglinsky at Barclays.

Operator 2: We'll take our next question from Brandon Oglenski at Barclays.

Operator: We'll take our next question from Brandon Oglenski at Barclays.

Speaker #7: Hey, good afternoon. Thanks for taking the question. Mary Claire, maybe I can ask one of you too. It looks like your units are running up maybe 6.5% right now early in the third quarter.

David Brown: Hey, good afternoon. Thanks for taking the question. Mary Claire, maybe I can ask one of you, too. It looks like your units are running up maybe 6.5% right now early in Q3. I guess, how can you compare that to your annual revenue guidance here? I know you called out some headwinds in H2, but are we just running maybe even ahead of expectations right now?

Brandon Oglenski: Hey, good afternoon. Thanks for taking the question. Maryclare, maybe I can ask one of you, too. It looks like your units are running up maybe 6.5% right now early in Q3. I guess, how can you compare that to your annual revenue guidance here? I know you called out some headwinds in H2, but are we just running maybe even ahead of expectations right now?

Speaker #7: I guess, how can you compare that to your annual revenue guidance here? And I know you called out some headwinds in the back half, but are we just running maybe even ahead of expectations right now?

Speaker #2: Yeah, thanks. I would say, right now, we called out a couple of areas that we're watching. So, merchandise and intermodal improved in the second quarter.

Mary Kenney: Yeah, thanks. I would say right now, we called out a couple of areas that we're watching. Merchandise and intermodal improved in Q2. I'd say as we think about the balance of the year, the tighter truck capacity should create some additional opportunities on domestic intermodal. We've taken that into account as we think about balance of year. In certain areas of our merchandise portfolio, I'd say we saw probably the strongest acceleration due to truck conversion in the forest products segment in Q2 versus where we were in Q1. When I think about as we're thinking about the future, there's two areas in merchandise that were a little stronger in Q2 than we anticipated that we're keeping our eye on. I mentioned it in the prepared remarks as chemicals and it's automotive.

Maryclare Kenney: Yeah, thanks. I would say right now, we called out a couple of areas that we're watching. Merchandise and intermodal improved in Q2. I'd say as we think about the balance of the year, the tighter truck capacity should create some additional opportunities on domestic intermodal. We've taken that into account as we think about balance of year. In certain areas of our merchandise portfolio, I'd say we saw probably the strongest acceleration due to truck conversion in the forest products segment in Q2 versus where we were in Q1. When I think about as we're thinking about the future, there's two areas in merchandise that were a little stronger in Q2 than we anticipated that we're keeping our eye on. I mentioned it in the prepared remarks as chemicals and it's automotive.

Speaker #2: I'd say, as we think about the balance of the year, the tighter truck capacity should create some additional opportunities on domestic intermodal. We've taken that into account as we think about the balance of the year.

Speaker #2: And in certain areas of our merchandise portfolio, I'd say we saw probably the strongest acceleration due to truck conversion in the forest products segment in Q2 versus where we were in Q1.

Speaker #2: When I think about, as we're thinking about the future, there are two areas in merchandise where we're a little stronger in the second quarter.

Speaker #2: And we anticipated that—we're keeping our eye on it. And I mentioned in the prepared remarks, it's chemicals and it's automotive. I'd say on the chemical side, with the war in Iran, we saw an uptick in plastics as people were looking to pull ahead.

Mary Kenney: I'd say on the chemical side, with the war in Ukraine, we saw an uptick in plastics as people were looking to pull ahead. Inventories now, we're keeping a close eye on those. They could moderate as we get into the back H2. That's an area we're keeping focus up against. On the automotive side, overall automotive demand really hasn't improved. The current outlook for North American light vehicle production is still to be down just under 2% for the year. It was slower Q1. It accelerated some in Q2, but we're watching those trends coming out of shutdown. Some inventories are high, we're keeping an eye on that.

Maryclare Kenney: I'd say on the chemical side, with the war in Ukraine, we saw an uptick in plastics as people were looking to pull ahead. Inventories now, we're keeping a close eye on those. They could moderate as we get into the back H2. That's an area we're keeping focus up against. On the automotive side, overall automotive demand really hasn't improved. The current outlook for North American light vehicle production is still to be down just under 2% for the year. It was slower Q1. It accelerated some in Q2, but we're watching those trends coming out of shutdown. Some inventories are high, we're keeping an eye on that.

Speaker #2: Inventories—now, we're keeping a close eye on those. They could moderate as we get into the back half, and so that's an area we're keeping focus up against.

Speaker #2: And then on the automotive side, overall automotive demand really hasn't improved. So the current outlook for North American light vehicle production is still to be down just under 2% for the year.

Speaker #2: It was slower in the first quarter. It accelerated some in the second quarter. But we're watching those trends coming out of shutdown. Some inventories are high.

Speaker #2: And so, we're keeping an eye on that, so that could decelerate a bit. But I think, as we think about the rest of the markets, there are better fundamentals.

Mary Kenney: That could decelerate a bit. I think as we think about the rest of the markets, there's better fundamentals we see out there now than where we saw starting out this year.

Maryclare Kenney: That could decelerate a bit. I think as we think about the rest of the markets, there's better fundamentals we see out there now than where we saw starting out this year.

Speaker #2: We see out there now more than what we saw starting out this year.

Speaker #4: We'll move next to Walter Spracklin at RBC Capital.

Operator 2: We'll move next to Walter Spracklen at RBC Capital.

Operator: We'll move next to Walter Spracklen at RBC Capital.

Speaker #5: Yeah, thanks very much. Good afternoon, everyone. I was going to come back to Mike on the capacity side. You talked a little bit about labor and hiring.

Walter Spracklin: Yeah. Thanks very much. Good afternoon, everyone. I was going to come back to Mike on the capacity side. I know you talked a little bit about labor and hiring, but I'm just wondering if you're seeing any pinch points from a structural standpoint, anything that might make you look a little bit harder at the CapEx? I know you held it constant this year, when growth comes on, sometimes you find some pinch points that you didn't know were there before. Is there any evidence of that at all?

Speaker #5: But I was wondering if you're seeing any pinch points from a structural standpoint—anything that might make you look a little bit harder at the CapEx one.

Speaker #5: I know you held it constant this year, but when growth comes on, sometimes you find some pinch points that you weren't—you didn't know where they were before.

Speaker #5: And is there any evidence of that at all?

Speaker #3: Thanks for the question, Walter. No, in terms of structural issues, no. We're always looking at our capacity, and actually, we're working very hard to define and improve our capacity modeling.

Mike Cory: Thanks for the question, Walter. No, in terms of structural issues, no. We're always looking at our capacity, and actually, we're working very hard to define and make better our capacity modeling. In terms of the network itself, we showed with the volume we brought, with the exception of some locations where we were very tight on crews, we can handle it, and we can handle more. We'll continuously look at our demand profile and work hard to find out the capacity that we have and obviously exert everything we can out of it. In terms of structural, no, we're in good shape going forward, and that's how we see it.

Speaker #3: But in terms of the network itself, we showed with the volume we brought, with the exception of some locations where we were very tight on crews, we can handle it.

Speaker #3: And we can handle more, so we'll continue to look at our demand profile and work hard to find out the capacity that we have.

Speaker #3: And obviously, exert everything we can out of it. But in terms of structural, no, we're in good shape going forward. And that's how we see it.

Speaker #4: Our next question comes from Ari Rosa at Citi.

Operator 2: Our next question comes from Ari Rosa at Citi.

Operator: Our next question comes from Ari Rosa at Citi.

Speaker #7: Hi, Mary Claire. I was hoping you could talk about the intermodal opportunity, maybe staying on the idea of available capacity. Now that Howard Street is open, obviously the trucking market has tightened a lot, especially in the East.

Ari Rosa: Hi, Mary Claire. I was hoping you could talk about the intermodal opportunity, maybe staying on the idea of available capacity. Now that Howard Street is open, obviously the trucking market has tightened a lot, especially in the East, and we heard J.B. Hunt speak to that. Just talk about how you're balancing the desire to grow volume against the pricing opportunity and how much available capacity is on the network. How should we be modeling that over the next couple of quarters? Thanks.

Ari Rosa: Hi, Maryclare. I was hoping you could talk about the intermodal opportunity, maybe staying on the idea of available capacity. Now that Howard Street is open, obviously the trucking market has tightened a lot, especially in the East, and we heard J.B. Hunt speak to that. Just talk about how you're balancing the desire to grow volume against the pricing opportunity and how much available capacity is on the network. How should we be modeling that over the next couple of quarters? Thanks.

Speaker #7: And we heard JB Hunt speak to that. Just talk about how you're balancing the desire to grow volume against the pricing opportunity and how much available capacity is on the network.

Speaker #7: How should we be modeling that over the next couple of quarters? Thanks.

Speaker #2: Yeah, thank you. So I'd say when we think about domestic intermodal, this year and longer term, we see opportunity out there. We've talked about that.

Mary Kenney: Yeah. Thank you. I'd say when we think about domestic intermodal this year and longer term, we see opportunity out there. We talked about that, go back to even a couple of years ago when we talked publicly about where we saw domestic intermodal. There's a good amount of traffic that moves over the highway that is suitable for intermodal conversion. Certainly, we're coming out of what was a pretty soft truck market. It's tightened pretty significantly over the course of the last several months, and we're having a lot of conversations with customers. I tell you, the investments we've made in our infrastructure have allowed us to capitalize on opportunities probably pretty quickly over the course of the last few months.

Maryclare Kenney: Yeah. Thank you. I'd say when we think about domestic intermodal this year and longer term, we see opportunity out there. We talked about that, go back to even a couple of years ago when we talked publicly about where we saw domestic intermodal. There's a good amount of traffic that moves over the highway that is suitable for intermodal conversion. Certainly, we're coming out of what was a pretty soft truck market. It's tightened pretty significantly over the course of the last several months, and we're having a lot of conversations with customers. I tell you, the investments we've made in our infrastructure have allowed us to capitalize on opportunities probably pretty quickly over the course of the last few months.

Speaker #2: Go back to even a couple of years ago when we talked publicly about where we saw domestic intermodal. There's a good amount of traffic that moves over the highway that is suitable for intermodal conversion.

Speaker #2: Certainly, we're coming out of what was a pretty soft truck market. It's tightened pretty significantly over the course of the last several months.

Speaker #2: And we're having a lot of conversations with customers. I tell you, the investments we've made in our infrastructure have allowed us to capitalize on opportunities pretty quickly over the course of the last few months.

Speaker #2: I'm closely watching as the team goes out there and sells against Howard Street Tunnel, and the new connectivity that we've put in place—what that looks like on a weekly basis.

Mary Kenney: I'm closely watching as the team goes out there and sells against Howard Street Tunnel and the new connectivity that we've put in place, what that looks like on a weekly basis. We've talked about over the last couple of calls some of the new services that we've put in place, including the partnership with CPKC on SMX. When I look at SMX and Howard Street Tunnel over the course of the last few weeks, really over the course of the last couple of months, we've seen growth week over week in both of those areas. Then as I look at the last couple of weeks, it's adding about 2 points, I would say, in terms of domestic intermodal growth. We see additional opportunity there.

Maryclare Kenney: I'm closely watching as the team goes out there and sells against Howard Street Tunnel and the new connectivity that we've put in place, what that looks like on a weekly basis. We've talked about over the last couple of calls some of the new services that we've put in place, including the partnership with CPKC on SMX. When I look at SMX and Howard Street Tunnel over the course of the last few weeks, really over the course of the last couple of months, we've seen growth week over week in both of those areas. Then as I look at the last couple of weeks, it's adding about 2 points, I would say, in terms of domestic intermodal growth. We see additional opportunity there.

Speaker #2: We've talked about, over the last couple of calls, some of the new services that we've put in place, including the partnership with CPKC on SMX.

Speaker #2: And when I look at SMX and the Howard Street Tunnel over the course of the last few weeks—really over the course of the last couple of months—we've seen growth week over week.

Speaker #2: In both of those areas. And then, as I look at the last couple of weeks, it's adding about a couple of points, I would say, in terms of domestic intermodal growth.

Speaker #2: And so we see additional opportunity there. Howard Street is still pretty early for our customers, and it was later in the bid cycle when that was unlocked this year.

Mary Kenney: Howard Street's still pretty early for our customers, and it was later in the bid cycle when that was unlocked this year. As we go into the back end of this year and we go into next year, we see additional opportunity. I think as we think about, I know pricing is a hot topic today, as we think about that and going forward, we're constantly watching the market, evaluating the market. Not everything comes up at the same time. I talked earlier about the bid season associated with domestic intermodal, and that comes into play. In terms of capacity, it's a constant conversation with Mike and his team. I would say, as I think about our intermodal trains, they're out there running today.

Maryclare Kenney: Howard Street's still pretty early for our customers, and it was later in the bid cycle when that was unlocked this year. As we go into the back end of this year and we go into next year, we see additional opportunity. I think as we think about, I know pricing is a hot topic today, as we think about that and going forward, we're constantly watching the market, evaluating the market. Not everything comes up at the same time. I talked earlier about the bid season associated with domestic intermodal, and that comes into play. In terms of capacity, it's a constant conversation with Mike and his team. I would say, as I think about our intermodal trains, they're out there running today.

Speaker #2: So, as we go into the back end of this year and into next year, we see additional opportunity. I think, as we think about it—I know pricing is a hot topic today.

Speaker #2: As we think about that and going forward, we're constantly watching the market, evaluating the market. Not everything comes up at the same time. I talked earlier about the bid season associated with domestic intermodal.

Speaker #2: And that comes into play. In terms of capacity, it's a constant conversation with Mike and his team. I would say, as I think about our intermodal trains, they're out there running today.

Speaker #2: There's capacity on many of our trains, and so it gives us the ability to bring on business pretty quickly within that area, and still be able to support it from a reliability and a consistency perspective for our customers.

Mary Kenney: There's capacity on many of our trains, and so it gives us the ability to bring on business pretty quickly within that area and still be able to support it from a reliability and a consistency perspective for our customers.

Maryclare Kenney: There's capacity on many of our trains, and so it gives us the ability to bring on business pretty quickly within that area and still be able to support it from a reliability and a consistency perspective for our customers.

Speaker #4: We'll go next to Richard Harname at Deutsche Bank.

Operator 2: We'll go next to Richa Harnain at Deutsche Bank.

Operator: We'll go next to Richa Harnain at Deutsche Bank.

Richa Harnain: Hey. Yeah. Thanks, everyone. Thanks for the time. I just wanted to discuss more about customer feedback. The value proposition for intermodal is pretty clear, but more broadly, I guess, how are customers feeling? What's driving them to CSX? Does it feel very company specific? You've optimized your product portfolio, you're exposed to specific projects, or does it feel like there's true macro uplift here? I just wanted to clarify that there's no fear around broad-based pull forward. Mary Claire, I think you gave us a lot on plastics and auto, but wanted to confirm you don't feel like there was broader pull forward out there given the high level data we see from the ports. Along those lines, maybe also comment on the competitive environment and how that's affecting your ability to optimize demand in this environment. Thank you.

Richa Harnain: Hey. Yeah. Thanks, everyone. Thanks for the time. I just wanted to discuss more about customer feedback. The value proposition for intermodal is pretty clear, but more broadly, I guess, how are customers feeling? What's driving them to CSX? Does it feel very company specific? You've optimized your product portfolio, you're exposed to specific projects, or does it feel like there's true macro uplift here? I just wanted to clarify that there's no fear around broad-based pull forward. Maryclare, I think you gave us a lot on plastics and auto, but wanted to confirm you don't feel like there was broader pull forward out there given the high level data we see from the ports. Along those lines, maybe also comment on the competitive environment and how that's affecting your ability to optimize demand in this environment. Thank you.

Speaker #6: For the time, so I just wanted to discuss more about customer feedback. The value proposition for intermodal is pretty clear, but more broadly, I guess—how are customers feeling?

Speaker #6: What's driving them to CSX? Does it feel very company-specific? You've optimized your product portfolio, you're exposed to specific projects, or does it feel like there's true macro uplift here?

Speaker #6: And then just—I just wanted to clarify that there's no fear around a broad-based pull forward. Mary Claire, I think you gave us a lot on plastics and auto.

Speaker #6: But I wanted to confirm, you don't feel like there was a broader pull-forward out there, given the high-level data we see from the ports.

Speaker #6: And then along those lines, maybe also comment on the competitive environment and how that's affecting your ability to optimize demand in this environment. Thank you.

Speaker #2: Yes, I'll try to remember all of that. Maybe starting on the intermodal side—like I said, I think there's good opportunity for intermodal conversion.

Mary Kenney: Yes. I'll try to remember all of that. Starting on the intermodal side, like I said, I think there's good opportunity for intermodal conversion. We have a wholesale channel of sale. We work with our channel partners. We have lots of conversations with them. We also have a BCO national accounts team that talks directly with shippers, and we're constantly working with them, evaluating what they're moving over the road, looking at their truck profiles, and advising them on what are the best lanes that are suitable for intermodal conversion. We do continue to see opportunities there, and with a tighter truck market, the value proposition that intermodal provides, I think is really strong, and it will be an area of opportunity as we proceed through this year into next.

Maryclare Kenney: Yes. I'll try to remember all of that. Starting on the intermodal side, like I said, I think there's good opportunity for intermodal conversion. We have a wholesale channel of sale. We work with our channel partners. We have lots of conversations with them. We also have a BCO national accounts team that talks directly with shippers, and we're constantly working with them, evaluating what they're moving over the road, looking at their truck profiles, and advising them on what are the best lanes that are suitable for intermodal conversion. We do continue to see opportunities there, and with a tighter truck market, the value proposition that intermodal provides, I think is really strong, and it will be an area of opportunity as we proceed through this year into next.

Speaker #2: We have a wholesale channel for sales, and we work with our channel partners. We have lots of conversations with them. We also have a BCO national accounts team that talks directly with shippers.

Speaker #2: And so we're constantly working with them, evaluating what they're moving over the road, looking at their truckload files, and advising them on what are the best lanes that are suitable for intermodal conversion.

Speaker #2: And so, we do continue to see opportunities there. And with a tighter truck market, the value proposition that intermodal provides, I think, is really strong.

Speaker #2: And it will be an area of opportunity as we proceed through this year into next. When I think about the broader markets, I mentioned a couple in terms of automotive and plastics.

Mary Kenney: When I think about the broader markets, I mentioned a couple in terms of automotive and plastics. What I would say is, talking maybe a little bit about forest products, that's an area coming into this year we saw the biggest headwinds. I wouldn't say that the demand has necessarily strengthened, but the supply really has. We do continue to see opportunities within that area, as we think about tighter truck capacity out there. We've said many times this year about several of the other areas of the business more tied to infrastructure. Think about metals going into data centers, infrastructure investment, your plate, your rebar, that we continue to see strength there, expect that to maintain. Same with the minerals perspective. A lot of funding with IIJA, a lot of investment continuing in that area.

Maryclare Kenney: When I think about the broader markets, I mentioned a couple in terms of automotive and plastics. What I would say is, talking maybe a little bit about forest products, that's an area coming into this year we saw the biggest headwinds. I wouldn't say that the demand has necessarily strengthened, but the supply really has. We do continue to see opportunities within that area, as we think about tighter truck capacity out there. We've said many times this year about several of the other areas of the business more tied to infrastructure. Think about metals going into data centers, infrastructure investment, your plate, your rebar, that we continue to see strength there, expect that to maintain. Same with the minerals perspective. A lot of funding with IIJA, a lot of investment continuing in that area.

Speaker #2: What I would say is, talking maybe a little bit about forced products, that's an area coming into this year where we saw the biggest headwinds.

Speaker #2: I wouldn't say that the demand has necessarily strengthened, but the supply really has. And so we do continue to see opportunities within that area as we think about tighter truck capacity out there.

Speaker #2: And then, as we've said many times this year about several of the other areas of the business, more tied to infrastructure—so think about metals going into data centers, infrastructure investment, your plate, your rebar—we continue to see strength there.

Speaker #2: Expect that to maintain, and same with the minerals perspective. So a lot of funding with IIJA, a lot of investment continuing in that area.

Speaker #2: And so we don't see a material change in that going forward. We're positive about that.

Mary Kenney: We don't see a material change in that going forward. We're positive about that.

Maryclare Kenney: We don't see a material change in that going forward. We're positive about that.

Speaker #4: We'll take our next question from Jason Seidel at Cowan.

Operator 2: We'll take our next question from Jason Seidl at Cowen.

Operator: We'll take our next question from Jason Seidl at Cowen.

Speaker #5: Thank you, operator. Stephen team, good job in the quarter. Mary Claire, I wanted to talk a little bit more about two things you brought up.

Jason Seidl [Managing Director of Industrials: Thank you, operator. Steve and team, good job on the quarter. Mary Clare, I wanted to talk a little bit more about two things you brought up. Number one, you mentioned sort of your spot intermodal business. Maybe you could remind us the percent of the total that is. Also you referenced your SMX Advantage business with the CPKC. Just curious what sort of is the longer term opportunity with that, and especially given that we saw the FMCSA eliminate thousands of sort of individual carriers overnight earlier this year that violated cabotage. I was wondering if you're getting a lot of questions from maybe new people that might want to ship cross-border intermodal from Mexico.

Jason Seidl: Thank you, operator. Steve and team, good job on the quarter. Maryclare, I wanted to talk a little bit more about two things you brought up. Number one, you mentioned sort of your spot intermodal business. Maybe you could remind us the percent of the total that is. Also you referenced your SMX Advantage business with the CPKC. Just curious what sort of is the longer term opportunity with that, and especially given that we saw the FMCSA eliminate thousands of sort of individual carriers overnight earlier this year that violated cabotage. I was wondering if you're getting a lot of questions from maybe new people that might want to ship cross-border intermodal from Mexico.

Speaker #5: Number one, you mentioned sort of your spot intermodal business. Maybe you could remind us what percent of the total that is. And also, you referenced your SMX Advantage business with the CPKC.

Speaker #5: Just curious sort of what sort of is the longer-term opportunity with that? And especially given that we saw the FMCSA, eliminate thousands of sort of individual carriers overnight earlier this year that violated CAB outage.

Speaker #5: I was wondering if you're getting a lot of questions from maybe new people that might want to ship cross-border intermodal from Mexico.

Speaker #2: Yeah, on the spot piece, I'd say it's a very small portion of our business. So, it's a small element of our domestic intermodal side.

Mary Kenney: Yeah. On the spot piece, I'd say that it's a very small portion of our business, so it's a small element of our domestic intermodal side. It's an area that we've seen acceleration recently. In terms of SMX and CPKC, I mentioned we've continued to see growth. We saw good volumes as we started the program a little over a year ago. We've been very happy as we've come into this year with the acceleration that we've seen already. Like I said, similar to Howard Street Tunnel, it is something that is building upon itself, and we're seeing growth week in and week out.

Maryclare Kenney: Yeah. On the spot piece, I'd say that it's a very small portion of our business, so it's a small element of our domestic intermodal side. It's an area that we've seen acceleration recently. In terms of SMX and CPKC, I mentioned we've continued to see growth. We saw good volumes as we started the program a little over a year ago. We've been very happy as we've come into this year with the acceleration that we've seen already. Like I said, similar to Howard Street Tunnel, it is something that is building upon itself, and we're seeing growth week in and week out.

Speaker #2: But it's an area where we've seen acceleration recently. In terms of SMX and CPKC, as I mentioned, we've continued to see growth. We saw good volumes as we started the program a little over a year ago.

Speaker #2: We've been very happy as we've come into this year with the acceleration that we've seen already and, like I said, similar to Howard Street Tunnel, it's something that is building upon itself.

Speaker #2: And we're seeing growth week in and week out. We think as we've improved the service in recent months and we've added additional lanes of service to SMX, as we get into the back half of this year and start into next year's bid season, we're going to continue to see additional growth in that area.

Mary Kenney: We think as we've improved the service in recent months and we've added additional lanes of service to SMX as we get into the back half of this year and start into next year's bid season, we're going to continue to see additional growth in that area.

Maryclare Kenney: We think as we've improved the service in recent months and we've added additional lanes of service to SMX as we get into the back half of this year and start into next year's bid season, we're going to continue to see additional growth in that area.

Speaker #4: We'll move next to Harrison Bauer at Susquehanna.

Operator 2: We'll move next to Harrison Bauer at Susquehanna.

Operator: We'll move next to Harrison Bauer at Susquehanna.

Speaker #5: Earlier, you provided a merchandise RPU ex fuel. I was curious if you can offer what intermodal RPU ex fuel was, or said another way, what your renewals—particularly in the domestic business—were like.

Harrison Bauer: Earlier comments, you provided a merchandise RPU ex fuel. I was curious if you can offer what intermodal RPU ex fuel was or said another way, what your renewals, particularly in the domestic business were like. Then maybe taking a step back off of that, if truckload sees two strong bid seasons of over double-digit renewals, what's the ultimate opportunity for pricing within your domestic intermodal business without sacrificing maybe some of that opportunity for truckload conversions? Thank you.

Speaker #5: And then maybe taking a step back off of that, if truckload sees two strong bid seasons of over double-digit renewals, what's the ultimate opportunity for pricing within your domestic intermodal business without sacrificing maybe some of that opportunity for truckload conversion?

Speaker #5: Thank you.

Speaker #2: Yeah, I think I mentioned that fuel was a big driver on intermodal RPU in this past quarter. I would say, as we think about the future, the truck market has just recently tightened.

Mary Kenney: Yeah, I think I mentioned that fuel was a big driver on intermodal RPU in this past quarter. I would say as we think about the future, the truck market has just recently tightened, so when we think about our bid season, it's not different than what you hear from some of the other large trucking companies out there, ones that reported recently and ones that will report. The bid season kicks off towards the end of the year, we start seeing pricing then, it's coming up to the kind of tail end of it right now. So I would say the market dynamics have shifted as we've been in bid season for domestic intermodal this year. As we think about the future, there's some business we can reprice each year. There's some that is in multi-year agreements that have specific things tied to it.

Maryclare Kenney: Yeah, I think I mentioned that fuel was a big driver on intermodal RPU in this past quarter. I would say as we think about the future, the truck market has just recently tightened, so when we think about our bid season, it's not different than what you hear from some of the other large trucking companies out there, ones that reported recently and ones that will report. The bid season kicks off towards the end of the year, we start seeing pricing then, it's coming up to the kind of tail end of it right now. So I would say the market dynamics have shifted as we've been in bid season for domestic intermodal this year. As we think about the future, there's some business we can reprice each year. There's some that is in multi-year agreements that have specific things tied to it.

Speaker #2: And so when we think about our bid season, it's not different than what you hear from some of the other large trucking companies out there—ones that reported recently and ones that will report.

Speaker #2: The bid season kicks off towards the end of the year, and we start seeing pricing then. It's coming up to the tail end of it right now.

Speaker #2: And so, I would say the market dynamics have shifted as we've been in bid season for domestic intermodal this year. As we think about the future, there's some business we can reprice each year.

Speaker #2: There’s some that is in multi-year agreements that have specific things tied to it. And so we’re going to lean in, as I’ve mentioned. But I think that’s about as far as we’re going to go at this point on domestic intermodal pricing.

Mary Kenney: So, we're going to lean in as I've mentioned, but I think that's about as far as we're going to go at this point on domestic intermodal pricing.

Maryclare Kenney: So, we're going to lean in as I've mentioned, but I think that's about as far as we're going to go at this point on domestic intermodal pricing.

Speaker #4: And our final question today comes from David Vernon with Bernstein.

Operator 2: Our final question today comes from David Vernon with Bernstein.

Operator: Our final question today comes from David Vernon with Bernstein.

Speaker #6: Hey, good afternoon, guys. Thanks for taking the question. So, Kevin, I wanted to get your sense for how you're feeling about the operating leverage on the incremental business that's coming in.

David Vernon: Hey, good afternoon, guys. Thanks for taking the question. Kevin, I wanted to get your sense for how you're feeling about the operating leverage on the incremental business that's coming in. I know there's a lot of sort of stuff that you guys have done this year, which is commendable around headcount reductions and expense reductions. When I think about the freight revenue growth in relation to the profit growth ex some of those one-time items, maybe the incrementals aren't so great. I'm just wondering how you're feeling about the leverage you're getting on the new business and how much of the $54 million in efficiency gains is really kind of volume driven versus more cost takeout driven.

Speaker #6: And there's a lot of stuff you guys have done this year—which is commendable—around headcount reductions and expense reductions. But when I think about the freight revenue growth in relation to the profit growth, excluding some of those one-time items, maybe the incrementals aren't so great.

Speaker #6: I'm just wondering how you're feeling about the leverage you're getting on the new business, and how much of the $54 million in efficiency gains is really volume-driven versus more cost takeout-driven.

Speaker #5: Yeah. I mean, when I do the math, quite frankly, our incremental margins were very, very strong when you exclude fuel, for your overall expenses to be down 2%.

Kevin Boone: Yeah, when I do the math, quite frankly, our incremental margins were very strong when you ex out fuel for your overall expenses to be down 2% and the growth that we achieved in the quarter. The incremental margins I'm quite pleased with if you do that math. As we move forward, this is a model that has a lot of fixed costs, and as we bring volume on it, and it's got to be profitable, and it supports obviously our reinvestments in our railroad, we expect to generate powerful incremental margins. I think you did see that in Q2 if you do the math and look at the fuel impact that occurred. Moving forward, obviously that net fuel impact will be less going forward, so it won't be as quite of a headwind as we saw in Q2.

Speaker #5: And the growth that we achieved in the quarter—that's the incremental margins—I'm quite pleased with, if you do the math. So as we move forward, this is a model that has a lot of fixed costs.

Speaker #5: And as we bring volume on, and it’s got to be profitable and it supports, obviously, our reinvestments in our railroad, we expect to generate powerful incremental margins.

Speaker #5: And so I think you did see that in the second quarter. If you do the math and look at the fuel impact, that occurred.

Speaker #5: And moving forward, obviously that net fuel impact will be less going forward, so it won't be quite as much of a headwind as we saw in the second quarter.

Speaker #5: But I see line of sight to strong, powerful incremental margins. It's about cost discipline. Obviously, as we take on the volume, not all volume is created equal, to your point.

Mary Kenney: I see line of sight to strong, powerful incremental margins. It's a cost discipline, obviously, as we take on the volume. Not all volume is created equal, to your point. We're looking for volume that supports our reinvestments and returns on invested capital is a real focus for this team.

Kevin Boone: I see line of sight to strong, powerful incremental margins. It's a cost discipline, obviously, as we take on the volume. Not all volume is created equal, to your point. We're looking for volume that supports our reinvestments and returns on invested capital is a real focus for this team.

Speaker #5: So, we're looking for volume that supports our reinvestments, and returns on invested capital is a real focus for this team.

Speaker #4: And we do have one more question, and that comes from Bascom Majors at Stevens.

Operator 2: We do have one more question, and that comes from Bascome Majors at Stephens.

Operator: We do have one more question, and that comes from Bascome Majors at Stephens.

Speaker #5: Yeah, thanks for taking my question. Steve, I'd be curious about your perspective as an outsider, now 10 months into being an insider at the railroad.

Bascome Majors: Yeah. Thanks for taking my question. Steve, I would be curious on your perspective as an outsider now 10 months into being an insider at the railroad. Relative to what you were thinking when you came in and accepted this role, where do you still think there is a lot of opportunity to do things differently in an old economy, established industry? Where maybe have you sort of given up where there is too much friction or just processes that are too ingrained to really change? Thank you.

Speaker #5: Relative to what you were thinking when you came in and accepted this role, where do you still think there is a lot of opportunity to do things differently in an old, old-economy, established industry?

Speaker #5: And where maybe have you sort of given up, where there's too much friction or just processes that are too ingrained to really change? Thank you.

Speaker #3: Well, I would say, as a 10-month veteran, I'm encouraged about the progress we've made and, really, what we have ahead of us. I always think of it in terms of—there's opportunity to improve everything.

Steve Angel: Well, I would say as a 10-month veteran, I am encouraged about the progress we have made and really what we have ahead of us. I always think of it in terms of there is opportunity to improve everything, and I have always found that to be true. In operations, I think it is probably a never-ending endeavor to continue to improve operations. Mike Cory is a 40-year veteran, he knows all about it, and I am always amazed how much he knows about the railroads and how to operate the railroads. There is always going to be opportunities to improve that. We talked about that a little bit today, some of the things we are doing to improve. Pricing, Mary Kenney had to answer about 18 pricing questions today. I really think that is a muscle we are building. I think we are getting better every day at that, building price management capability.

Speaker #3: And I've always found that to be true. And in operations, I think that's probably a never-ending endeavor to continue to improve operations, and Mike Cory's a 40-year veteran.

Speaker #3: He knows all about it. And I'm always amazed at how much he knows about the railroad and how to operate the railroads. And there's always going to be opportunities to improve that.

Speaker #3: And we talked about that a little bit today—some of the things we're doing to improve pricing. Mary Claire had to answer about 18 pricing questions today.

Speaker #3: But I really think that's a muscle we're building. I think we're getting better every day at that, building price management capabilities. She's all over it.

Steve Angel: She is all over it. This is an area where AI can really do some good with good price analytical tools, so we can get a little better at that. I always think about pricing in terms of making sure that we understand the value we are providing the customer. What is the value we are providing? What is their next best alternative? Are we earning good returns? Do we have the capacity to serve? All of that goes into those decisions, and you make those decisions surgically. It is not a blanket, we are going to do X% price across this segment of the market. Those are all surgical decisions. Of course, we want profitable business. We want good returns on capital, as Kevin said, and continue to reinvest the business. I think on the productivity side, Kevin talked a lot about that.

Speaker #3: This is an area where AI can really do some good if we get a little better at that. I always think about pricing in terms of making sure that we understand the value we're providing the customer.

Speaker #3: What is the value we're providing? What is their next best alternative? Are we earning good returns? Do we have the capacity to serve? And all of that goes into those decisions.

Speaker #3: And you make those decisions surgically. It's not a blanket, “We're going to do X percent price across this segment of the market.” Those are all surgical decisions.

Speaker #3: And of course, we want profitable business. We want good returns on capital, as Kevin said, and to continue to reinvest in the business. I think, on the productivity side, Kevin talked a lot about that.

Speaker #3: Mike did too, to some degree. And I think there's a lot of opportunity on the productivity side. I think – obviously, the team has responded great so far this year.

Steve Angel: Mike did, too, to some degree, I think there's a lot of opportunity on the productivity side. The team responded great so far this year, as we look at, tomorrow, we'll be working on 2027. We'll be talking about benefits that will carry forward to 2028. It's really all about building that productivity muscle, I think that's an opportunity for improvement. All businesses, great businesses, have opportunities for improvement, we're no different than anyone else.

Speaker #3: But as we look at where we're talking about '20 tomorrow, we're working on '27. We'll be talking about benefits that we'll carry forward to '28.

Speaker #3: So it's really all about building that productivity muscle. And I think that's an opportunity for improvement. But all businesses, great businesses, have opportunities for improvement.

Speaker #3: And we're no different than anyone else.

Speaker #4: And this concludes today's question-and-answer session. Anne, conference call. Thank you for your participation. You may now disconnect.

Operator 2: This concludes today's question and answer session and conference call. Thank you for your participation. You may now disconnect.

Operator: This concludes today's question and answer session and conference call. Thank you for your participation. You may now disconnect.

Operator 1: Please wait. The conference will begin shortly.

Q2 2026 CSX Corp Earnings Call

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