CSX CORP — Call Transcript 2025

All right. Good morning. Welcome to Barclays' 42nd Annual Industrial Select Conference. I'm Brandon Oglenski, Airline and Transport Analyst, and very excited to have CSX up as our third panel here, and actually, we have all five of the publicly traded rail CEOs here today. I know. So, Joe. Good morning. So. We also have Sean Pelkey, CFO of CSX, so we're going to have a great conversation here. If we can just queue up the first audience response question, I'm sure you folks know how to do this at this point. Do you currently own CSX? One, overweight. Two, market weight. Three, underweight. Four, no. I'm one. Joe, everyone's on. I'm one. Yeah. We tend to keep the voting buttons off of the stage. Yeah, probably why. But I'll tell you my answer. Got some owners in the room. Question number two. What is your general bias towards CSX right now? Positive, negative, or neutral? And we do appreciate everyone participating because we get some pretty good aggregate data out of this conference every year. A little bit mixed there. And then question number three, please. In your opinion, through cycle EPS growth for CSX will be above peers, in line with peers, or below peers? All right. So Joe, Sean, thank you guys very much for coming down to Miami. Really appreciate you being here. I guess I'm going to lead off, Joe, with maybe a slightly difficult question, but when you took over as CEO, your rail operating ratio was among the industry's best, especially if we strip out the impact from your trucking operation. And that has deteriorated a little bit here, where some of your peers and your competitor in the East is actually looking maybe a little bit better in the near term. But can you talk to the long-term ambitions of where you want this company to be from a profitability perspective? Sure. I mean, if you look at the facts, if you set Quality Carriers aside for a second, and you'll be able to see more of that over time, our rail business in 2023 had the highest margins in the industry. Last year, we had the second highest margins in the industry, only a point behind one other one. That's inclusive of the hurricanes and Francis Scott Key Bridge collapse and things that we don't control. If you look at our absolute rail performance, it's at or above the whole industry. Quality Carriers, we said, is about 250 basis points of effect on margin, so it gets in there. No one else really has a trucking business of that size, $900 million roughly in revenue. So if you set that aside for a second, the rail business continues to have margins at or near the top of the industry. Having said that, as you're alluding to, our earnings peaked in 2022. And when you look at that, that's a year where kind of everything came together. The things we don't control all kind of came together to help us, right? Supplemental revenue was kind of at an all-time high. Fuel surcharge was high, and met coal prices were probably at an all-time high during that calendar year or near there. So some of that's been weaning off. And Sean showed a good chart at our investor day in November that our core earnings (so if you take the earnings from our merchandise intermodal coal business over the last several years, even 2022, 2023, 2024, what we expect in 2025) has been growing. We're the only railroad last year that had more volume than 2019, the pre-pandemic period. So the thesis that we had, which is if you can deliver better service, leverage what we think one of the best operating systems in the network, in the rail industry, we can grow the business while still maintaining those high margins. Now, of course, we've had some things that have weaned off, as you said, and met coal prices have been moving around a lot. Matter of fact, we're seeing that effect in this quarter as well. But I want to be very clear. Our operating ratio, or as we look at it, margin is at or near the top of the industry for our rail business. We obviously bought a trucking company right before the trucking downturn, so we felt the effects of that in the trucking side. So our commitment is to stay efficient, obviously, but also looking at that merchandise volume growth we've had the last couple of years, and we expect that to continue. That's building the foundation, we think, for even more to come. I definitely want to get into the industrial development story that you have on your network. We're getting feedback from investors, right? It seems like the strategy at CSX has shifted a little bit in the last couple of years to be a little bit more frontline employee-focused. I think you guys were the first ones to come out with new labor agreements, if I'm not mistaken. What benefits are you getting from that renewed strategy? I think there are several. I mean, we were the first ones to do the paid sick leave deals when that became the cost labor issue in that time period, and there are others in the industry who have done it as well, but we thought very strongly that it wasn't in anybody's interest to repeat what happened last cycle on the union negotiations. It put our customers through a lot of stress, especially at the end, and they told us that. They had to make decisions that we were going to prepare for a strike or not, and of course, our employees didn't feel good about that, and you have to go back and remember that in that 2022, 2023 time period, the whole industry, but certainly CSX, was having trouble attracting employees to fill the jobs. All these things are related to each other. So fast forward to today, we're not having any trouble getting highly qualified people to apply for our jobs, which is good. We're a service business. And so any service business, in order to create the service levels that you want to create, you have to have a workforce that feels like they're on the same team as management and that feels like they have the same motives and the same agenda. And we felt if we could set a pattern early with some of the unions that we could establish a path forward for the industry and for ourselves that would take away that noise, but also allow us the freedom to start working on other issues. Well, let me give you an example. When you can get the, because we spent three years out of the last five in the last cycle fighting over the national agreement, right? So we didn't get anything else done with our union partners during that time period. Right now, we're already moving forward. We've already been working with our unions on both our dispatchers and our conductors to move to a system-wide agreement. That's been in the works for 20 years and hasn't happened. We had two different agreements for our dispatchers, and we had five different agreements for our conductors. Our engineers have one system-wide agreement. So you get to work on those types of important structural issues when you get the national contract stuff out of the way and people are not fighting or not waiting for that to happen. So that's an example of what we're seeing. Also, you're seeing industry-leading service. That's because of our employees. That's because our employees are focused now on, instead of being distracted and anxious, they're focused on doing the task at hand and being able to serve our customers. I guess along the lines of service right now, Joe, I guess if we look at some of the metrics like dwell, that has been up significantly, but maybe we don't fully appreciate what's going on just from the outside looking in. Where would you put operations and service right now? Yeah, I mean, it is a mixed story because we're certainly feeling the effects of the weather over the last six months or so, including right now in Kentucky and other places across the Midwest. What's happened to our network is right now, with the Blue Ridge Subdivision being shut down because of the Hurricane Helene effects, one of our four north-south routes is closed. And then right now, with the Howard Street Tunnel work being done this year, the I-95 corridor is kind of closed. So our ability to recover from weather events is taking longer because we don't have as many options when you look at it. At the same time, our customer switch data, like the last mile, first mile, we've been really protecting that. And so what's interesting is even though we had the hurricanes hit us in the fall and in the early part of the fourth quarter, and we saw some disruption in our network, our Net Promoter Scores with our customers were the highest they've ever been in that quarter. So it's a really fine line to balance. Our dwell is higher than we want it to be, and a lot of that has to do with there's about 13 trains right now that are not going their normal routes because of those two blockages. So that's causing - we have to - February is a month we just started the Howard Street Tunnel, so we got to settle things down and see where we can move some people and make some effects. But we're staying committed to our customers, keeping in contact with them. And I think you'll see throughout the year, especially as we finish these two major projects, which one we didn't expect, you'll start to see our network come back to levels that we would expect. But importantly, our customers aren't feeling that effect. We're seeing it ourselves a little bit with some of the things happening inside our network, but. I guess strategically, the importance of the tunnel project this year and looking ahead, what benefits do you derive from that? Yeah, I mean, I think we can, and Sean can talk to a little bit too, but if you look at where we compete and how we compete, we had the inability to double-stack intermodal containers up and down the I-95 corridor on the East Coast, and it was more because of the Howard Street Tunnel and some bridges that were nearby that didn't have clearance, but it's more than that. If we were taking a train from, let's say, an intermodal train which double-stacked from the UP in Chicago and wanted to take it over to the East Coast, we can't go through the Baltimore area, so we have to go all the way up through upstate New York and down, so we had the physical impediment, but we also had the inability to compete on time, distance, and rate because of how all this plays out. So when the Howard Street Tunnel gets completed, including some bridge clearances around it, we'll be able to run a shorter route to the East Coast, let's say from Chicago. Also, we'll be able to double-stack that train the whole way, including up and down the East Coast. So it's a big deal to us, and we're really excited about it. It's a big part of when Sean talked about how we see the opportunity to grow in 2026 and 2027. That's one of the major components of it. Any way to quantify what that could potentially have an impact on the network? Yeah, I mean, I think what you'll see once the Howard Street Tunnel opens immediately is you'll see some operational benefits, fluidity. We'll be able to run with fewer trains, fewer crews and locomotives, and so on and so forth. So there'll be some immediate cost savings once we get that tunnel open and all the clearances are finished. The bigger opportunity over time is being able to grow into the capacity that we'll be creating when that tunnel is completed. And we've put that around 75,000-125,000 incremental loads. Do the math in terms of average intermodal RPU. You can see it's a pretty significant opportunity over the next couple of years. Okay, and Sean, maybe can you, I don't want to be too near-term focused here, but Joe, you did mention that the first quarter, you're going to see some volatility with export coal rates, but Sean, can you help put in context your guidance for the first quarter and how some of this is playing out right now? Yeah. So going into the year, we're going to be at a point where we're cycling higher export coal prices last year, and we price based on the value of the commodity, and we're cycling some fuel headwinds as we go into the year. We also have cost impacts from rerouting those trains around the closures, both for the Blue Ridge as well as the Howard Street Tunnel. There are some things that happened last year that we'll cycle. It'll be a net positive. But put all that together, we've got about a $350 million headwind if commodity prices stay stable to where they are today this year. That's over the course of the year. That will be concentrated mostly in the first half of the year. Those reroute costs will be basically ratable through most of the year. But the commodity price impacts are primarily concentrated in the first half and even more so in the first quarter. So what we've said is that Q1 is likely to be our trough for earnings, and then you'll start to see us accumulate some momentum coming out of that. And as we get to the second half of the year, we should be in a position to start showing earnings growth on a fully reported basis again, set aside all the impacts of the coal prices and fuel prices. I guess, as we sit here in February, are things tracking as you thought maybe during the earnings call? Yeah. So we're not too far into the year, and as Joe mentioned, we've gotten off to a challenging start when it comes to the weather. But all things considered, we said low to mid single-digit volume growth for the full year. We're flat out of the gates through the first six weeks or so, a little bit behind where we would have wanted to be. But again, most of that is largely weather-driven. Coal has been off a little bit. We haven't been able to load due to frozen coal, flooding. We've had some producer issues. We had a fire at one of the mines that Kevin talked about in January. So coal side's been a little bit weaker, though our forecast for domestic coal, given the cold weather that we've seen really across the network, has actually come up from the beginning of the year. Though near term, we're running a little bit lower than we'd like to be on the coal side. Auto got off to a little bit of a slower start to start the year, but we're seeing that start to pick up over the last couple of weeks. And there are pockets of strength as well. Feed grain's been very good to start the year. We've got a good start in terms of fertilizers, good projections in terms of what's going to go into the spring planting. So there's reasons to be optimistic as we get out of the challenge of the winter weather here. In the last few weeks, the trucking numbers look better too. It's early, but at least some signs of life on the trucking side, which will help intermodal, but also Quality Carriers. Is that just from a supply-demand perspective, Joe, or? Yeah, well, definitely supply-demand on what we're seeing in Quality Carriers over the last several weeks. And I think across the whole trucking segment, hopefully, we're starting to see some movement up in rates. That'd be good for everybody. Intermodal's off to a good start too, in fact. If you look at January versus normal Q4 seasonality, intermodal actually beat a little bit versus what we would have normally expected. And merchandise was right in line even with some of the challenges related to weather. And I know a hot topic here at this conference is tariffs. Do you think you've seen a lot of pull forward in your intermodal business in the last few months? We're not hearing that from customers. I mean, obviously, there's been a lot of discussion about it. I mean, remember, we had the East Coast ports dynamic, and then we kind of go into the elections, and then we have this topic. So we've not heard a lot from our customers on that. I mean, it's a long cycle, as you know, so you've got to kind of start planning pretty far out. I think, obviously, it's died down, but a few weeks ago, the big topic was, of course, Mexico, Canada, which there really wouldn't be much pull forward from those dynamics. Clearly, there could be some coming from China, but that would be more on the West Coast side than the East Coast. But the customers, the ocean shippers that we've talked to, at least for the tariff topic, there haven't been much pull forward. Now, that may change. I mean, who knows what the timing is, but we haven't heard that. How do you build or how do you account for variability from things like tariffs that could be volatile this year in the operating plan? Well, I mean, look, operations and sales and marketing meet on a regular basis. Customer service is involved in those conversations to understand how the dynamics of what our customers are asking for are changing. When we have small variations, plus or minus a couple percentage points within our customer base in terms of volume shipped, we can generally adapt to that without really making any changes to the train plan. What we're more focused on is where do we need to adjust based on new or expanded capacity that's coming online. And as you know, we've talked about the industrial development opportunity. We have a couple new facilities that'll be coming online in the second half of this year across multiple different merchandise segments. Those will ramp over the next couple of years. We have projects that were completed in 2023, 2024 that are continuing to ramp this year. It's making sure that we are appropriately resourced from a crew perspective in those areas to be able to handle the incremental volume as it comes. For the most part, when we're talking about relatively minor changes in flows or something that can be absorbed into the existing train plan, there's really not a whole lot of change that we need to make on the fly. Again, the first and most important thing is communication, open lines of communication, and that is much better than it's been in the past. Okay. I want to come back to export coal specifically. And again, not to be too near-term focused, but that is a line that's, I think, difficult for a lot of folks to model for your company. So maybe tactically, coal yields are going to come down sequentially, is that right, in the first quarter? 3% sequentially, yeah. Is that going to continue into the second quarter? We haven't guided forward to the second quarter, but the biggest factor in coal yields sequentially is what happens to the price of export met. It's been stable through most of this quarter, so I guess if that continues, you would expect not much of a change from Q1 to Q2, but we'll update you as we get closer. Maybe strategically, I'm not sure that we always had commodity variable pricing or maybe to the extent that we have it now. Does it make sense to keep this pricing structure in place given the volatility that it creates in earnings? Yeah, let me just give you a little bit of historical perspective on export coal. If you go back 20 years and compare the volumes that we were moving on the export side to what we're moving today, we're doing eight times more export coal volume today than we were 20 years ago. We're doing twice what we did 10 years ago. And met has become a much larger part of that picture. Our met export revenue has tripled in the last 10 years. That's a good thing. It's a good thing for us. It's a good thing for our investors. What it means and the structure that we have moved to over those last 10 years is one that adjusts rates based on the price of the commodity. We do that because we think that maximizes our profit. Again, that's a good thing for the shareholder. What it does is introduce a little bit more volatility, both because the absolute size of met coal (met coal is almost $1 billion of revenue today, or in 2024 at least) is much bigger than it's been in the past. And we are taking advantage of opportunities in the marketplace when prices go up, not only to move more volume, but to do it at higher prices and to adjust pretty much real time. Okay, and if there's audit. There are collars on that, and we're not that far away from the bottom of the collar. So this would not be a good time to say, "Oh, let's change." You tend to talk about it when you're towards the lower end, but when we were at 325, two years ago, we weren't talking about. We did raise some of the caps when we were up at those higher levels to provide for more upside if we go back there. So if prices went materially lower from here, there might not be quite as much. Yeah, I think you'd probably see more of a volume impact than a price impact. Right. Okay. If there's any audience questions, just raise your hand. We'll get you a mic. I guess, Joe, a couple of years ago, you came out and said, "Look, we're going to have industrial development on CSX. Customers are making capital investments, long-term commitments." I think at the time, these projects were supposed to start delivering a point to maybe two points of excess growth on your network as of late last year. So can you just give us an update on how that initiative is tracking? Yeah, I mean, we're very pleased with how it's tracking. Like anything, when a company launches a new plant, the cycle of launch takes a little while. So in the year of launch, typically, the volume contribution isn't that dramatic, but it does escalate over time. And for various reasons, it could be accelerated. And that's one of the things that possibly could be affected by tariffs. For example, there are some new aluminum and steel investments being made on our network. And if tariffs continue, as they've just been announced, perhaps those manufacturers will be motivated to try and launch faster. That could be something to watch for. But we're very pleased. I'd say everything that we've said was going to happen has happened. There's a lot of noise around the EV side of things, but that's a very small percentage of the total. Those things have been largely, in many cases, delayed, but they're less than 10% of our total, and more is replacing that with other opportunities. So I think Sean can give you some numbers, but what happened in 2024 was what we expected. What's going to happen in 2025 is what we've been planning for and expecting. And lately, we're getting even more, our industrial development team is telling us we're getting even more calls than usual. And that may be a cascading effect of all this talk around tariffs again and other localization efforts. But our guys say the phone's been ringing much more than it has been even recently. So more to come on that, but we do expect that contribution to come. And so far, so good. Yeah, just to size it, last year, those industrial development projects, the ramp of existing projects, contributed about one percentage point to overall merchandise growth. We think this year will be pretty similar. What's exciting is we actually have projections that tell us that that impact is going to go up over the next couple of years. It'll be more like one to two percentage points of total CSX growth. Okay. So when we're looking at this, trying to measure performance from the outside, we should be looking at merchandise initially. But when do we actually see CSX aggregate volumes outperforming the industry by that 1%-2%? I think we've been in a muted industrial development economy over the last couple of years, so it's harder to see. It's the first time for two consecutive years we've materially outperformed industrial production in our merchandise business going all the way back to 2013, 2014. If you remember back then, that was when the rails were taking advantage of crude shipments that were coming from the west. If you exclude crude, we didn't do that. It's the first time effectively in recorded history that we've been able to outperform the industrial economy two years in a row. Our merchandise revenue over the last two years is up 8% with fuel down. Excluding fuel, up 12%, or $900 million of merchandise revenue that's been added at very high incremental margins. It's harder to see because of what's happened with storage revenue going down and export coal prices and fuel prices, but it's there. It's underlying it. And that's what's driven the core growth in the business the last couple of years. Yeah. So I mean, you're accurate, and it's okay to talk about it because there's been so many moving parts. It's hard to see what's happening a little bit at CSX. But we're confident that the underlying strength of the business continues to improve. And we have data, and we've shown some of that, as Sean has alluded to. And the strength of our business is around the merchandise business. And we've outgrown the industry over the last couple of years on volume, with one exception of outgrowing everybody else on revenue. And that's due to some unique dynamics with the merger or the coming together of CP and KCS. But when you look at it, that's continuing. And it's industrial development, and it's also service levels. Because in many of those cases, those contracts come up, and when you're renewing them, service is a big topic because they have long memories from just a few years ago. Big companies, so they have long memories. And we're going to have your competitor here in the East in a little bit, but they're talking about potential share gains within the East Coast. How competitive of an environment is it right now? And do some of these near-term headwinds actually put you at a relative disadvantage, or are you working through that? We don't feel we're at a disadvantage because our service levels continue to be, especially on the merchandise side, continue to be stronger. Yeah, obviously, there's a competitive dynamic always when contracts come up. We haven't lost anything of any magnitude or size that would be concerning. We watch it very carefully. But again, we're in a competitive environment, and Norfolk Southern is running better. We're running better. It's all about taking care of your customer. But we have the benefit of a couple of years now of treating our customers at a higher level. And they value that, and they remember that. So when the contract comes up, that's part of the conversation. Obviously, rates and all that and distance and time and everything is a conversation as well. But we feel really good about what's been happening with renewals on our merchandise contracts. Pricing has been good. And so we feel we like the hand we're dealt. We've created that hand with some of ourselves, and we feel good about it. And you've seen it again in the strength of our merchandise business. We haven't lost share even year to date. We've lost a little bit of coal because of some of the dynamics that Sean was talking about, but we haven't lost share on the merchandise side. I guess from a yield perspective, removing coal from the equation, I guess, I think in general, and this isn't just specific to CSX, but yields, as we contract them, haven't been that great for the industry the last couple of years. Apparently, the price environment underlying this has been okay. How should we think about yield performance looking in 2025 and 2026? Yeah. I mean, I think, again, it's stripping out fuel, stripping out coal. Our merchandise and intermodal pricing on a combined basis has been quite strong the last several years. The percent price that we're getting is lower than we were two years ago, but inflation is also dramatically lower than it was two years ago. So the contribution to operating income from the difference in price gains in merchandise and intermodal versus cost inflation has been actually pretty stable the last couple of years, and we think that will continue going into this year. We actually renewed a lot of our merchandise contracts in January. It's a heavy renewal season for us. We did over $1 billion of renewals in January. And 85% of those renewals actually came in higher than what we had planned going into the year. So we're capitalizing on the service. We're able to price to the value of that service. There's always going to be puts and takes in terms of mix, and that can sometimes be hard to predict. Aggregates, as an example, is off a little bit to start the year. That's low RPU. That's weather-driven, so that helps merchandise RPU. You're going to have those things every quarter, but if you look past that noise underlying the performance within merchandise is core growth and pricing, and we look at it on a combined merchandise and intermodal pricing. Intermodal pricing has not been great, particularly on the domestic side, the last couple of years, so we get a little bit of an uplift from that as the trucking market normalizes. You could be looking at that spread actually growing over the next couple of years between price and inflation dollars. Okay. And if we can cue up question number four, we have a couple of minutes left here. In your opinion, what should CSX do with excess cash, bolt-on M&A, larger M&A, share repurchase, dividends, debt pay down, or internal investment? Something interesting. Share repurchase, right? Question number five, please. Good answer. In your opinion, what multiple of 2025 earnings should CSX trade? This is why you didn't give me a vote. My unbiased responses here. Yes. Yeah. All right. And then question number six, please. What do you see as the most significant headwind for CSX? Core growth, margin performance, capital deployment, or execution and strategy? And, Joe, as we await the results here, I guess wrapping this up, I think everyone understands you have some headwinds between coal and the Howard Street Tunnel project this year. But is there a strong commitment from yourself and the team to getting back to significant up-and-coming growth? Because I think you guided long-term compound growth of mid to high single digits. Mid- to high single digits, yeah. I mean, should we see that really rebound in 2026? Is that the commitment? That's what we expect. That's the commitment we made at the investor day. We think we're on a path to make that happen. We think we'll continue this year. It'll be a year of cycling through, hopefully, for the last time, some of those things we've been talking about, met coal prices, fuel surcharge, etc. We get the Howard Street Tunnel done. We get the Blue Ridge Subdivision done or the Blue Ridge rebuild done. MNBR continues to grow, and you can start to see where we start to see an opportunity to see that happen. In the areas where we have strength, like autos, like met coal, we expect 2026 to be a good year for that, volume-wise as well, so the fundamentals that we're looking at continue to be strong, and the operating margin and the operating system of our railroad continues to be well-run. That will bear fruit as we get through and cycle through some of these things. All right. Joe and Sean, thank you so much for coming out. Thank you. Appreciate you being here. Thank you all for being here. Thank you.

Speaker 2: All right. Good morning. Welcome to Barclays' 42nd Annual Industrial Select Conference. I'm Brandon Oglenski, Airline and Transport Analyst, and very excited to have CSX up as our third panel here, and actually, we have all five of the publicly traded rail CEOs here today. All right. all right Good morning. good morning Welcome to Barclays' 42nd Annual Industrial Select Conference. welcome to barclays' 42nd annual industrial select conference I'm Brandon Oglenski, Airline and Transport Analyst, and very excited to have CSX up as our third panel here, and actually, we have all five of the publicly traded rail CEOs here today. i'm brandon oglenski airline and transport analyst and very excited to have csx up as our third panel here and actually we have all five of the publicly traded rail ceos here today

Speaker 1: I know. I know. i know

Speaker 2: So, Joe. So, Joe. so joe

Speaker 1: Good morning. So. Good morning. good morning So. so

Speaker 2: We also have Sean Pelkey, CFO of CSX, so we're going to have a great conversation here. If we can just queue up the first audience response question, I'm sure you folks know how to do this at this point. Do you currently own CSX? One, overweight. Two, market weight. Three, underweight. Four, no. We also have Sean Pelkey, CFO of CSX, so we're going to have a great conversation here. we also have sean pelkey cfo of csx so we're going to have a great conversation here If we can just queue up the first audience response question, I'm sure you folks know how to do this at this point. if we can just queue up the first audience response question i'm sure you folks know how to do this at this point Do you currently own CSX? do you currently own csx One, overweight. one overweight Two, market weight. two market weight Three, underweight. three underweight Four, no. four no

Speaker 1: I'm one. I'm one. i'm one

Speaker 2: Joe, everyone's on. Joe, everyone's on. joe everyone's on

Speaker 1: I'm one. I'm one. i'm one

Speaker 2: Yeah. We tend to keep the voting buttons off of the stage. Yeah. yeah We tend to keep the voting buttons off of the stage. we tend to keep the voting buttons off of the stage

Speaker 1: Yeah, probably why. But I'll tell you my answer. Yeah, probably why. yeah probably why But I'll tell you my answer. but i'll tell you my answer

Speaker 2: Got some owners in the room. Question number two. What is your general bias towards CSX right now? Positive, negative, or neutral? And we do appreciate everyone participating because we get some pretty good aggregate data out of this conference every year. A little bit mixed there. And then question number three, please. In your opinion, through cycle EPS growth for CSX will be above peers, in line with peers, or below peers? All right. So Joe, Sean, thank you guys very much for coming down to Miami. Really appreciate you being here. I guess I'm going to lead off, Joe, with maybe a slightly difficult question, but when you took over as CEO, your rail operating ratio was among the industry's best, especially if we strip out the impact from your trucking operation. Got some owners in the room. got some owners in the room Question number two. question number two What is your general bias towards CSX right now? what is your general bias towards csx right now Positive, negative, or neutral? positive negative or neutral And we do appreciate everyone participating because we get some pretty good aggregate data out of this conference every year. and we do appreciate everyone participating because we get some pretty good aggregate data out of this conference every year A little bit mixed there. a little bit mixed there And then question number three, please. and then question number three please In your opinion, through cycle EPS growth for CSX will be above peers, in line with peers, or below peers? in your opinion through cycle eps growth for csx will be above peers in line with peers or below peers All right. all right So Joe, Sean, thank you guys very much for coming down to Miami. so joe sean thank you guys very much for coming down to miami Really appreciate you being here. really appreciate you being here I guess I'm going to lead off, Joe, with maybe a slightly difficult question, but when you took over as CEO, your rail operating ratio was among the industry's best, especially if we strip out the impact from your trucking operation. i guess i'm going to lead off joe with maybe a slightly difficult question but when you took over as ceo your rail operating ratio was among the industry's best especially if we strip out the impact from your trucking operation And that has deteriorated a little bit here, where some of your peers and your competitor in the East is actually looking maybe a little bit better in the near term. But can you talk to the long-term ambitions of where you want this company to be from a profitability perspective? And that has deteriorated a little bit here, where some of your peers and your competitor in the East is actually looking maybe a little bit better in the near term. and that has deteriorated a little bit here where some of your peers and your competitor in the east is actually looking maybe a little bit better in the near term But can you talk to the long-term ambitions of where you want this company to be from a profitability perspective? but can you talk to the long-term ambitions of where you want this company to be from a profitability perspective

Speaker 1: Sure. I mean, if you look at the facts, if you set Quality Carriers aside for a second, and you'll be able to see more of that over time, our rail business in 2023 had the highest margins in the industry. Last year, we had the second highest margins in the industry, only a point behind one other one. That's inclusive of the hurricanes and Francis Scott Key Bridge collapse and things that we don't control. If you look at our absolute rail performance, it's at or above the whole industry. Quality Carriers, we said, is about 250 basis points of effect on margin, so it gets in there. No one else really has a trucking business of that size, $900 million roughly in revenue. Sure. sure I mean, if you look at the facts, if you set Quality Carriers aside for a second, and you'll be able to see more of that over time, our rail business in 2023 had the highest margins in the industry. i mean if you look at the facts if you set quality carriers aside for a second and you'll be able to see more of that over time our rail business in 2023 had the highest margins in the industry Last year, we had the second highest margins in the industry, only a point behind one other one. last year we had the second highest margins in the industry only a point behind one other one That's inclusive of the hurricanes and Francis Scott Key Bridge collapse and things that we don't control. that's inclusive of the hurricanes and francis scott key bridge collapse and things that we don't control If you look at our absolute rail performance, it's at or above the whole industry. if you look at our absolute rail performance it's at or above the whole industry Quality Carriers, we said, is about 250 basis points of effect on margin, so it gets in there. quality carriers we said is about 250 basis points of effect on margin so it gets in there No one else really has a trucking business of that size, $900 million roughly in revenue. no one else really has a trucking business of that size $900 million roughly in revenue So if you set that aside for a second, the rail business continues to have margins at or near the top of the industry. Having said that, as you're alluding to, our earnings peaked in 2022. And when you look at that, that's a year where kind of everything came together. The things we don't control all kind of came together to help us, right? Supplemental revenue was kind of at an all-time high. Fuel surcharge was high, and met coal prices were probably at an all-time high during that calendar year or near there. So some of that's been weaning off. And Sean showed a good chart at our investor day in November that our core earnings (so if you take the earnings from our merchandise intermodal coal business over the last several years, even 2022, 2023, 2024, what we expect in 2025) has been growing. So if you set that aside for a second, the rail business continues to have margins at or near the top of the industry. so if you set that aside for a second the rail business continues to have margins at or near the top of the industry Having said that, as you're alluding to, our earnings peaked in 2022. having said that as you're alluding to our earnings peaked in 2022 And when you look at that, that's a year where kind of everything came together. and when you look at that that's a year where kind of everything came together The things we don't control all kind of came together to help us, right? the things we don't control all kind of came together to help us right Supplemental revenue was kind of at an all-time high. supplemental revenue was kind of at an all-time high Fuel surcharge was high, and met coal prices were probably at an all-time high during that calendar year or near there. fuel surcharge was high and met coal prices were probably at an all-time high during that calendar year or near there So some of that's been weaning off. so some of that's been weaning off And Sean showed a good chart at our investor day in November that our core earnings (so if you take the earnings from our merchandise intermodal coal business over the last several years, even 2022, 2023, 2024, what we expect in 2025) has been growing. and sean showed a good chart at our investor day in november that our core earnings (so if you take the earnings from our merchandise intermodal coal business over the last several years even 2022 2023 2024 what we expect in 2025) has been growing We're the only railroad last year that had more volume than 2019, the pre-pandemic period. So the thesis that we had, which is if you can deliver better service, leverage what we think one of the best operating systems in the network, in the rail industry, we can grow the business while still maintaining those high margins. Now, of course, we've had some things that have weaned off, as you said, and met coal prices have been moving around a lot. Matter of fact, we're seeing that effect in this quarter as well. But I want to be very clear. Our operating ratio, or as we look at it, margin is at or near the top of the industry for our rail business. We obviously bought a trucking company right before the trucking downturn, so we felt the effects of that in the trucking side. We're the only railroad last year that had more volume than 2019, the pre-pandemic period. we're the only railroad last year that had more volume than 2019 the pre-pandemic period So the thesis that we had, which is if you can deliver better service, leverage what we think one of the best operating systems in the network, in the rail industry, we can grow the business while still maintaining those high margins. so the thesis that we had which is if you can deliver better service leverage what we think one of the best operating systems in the network in the rail industry we can grow the business while still maintaining those high margins Now, of course, we've had some things that have weaned off, as you said, and met coal prices have been moving around a lot. now of course we've had some things that have weaned off as you said and met coal prices have been moving around a lot Matter of fact, we're seeing that effect in this quarter as well. matter of fact we're seeing that effect in this quarter as well But I want to be very clear. but i want to be very clear Our operating ratio, or as we look at it, margin is at or near the top of the industry for our rail business. our operating ratio or as we look at it margin is at or near the top of the industry for our rail business We obviously bought a trucking company right before the trucking downturn, so we felt the effects of that in the trucking side. we obviously bought a trucking company right before the trucking downturn so we felt the effects of that in the trucking side So our commitment is to stay efficient, obviously, but also looking at that merchandise volume growth we've had the last couple of years, and we expect that to continue. That's building the foundation, we think, for even more to come. So our commitment is to stay efficient, obviously, but also looking at that merchandise volume growth we've had the last couple of years, and we expect that to continue. so our commitment is to stay efficient obviously but also looking at that merchandise volume growth we've had the last couple of years and we expect that to continue That's building the foundation, we think, for even more to come. that's building the foundation we think for even more to come

Speaker 2: I definitely want to get into the industrial development story that you have on your network. We're getting feedback from investors, right? It seems like the strategy at CSX has shifted a little bit in the last couple of years to be a little bit more frontline employee-focused. I think you guys were the first ones to come out with new labor agreements, if I'm not mistaken. What benefits are you getting from that renewed strategy? I definitely want to get into the industrial development story that you have on your network. i definitely want to get into the industrial development story that you have on your network We're getting feedback from investors, right? we're getting feedback from investors right It seems like the strategy at CSX has shifted a little bit in the last couple of years to be a little bit more frontline employee-focused. it seems like the strategy at csx has shifted a little bit in the last couple of years to be a little bit more frontline employee-focused I think you guys were the first ones to come out with new labor agreements, if I'm not mistaken. i think you guys were the first ones to come out with new labor agreements if i'm not mistaken What benefits are you getting from that renewed strategy? what benefits are you getting from that renewed strategy

Speaker 1: I think there are several. I mean, we were the first ones to do the paid sick leave deals when that became the cost labor issue in that time period, and there are others in the industry who have done it as well, but we thought very strongly that it wasn't in anybody's interest to repeat what happened last cycle on the union negotiations. It put our customers through a lot of stress, especially at the end, and they told us that. They had to make decisions that we were going to prepare for a strike or not, and of course, our employees didn't feel good about that, and you have to go back and remember that in that 2022, 2023 time period, the whole industry, but certainly CSX, was having trouble attracting employees to fill the jobs. All these things are related to each other. I think there are several. i think there are several I mean, we were the first ones to do the paid sick leave deals when that became the cost labor issue in that time period, and there are others in the industry who have done it as well, but we thought very strongly that it wasn't in anybody's interest to repeat what happened last cycle on the union negotiations. i mean we were the first ones to do the paid sick leave deals when that became the cost labor issue in that time period and there are others in the industry who have done it as well but we thought very strongly that it wasn't in anybody's interest to repeat what happened last cycle on the union negotiations It put our customers through a lot of stress, especially at the end, and they told us that. it put our customers through a lot of stress especially at the end and they told us that They had to make decisions that we were going to prepare for a strike or not, and of course, our employees didn't feel good about that, and you have to go back and remember that in that 2022, 2023 time period, the whole industry, but certainly CSX, was having trouble attracting employees to fill the jobs. they had to make decisions that we were going to prepare for a strike or not and of course our employees didn't feel good about that and you have to go back and remember that in that 2022 2023 time period the whole industry but certainly csx was having trouble attracting employees to fill the jobs All these things are related to each other. all these things are related to each other So fast forward to today, we're not having any trouble getting highly qualified people to apply for our jobs, which is good. We're a service business. And so any service business, in order to create the service levels that you want to create, you have to have a workforce that feels like they're on the same team as management and that feels like they have the same motives and the same agenda. And we felt if we could set a pattern early with some of the unions that we could establish a path forward for the industry and for ourselves that would take away that noise, but also allow us the freedom to start working on other issues. Well, let me give you an example. When you can get the, because we spent three years out of the last five in the last cycle fighting over the national agreement, right? So fast forward to today, we're not having any trouble getting highly qualified people to apply for our jobs, which is good. so fast forward to today we're not having any trouble getting highly qualified people to apply for our jobs which is good We're a service business. we're a service business And so any service business, in order to create the service levels that you want to create, you have to have a workforce that feels like they're on the same team as management and that feels like they have the same motives and the same agenda. and so any service business in order to create the service levels that you want to create you have to have a workforce that feels like they're on the same team as management and that feels like they have the same motives and the same agenda And we felt if we could set a pattern early with some of the unions that we could establish a path forward for the industry and for ourselves that would take away that noise, but also allow us the freedom to start working on other issues. and we felt if we could set a pattern early with some of the unions that we could establish a path forward for the industry and for ourselves that would take away that noise but also allow us the freedom to start working on other issues Well, let me give you an example. well let me give you an example When you can get the, because we spent three years out of the last five in the last cycle fighting over the national agreement, right? when you can get the because we spent three years out of the last five in the last cycle fighting over the national agreement right So we didn't get anything else done with our union partners during that time period. Right now, we're already moving forward. We've already been working with our unions on both our dispatchers and our conductors to move to a system-wide agreement. That's been in the works for 20 years and hasn't happened. We had two different agreements for our dispatchers, and we had five different agreements for our conductors. Our engineers have one system-wide agreement. So you get to work on those types of important structural issues when you get the national contract stuff out of the way and people are not fighting or not waiting for that to happen. So that's an example of what we're seeing. Also, you're seeing industry-leading service. That's because of our employees. So we didn't get anything else done with our union partners during that time period. so we didn't get anything else done with our union partners during that time period Right now, we're already moving forward. right now we're already moving forward We've already been working with our unions on both our dispatchers and our conductors to move to a system-wide agreement. we've already been working with our unions on both our dispatchers and our conductors to move to a system-wide agreement That's been in the works for 20 years and hasn't happened. that's been in the works for 20 years and hasn't happened We had two different agreements for our dispatchers, and we had five different agreements for our conductors. we had two different agreements for our dispatchers and we had five different agreements for our conductors Our engineers have one system-wide agreement. our engineers have one system-wide agreement So you get to work on those types of important structural issues when you get the national contract stuff out of the way and people are not fighting or not waiting for that to happen. so you get to work on those types of important structural issues when you get the national contract stuff out of the way and people are not fighting or not waiting for that to happen So that's an example of what we're seeing. so that's an example of what we're seeing Also, you're seeing industry-leading service. also you're seeing industry-leading service That's because of our employees. that's because of our employees That's because our employees are focused now on, instead of being distracted and anxious, they're focused on doing the task at hand and being able to serve our customers. That's because our employees are focused now on, instead of being distracted and anxious, they're focused on doing the task at hand and being able to serve our customers. that's because our employees are focused now on instead of being distracted and anxious they're focused on doing the task at hand and being able to serve our customers

Speaker 2: I guess along the lines of service right now, Joe, I guess if we look at some of the metrics like dwell, that has been up significantly, but maybe we don't fully appreciate what's going on just from the outside looking in. Where would you put operations and service right now? I guess along the lines of service right now, Joe, I guess if we look at some of the metrics like dwell, that has been up significantly, but maybe we don't fully appreciate what's going on just from the outside looking in. i guess along the lines of service right now joe i guess if we look at some of the metrics like dwell that has been up significantly but maybe we don't fully appreciate what's going on just from the outside looking in Where would you put operations and service right now? where would you put operations and service right now

Speaker 1: Yeah, I mean, it is a mixed story because we're certainly feeling the effects of the weather over the last six months or so, including right now in Kentucky and other places across the Midwest. What's happened to our network is right now, with the Blue Ridge Subdivision being shut down because of the Hurricane Helene effects, one of our four north-south routes is closed. And then right now, with the Howard Street Tunnel work being done this year, the I-95 corridor is kind of closed. So our ability to recover from weather events is taking longer because we don't have as many options when you look at it. At the same time, our customer switch data, like the last mile, first mile, we've been really protecting that. Yeah, I mean, it is a mixed story because we're certainly feeling the effects of the weather over the last six months or so, including right now in Kentucky and other places across the Midwest. yeah i mean it is a mixed story because we're certainly feeling the effects of the weather over the last six months or so including right now in kentucky and other places across the midwest What's happened to our network is right now, with the Blue Ridge Subdivision being shut down because of the Hurricane Helene effects, one of our four north-south routes is closed. what's happened to our network is right now with the blue ridge subdivision being shut down because of the hurricane helene effects one of our four north-south routes is closed And then right now, with the Howard Street Tunnel work being done this year, the I-95 corridor is kind of closed. and then right now with the howard street tunnel work being done this year the i-95 corridor is kind of closed So our ability to recover from weather events is taking longer because we don't have as many options when you look at it. so our ability to recover from weather events is taking longer because we don't have as many options when you look at it At the same time, our customer switch data, like the last mile, first mile, we've been really protecting that. at the same time our customer switch data like the last mile first mile we've been really protecting that And so what's interesting is even though we had the hurricanes hit us in the fall and in the early part of the fourth quarter, and we saw some disruption in our network, our Net Promoter Scores with our customers were the highest they've ever been in that quarter. So it's a really fine line to balance. Our dwell is higher than we want it to be, and a lot of that has to do with there's about 13 trains right now that are not going their normal routes because of those two blockages. So that's causing - we have to - February is a month we just started the Howard Street Tunnel, so we got to settle things down and see where we can move some people and make some effects. But we're staying committed to our customers, keeping in contact with them. And so what's interesting is even though we had the hurricanes hit us in the fall and in the early part of the fourth quarter, and we saw some disruption in our network, our Net Promoter S cores with our customers were the highest they've ever been in that quarter. and so what's interesting is even though we had the hurricanes hit us in the fall and in the early part of the fourth quarter and we saw some disruption in our network our net promoter s cores with our customers were the highest they've ever been in that quarter So it's a really fine line to balance. so it's a really fine line to balance Our dwell is higher than we want it to be, and a lot of that has to do with there's about 13 trains right now that are not going their normal routes because of those two blockages. So that's causing - we have to - February is a month we just started the Howard Street Tunnel, so we got to settle things down and see where we can move some people and make some effects. our dwell is higher than we want it to be and a lot of that has to do with there's about 13 trains right now that are not going their normal routes because of those two blockages. so that's causing - we have to - february is a month we just started the howard street tunnel so we got to settle things down and see where we can move some people and make some effects But we're staying committed to our customers, keeping in contact with them. but we're staying committed to our customers keeping in contact with them And I think you'll see throughout the year, especially as we finish these two major projects, which one we didn't expect, you'll start to see our network come back to levels that we would expect. But importantly, our customers aren't feeling that effect. We're seeing it ourselves a little bit with some of the things happening inside our network, but. And I think you'll see throughout the year, especially as we finish these two major projects, which one we didn't expect, you'll start to see our network come back to levels that we would expect. and i think you'll see throughout the year especially as we finish these two major projects which one we didn't expect you'll start to see our network come back to levels that we would expect But importantly, our customers aren't feeling that effect. but importantly our customers aren't feeling that effect We're seeing it ourselves a little bit with some of the things happening inside our network, but. we're seeing it ourselves a little bit with some of the things happening inside our network but

Speaker 2: I guess strategically, the importance of the tunnel project this year and looking ahead, what benefits do you derive from that? I guess strategically, the importance of the tunnel project this year and looking ahead, what benefits do you derive from that? i guess strategically the importance of the tunnel project this year and looking ahead what benefits do you derive from that

Speaker 1: Yeah, I mean, I think we can, and Sean can talk to a little bit too, but if you look at where we compete and how we compete, we had the inability to double-stack intermodal containers up and down the I-95 corridor on the East Coast, and it was more because of the Howard Street Tunnel and some bridges that were nearby that didn't have clearance, but it's more than that. If we were taking a train from, let's say, an intermodal train which double-stacked from the UP in Chicago and wanted to take it over to the East Coast, we can't go through the Baltimore area, so we have to go all the way up through upstate New York and down, so we had the physical impediment, but we also had the inability to compete on time, distance, and rate because of how all this plays out. Yeah, I mean, I think we can, and Sean can talk to a little bit too, but if you look at where we compete and how we compete, we had the inability to double-stack intermodal containers up and down the I-95 corridor on the East Coast, and it was more because of the Howard Street Tunnel and some bridges that were nearby that didn't have clearance, but it's more than that. yeah i mean i think we can and sean can talk to a little bit too but if you look at where we compete and how we compete we had the inability to double-stack intermodal containers up and down the i-95 corridor on the east coast and it was more because of the howard street tunnel and some bridges that were nearby that didn't have clearance but it's more than that If we were taking a train from, let's say, an intermodal train which double-stacked from the UP in Chicago and wanted to take it over to the East Coast, we can't go through the Baltimore area, so we have to go all the way up through upstate New York and down, so we had the physical impediment, but we also had the inability to compete on time, distance, and rate because of how all this plays out. if we were taking a train from let's say an intermodal train which double-stacked from the up in chicago and wanted to take it over to the east coast we can't go through the baltimore area so we have to go all the way up through upstate new york and down so we had the physical impediment but we also had the inability to compete on time distance and rate because of how all this plays out So when the Howard Street Tunnel gets completed, including some bridge clearances around it, we'll be able to run a shorter route to the East Coast, let's say from Chicago. Also, we'll be able to double-stack that train the whole way, including up and down the East Coast. So it's a big deal to us, and we're really excited about it. It's a big part of when Sean talked about how we see the opportunity to grow in 2026 and 2027. That's one of the major components of it. So when the Howard Street Tunnel gets completed, including some bridge clearances around it, we'll be able to run a shorter route to the East Coast, let's say from Chicago. so when the howard street tunnel gets completed including some bridge clearances around it we'll be able to run a shorter route to the east coast let's say from chicago Also, we'll be able to double-stack that train the whole way, including up and down the East Coast. also we'll be able to double-stack that train the whole way including up and down the east coast So it's a big deal to us, and we're really excited about it. so it's a big deal to us and we're really excited about it It's a big part of when Sean talked about how we see the opportunity to grow in 2026 and 2027. it's a big part of when sean talked about how we see the opportunity to grow in 2026 and 2027 That's one of the major components of it. that's one of the major components of it

Speaker 2: Any way to quantify what that could potentially have an impact on the network? Any way to quantify what that could potentially have an impact on the network? any way to quantify what that could potentially have an impact on the network

Speaker 3: Yeah, I mean, I think what you'll see once the Howard Street Tunnel opens immediately is you'll see some operational benefits, fluidity. We'll be able to run with fewer trains, fewer crews and locomotives, and so on and so forth. So there'll be some immediate cost savings once we get that tunnel open and all the clearances are finished. The bigger opportunity over time is being able to grow into the capacity that we'll be creating when that tunnel is completed. And we've put that around 75,000-125,000 incremental loads. Do the math in terms of average intermodal RPU. You can see it's a pretty significant opportunity over the next couple of years. Yeah, I mean, I think what you'll see once the Howard Street Tunnel opens immediately is you'll see some operational benefits, fluidity. yeah i mean i think what you'll see once the howard street tunnel opens immediately is you'll see some operational benefits fluidity We'll be able to run with fewer trains, fewer crews and locomotives, and so on and so forth. we'll be able to run with fewer trains fewer crews and locomotives and so on and so forth So there'll be some immediate cost savings once we get that tunnel open and all the clearances are finished. so there'll be some immediate cost savings once we get that tunnel open and all the clearances are finished The bigger opportunity over time is being able to grow into the capacity that we'll be creating when that tunnel is completed. the bigger opportunity over time is being able to grow into the capacity that we'll be creating when that tunnel is completed And we've put that around 75,000-125,000 incremental loads. and we've put that around 75,000-125,000 incremental loads Do the math in terms of average intermodal RPU. do the math in terms of average intermodal rpu You can see it's a pretty significant opportunity over the next couple of years. you can see it's a pretty significant opportunity over the next couple of years

Speaker 2: Okay, and Sean, maybe can you, I don't want to be too near-term focused here, but Joe, you did mention that the first quarter, you're going to see some volatility with export coal rates, but Sean, can you help put in context your guidance for the first quarter and how some of this is playing out right now? Okay, and Sean, maybe can you, I don't want to be too near-term focused here, but Joe, you did mention that the first quarter, you're going to see some volatility with export coal rates, but Sean, can you help put in context your guidance for the first quarter and how some of this is playing out right now? okay and sean maybe can you i don't want to be too near-term focused here but joe you did mention that the first quarter you're going to see some volatility with export coal rates but sean can you help put in context your guidance for the first quarter and how some of this is playing out right now

Speaker 3: Yeah. So going into the year, we're going to be at a point where we're cycling higher export coal prices last year, and we price based on the value of the commodity, and we're cycling some fuel headwinds as we go into the year. We also have cost impacts from rerouting those trains around the closures, both for the Blue Ridge as well as the Howard Street Tunnel. There are some things that happened last year that we'll cycle. It'll be a net positive. But put all that together, we've got about a $350 million headwind if commodity prices stay stable to where they are today this year. That's over the course of the year. That will be concentrated mostly in the first half of the year. Those reroute costs will be basically ratable through most of the year. Yeah. yeah So going into the year, we're going to be at a point where we're cycling higher export coal prices last year, and we price based on the value of the commodity, and we're cycling some fuel headwinds as we go into the year. so going into the year we're going to be at a point where we're cycling higher export coal prices last year and we price based on the value of the commodity and we're cycling some fuel headwinds as we go into the year We also have cost impacts from rerouting those trains around the closures, both for the Blue Ridge as well as the Howard Street Tunnel. we also have cost impacts from rerouting those trains around the closures both for the blue ridge as well as the howard street tunnel There are some things that happened last year that we'll cycle. there are some things that happened last year that we'll cycle It'll be a net positive. it'll be a net positive But put all that together, we've got about a $350 million headwind if commodity prices stay stable to where they are today this year. but put all that together we've got about a $350 million headwind if commodity prices stay stable to where they are today this year That's over the course of the year. that's over the course of the year That will be concentrated mostly in the first half of the year. that will be concentrated mostly in the first half of the year Those reroute costs will be basically ratable through most of the year. those reroute costs will be basically ratable through most of the year But the commodity price impacts are primarily concentrated in the first half and even more so in the first quarter. So what we've said is that Q1 is likely to be our trough for earnings, and then you'll start to see us accumulate some momentum coming out of that. And as we get to the second half of the year, we should be in a position to start showing earnings growth on a fully reported basis again, set aside all the impacts of the coal prices and fuel prices. But the commodity price impacts are primarily concentrated in the first half and even more so in the first quarter. but the commodity price impacts are primarily concentrated in the first half and even more so in the first quarter So what we've said is that Q1 is likely to be our trough for earnings, and then you'll start to see us accumulate some momentum coming out of that. so what we've said is that q1 is likely to be our trough for earnings and then you'll start to see us accumulate some momentum coming out of that And as we get to the second half of the year, we should be in a position to start showing earnings growth on a fully reported basis again, set aside all the impacts of the coal prices and fuel prices. and as we get to the second half of the year we should be in a position to start showing earnings growth on a fully reported basis again set aside all the impacts of the coal prices and fuel prices

Speaker 2: I guess, as we sit here in February, are things tracking as you thought maybe during the earnings call? I guess, as we sit here in February, are things tracking as you thought maybe during the earnings call? i guess as we sit here in february are things tracking as you thought maybe during the earnings call

Speaker 3: Yeah. So we're not too far into the year, and as Joe mentioned, we've gotten off to a challenging start when it comes to the weather. But all things considered, we said low to mid single-digit volume growth for the full year. We're flat out of the gates through the first six weeks or so, a little bit behind where we would have wanted to be. But again, most of that is largely weather-driven. Coal has been off a little bit. We haven't been able to load due to frozen coal, flooding. We've had some producer issues. We had a fire at one of the mines that Kevin talked about in January. So coal side's been a little bit weaker, though our forecast for domestic coal, given the cold weather that we've seen really across the network, has actually come up from the beginning of the year. Yeah. yeah So we're not too far into the year, and as Joe mentioned, we've gotten off to a challenging start when it comes to the weather. so we're not too far into the year and as joe mentioned we've gotten off to a challenging start when it comes to the weather But all things considered, we said low to mid single-digit volume growth for the full year. but all things considered we said low to mid single-digit volume growth for the full year We're flat out of the gates through the first six weeks or so, a little bit behind where we would have wanted to be. we're flat out of the gates through the first six weeks or so a little bit behind where we would have wanted to be But again, most of that is largely weather-driven. but again most of that is largely weather-driven Coal has been off a little bit. coal has been off a little bit We haven't been able to load due to frozen coal, flooding. we haven't been able to load due to frozen coal flooding We've had some producer issues. we've had some producer issues We had a fire at one of the mines that Kevin talked about in January. we had a fire at one of the mines that kevin talked about in january So coal side's been a little bit weaker, though our forecast for domestic coal, given the cold weather that we've seen really across the network, has actually come up from the beginning of the year. so coal side's been a little bit weaker though our forecast for domestic coal given the cold weather that we've seen really across the network has actually come up from the beginning of the year Though near term, we're running a little bit lower than we'd like to be on the coal side. Auto got off to a little bit of a slower start to start the year, but we're seeing that start to pick up over the last couple of weeks. And there are pockets of strength as well. Feed grain's been very good to start the year. We've got a good start in terms of fertilizers, good projections in terms of what's going to go into the spring planting. So there's reasons to be optimistic as we get out of the challenge of the winter weather here. Though near term, we're running a little bit lower than we'd like to be on the coal side. though near term we're running a little bit lower than we'd like to be on the coal side Auto got off to a little bit of a slower start to start the year, but we're seeing that start to pick up over the last couple of weeks. auto got off to a little bit of a slower start to start the year but we're seeing that start to pick up over the last couple of weeks And there are pockets of strength as well. and there are pockets of strength as well Feed grain's been very good to start the year. feed grain's been very good to start the year We've got a good start in terms of fertilizers, good projections in terms of what's going to go into the spring planting. we've got a good start in terms of fertilizers good projections in terms of what's going to go into the spring planting So there's reasons to be optimistic as we get out of the challenge of the winter weather here. so there's reasons to be optimistic as we get out of the challenge of the winter weather here

Speaker 1: In the last few weeks, the trucking numbers look better too. It's early, but at least some signs of life on the trucking side, which will help intermodal, but also Quality Carriers. In the last few weeks, the trucking numbers look better too. in the last few weeks the trucking numbers look better too It's early, but at least some signs of life on the trucking side, which will help intermodal, but also Quality Carriers. it's early but at least some signs of life on the trucking side which will help intermodal but also quality carriers

Speaker 2: Is that just from a supply-demand perspective, Joe, or? Is that just from a supply-demand perspective, Joe, or? is that just from a supply-demand perspective joe or

Speaker 1: Yeah, well, definitely supply-demand on what we're seeing in Quality Carriers over the last several weeks. And I think across the whole trucking segment, hopefully, we're starting to see some movement up in rates. That'd be good for everybody. Yeah, well, definitely supply-demand on what we're seeing in Quality Carriers over the last several weeks. yeah well definitely supply-demand on what we're seeing in quality carriers over the last several weeks And I think across the whole trucking segment, hopefully, we're starting to see some movement up in rates. and i think across the whole trucking segment hopefully we're starting to see some movement up in rates That'd be good for everybody. that'd be good for everybody

Speaker 3: Intermodal's off to a good start too, in fact. If you look at January versus normal Q4 seasonality, intermodal actually beat a little bit versus what we would have normally expected. And merchandise was right in line even with some of the challenges related to weather. Intermodal's off to a good start too, in fact. intermodal's off to a good start too in fact If you look at January versus normal Q4 seasonality, intermodal actually beat a little bit versus what we would have normally expected. if you look at january versus normal q4 seasonality intermodal actually beat a little bit versus what we would have normally expected And merchandise was right in line even with some of the challenges related to weather. and merchandise was right in line even with some of the challenges related to weather

Speaker 2: And I know a hot topic here at this conference is tariffs. Do you think you've seen a lot of pull forward in your intermodal business in the last few months? And I know a hot topic here at this conference is tariffs. and i know a hot topic here at this conference is tariffs Do you think you've seen a lot of pull forward in your intermodal business in the last few months? do you think you've seen a lot of pull forward in your intermodal business in the last few months

Speaker 1: We're not hearing that from customers. I mean, obviously, there's been a lot of discussion about it. I mean, remember, we had the East Coast ports dynamic, and then we kind of go into the elections, and then we have this topic. So we've not heard a lot from our customers on that. I mean, it's a long cycle, as you know, so you've got to kind of start planning pretty far out. I think, obviously, it's died down, but a few weeks ago, the big topic was, of course, Mexico, Canada, which there really wouldn't be much pull forward from those dynamics. Clearly, there could be some coming from China, but that would be more on the West Coast side than the East Coast. But the customers, the ocean shippers that we've talked to, at least for the tariff topic, there haven't been much pull forward. We're not hearing that from customers. we're not hearing that from customers I mean, obviously, there's been a lot of discussion about it. i mean obviously there's been a lot of discussion about it I mean, remember, we had the East Coast ports dynamic, and then we kind of go into the elections, and then we have this topic. i mean remember we had the east coast ports dynamic and then we kind of go into the elections and then we have this topic So we've not heard a lot from our customers on that. so we've not heard a lot from our customers on that I mean, it's a long cycle, as you know, so you've got to kind of start planning pretty far out. i mean it's a long cycle as you know so you've got to kind of start planning pretty far out I think, obviously, it's died down, but a few weeks ago, the big topic was, of course, Mexico, Canada, which there really wouldn't be much pull forward from those dynamics. i think obviously it's died down but a few weeks ago the big topic was of course mexico canada which there really wouldn't be much pull forward from those dynamics Clearly, there could be some coming from China, but that would be more on the West Coast side than the East Coast. clearly there could be some coming from china but that would be more on the west coast side than the east coast But the customers, the ocean shippers that we've talked to, at least for the tariff topic, there haven't been much pull forward. but the customers the ocean shippers that we've talked to at least for the tariff topic there haven't been much pull forward Now, that may change. I mean, who knows what the timing is, but we haven't heard that. Now, that may change. now that may change I mean, who knows what the timing is, but we haven't heard that. i mean who knows what the timing is but we haven't heard that

Speaker 2: How do you build or how do you account for variability from things like tariffs that could be volatile this year in the operating plan? How do you build or how do you account for variability from things like tariffs that could be volatile this year in the operating plan? how do you build or how do you account for variability from things like tariffs that could be volatile this year in the operating plan

Speaker 3: Well, I mean, look, operations and sales and marketing meet on a regular basis. Customer service is involved in those conversations to understand how the dynamics of what our customers are asking for are changing. When we have small variations, plus or minus a couple percentage points within our customer base in terms of volume shipped, we can generally adapt to that without really making any changes to the train plan. What we're more focused on is where do we need to adjust based on new or expanded capacity that's coming online. And as you know, we've talked about the industrial development opportunity. We have a couple new facilities that'll be coming online in the second half of this year across multiple different merchandise segments. Those will ramp over the next couple of years. Well, I mean, look, operations and sales and marketing meet on a regular basis. well i mean look operations and sales and marketing meet on a regular basis Customer service is involved in those conversations to understand how the dynamics of what our customers are asking for are changing. customer service is involved in those conversations to understand how the dynamics of what our customers are asking for are changing When we have small variations, plus or minus a couple percentage points within our customer base in terms of volume shipped, we can generally adapt to that without really making any changes to the train plan. when we have small variations plus or minus a couple percentage points within our customer base in terms of volume shipped we can generally adapt to that without really making any changes to the train plan What we're more focused on is where do we need to adjust based on new or expanded capacity that's coming online. what we're more focused on is where do we need to adjust based on new or expanded capacity that's coming online And as you know, we've talked about the industrial development opportunity. and as you know we've talked about the industrial development opportunity We have a couple new facilities that'll be coming online in the second half of this year across multiple different merchandise segments. we have a couple new facilities that'll be coming online in the second half of this year across multiple different merchandise segments Those will ramp over the next couple of years. those will ramp over the next couple of years We have projects that were completed in 2023, 2024 that are continuing to ramp this year. It's making sure that we are appropriately resourced from a crew perspective in those areas to be able to handle the incremental volume as it comes. For the most part, when we're talking about relatively minor changes in flows or something that can be absorbed into the existing train plan, there's really not a whole lot of change that we need to make on the fly. Again, the first and most important thing is communication, open lines of communication, and that is much better than it's been in the past. We have projects that were completed in 2023, 2024 that are continuing to ramp this year. we have projects that were completed in 2023 2024 that are continuing to ramp this year It's making sure that we are appropriately resourced from a crew perspective in those areas to be able to handle the incremental volume as it comes. it's making sure that we are appropriately resourced from a crew perspective in those areas to be able to handle the incremental volume as it comes For the most part, when we're talking about relatively minor changes in flows or something that can be absorbed into the existing train plan, there's really not a whole lot of change that we need to make on the fly. for the most part when we're talking about relatively minor changes in flows or something that can be absorbed into the existing train plan there's really not a whole lot of change that we need to make on the fly Again, the first and most important thing is communication, open lines of communication, and that is much better than it's been in the past. again the first and most important thing is communication open lines of communication and that is much better than it's been in the past

Speaker 2: Okay. I want to come back to export coal specifically. And again, not to be too near-term focused, but that is a line that's, I think, difficult for a lot of folks to model for your company. So maybe tactically, coal yields are going to come down sequentially, is that right, in the first quarter? Okay. okay I want to come back to export coal specifically. i want to come back to export coal specifically And again, not to be too near-term focused, but that is a line that's, I think, difficult for a lot of folks to model for your company. and again not to be too near-term focused but that is a line that's i think difficult for a lot of folks to model for your company So maybe tactically, coal yields are going to come down sequentially, is that right, in the first quarter? so maybe tactically coal yields are going to come down sequentially is that right in the first quarter

Speaker 3: 3% sequentially, yeah. 3% sequentially, yeah. 3% sequentially yeah

Speaker 2: Is that going to continue into the second quarter? Is that going to continue into the second quarter? is that going to continue into the second quarter

Speaker 3: We haven't guided forward to the second quarter, but the biggest factor in coal yields sequentially is what happens to the price of export met. It's been stable through most of this quarter, so I guess if that continues, you would expect not much of a change from Q1 to Q2, but we'll update you as we get closer. We haven't guided forward to the second quarter, but the biggest factor in coal yields sequentially is what happens to the price of export met. we haven't guided forward to the second quarter but the biggest factor in coal yields sequentially is what happens to the price of export met It's been stable through most of this quarter, so I guess if that continues, you would expect not much of a change from Q1 to Q2, but we'll update you as we get closer. it's been stable through most of this quarter so i guess if that continues you would expect not much of a change from q1 to q2 but we'll update you as we get closer

Speaker 2: Maybe strategically, I'm not sure that we always had commodity variable pricing or maybe to the extent that we have it now. Does it make sense to keep this pricing structure in place given the volatility that it creates in earnings? Maybe strategically, I'm not sure that we always had commodity variable pricing or maybe to the extent that we have it now. maybe strategically i'm not sure that we always had commodity variable pricing or maybe to the extent that we have it now Does it make sense to keep this pricing structure in place given the volatility that it creates in earnings? does it make sense to keep this pricing structure in place given the volatility that it creates in earnings

Speaker 3: Yeah, let me just give you a little bit of historical perspective on export coal. If you go back 20 years and compare the volumes that we were moving on the export side to what we're moving today, we're doing eight times more export coal volume today than we were 20 years ago. We're doing twice what we did 10 years ago. And met has become a much larger part of that picture. Our met export revenue has tripled in the last 10 years. That's a good thing. It's a good thing for us. It's a good thing for our investors. What it means and the structure that we have moved to over those last 10 years is one that adjusts rates based on the price of the commodity. We do that because we think that maximizes our profit. Again, that's a good thing for the shareholder. Yeah, let me just give you a little bit of historical perspective on export coal. yeah let me just give you a little bit of historical perspective on export coal If you go back 20 years and compare the volumes that we were moving on the export side to what we're moving today, we're doing eight times more export coal volume today than we were 20 years ago. if you go back 20 years and compare the volumes that we were moving on the export side to what we're moving today we're doing eight times more export coal volume today than we were 20 years ago We're doing twice what we did 10 years ago. we're doing twice what we did 10 years ago And met has become a much larger part of that picture. and met has become a much larger part of that picture Our met export revenue has tripled in the last 10 years. our met export revenue has tripled in the last 10 years That's a good thing. that's a good thing It's a good thing for us. it's a good thing for us It's a good thing for our investors. it's a good thing for our investors What it means and the structure that we have moved to over those last 10 years is one that adjusts rates based on the price of the commodity. what it means and the structure that we have moved to over those last 10 years is one that adjusts rates based on the price of the commodity We do that because we think that maximizes our profit. we do that because we think that maximizes our profit Again, that's a good thing for the shareholder. again that's a good thing for the shareholder What it does is introduce a little bit more volatility, both because the absolute size of met coal (met coal is almost $1 billion of revenue today, or in 2024 at least) is much bigger than it's been in the past. And we are taking advantage of opportunities in the marketplace when prices go up, not only to move more volume, but to do it at higher prices and to adjust pretty much real time. What it does is introduce a little bit more volatility, both because the absolute size of met coal (met coal is almost $1 billion of revenue today, or in 2024 at least) is much bigger than it's been in the past. what it does is introduce a little bit more volatility both because the absolute size of met coal (met coal is almost $1 billion of revenue today or in 2024 at least) is much bigger than it's been in the past And we are taking advantage of opportunities in the marketplace when prices go up, not only to move more volume, but to do it at higher prices and to adjust pretty much real time. and we are taking advantage of opportunities in the marketplace when prices go up not only to move more volume but to do it at higher prices and to adjust pretty much real time

Speaker 2: Okay, and if there's audit. Okay, and if there's audit. okay and if there's audit

Speaker 1: There are collars on that, and we're not that far away from the bottom of the collar. So this would not be a good time to say, "Oh, let's change." You tend to talk about it when you're towards the lower end, but when we were at 325, two years ago, we weren't talking about. There are collars on that, and we're not that far away from the bottom of the collar. there are collars on that and we're not that far away from the bottom of the collar So this would not be a good time to say, "Oh, let's change." You tend to talk about it when you're towards the lower end, but when we were at 325, two years ago, we weren't talking about. so this would not be a good time to say "oh let's change." you tend to talk about it when you're towards the lower end but when we were at 325 two years ago we weren't talking about

Speaker 3: We did raise some of the caps when we were up at those higher levels to provide for more upside if we go back there. We did raise some of the caps when we were up at those higher levels to provide for more upside if we go back there. we did raise some of the caps when we were up at those higher levels to provide for more upside if we go back there

Speaker 2: So if prices went materially lower from here, there might not be quite as much. So if prices went materially lower from here, there might not be quite as much. so if prices went materially lower from here there might not be quite as much

Speaker 3: Yeah, I think you'd probably see more of a volume impact than a price impact. Yeah, I think you'd probably see more of a volume impact than a price impact. yeah i think you'd probably see more of a volume impact than a price impact

Speaker 1: Right. Right. right

Speaker 2: Okay. If there's any audience questions, just raise your hand. We'll get you a mic. I guess, Joe, a couple of years ago, you came out and said, "Look, we're going to have industrial development on CSX. Customers are making capital investments, long-term commitments." I think at the time, these projects were supposed to start delivering a point to maybe two points of excess growth on your network as of late last year. So can you just give us an update on how that initiative is tracking? Okay. okay If there's any audience questions, just raise your hand. if there's any audience questions just raise your hand We'll get you a mic. we'll get you a mic I guess, Joe, a couple of years ago, you came out and said, "Look, we're going to have industrial development on CSX. i guess joe a couple of years ago you came out and said "look we're going to have industrial development on csx Customers are making capital investments, long-term commitments." I think at the time, these projects were supposed to start delivering a point to maybe two points of excess growth on your network as of late last year. customers are making capital investments long-term commitments." i think at the time these projects were supposed to start delivering a point to maybe two points of excess growth on your network as of late last year So can you just give us an update on how that initiative is tracking? so can you just give us an update on how that initiative is tracking

Speaker 1: Yeah, I mean, we're very pleased with how it's tracking. Like anything, when a company launches a new plant, the cycle of launch takes a little while. So in the year of launch, typically, the volume contribution isn't that dramatic, but it does escalate over time. And for various reasons, it could be accelerated. And that's one of the things that possibly could be affected by tariffs. For example, there are some new aluminum and steel investments being made on our network. And if tariffs continue, as they've just been announced, perhaps those manufacturers will be motivated to try and launch faster. That could be something to watch for. But we're very pleased. I'd say everything that we've said was going to happen has happened. There's a lot of noise around the EV side of things, but that's a very small percentage of the total. Yeah, I mean, we're very pleased with how it's tracking. yeah i mean we're very pleased with how it's tracking Like anything, when a company launches a new plant, the cycle of launch takes a little while. like anything when a company launches a new plant the cycle of launch takes a little while So in the year of launch, typically, the volume contribution isn't that dramatic, but it does escalate over time. so in the year of launch typically the volume contribution isn't that dramatic but it does escalate over time And for various reasons, it could be accelerated. and for various reasons it could be accelerated And that's one of the things that possibly could be affected by tariffs. and that's one of the things that possibly could be affected by tariffs For example, there are some new aluminum and steel investments being made on our network. for example there are some new aluminum and steel investments being made on our network And if tariffs continue, as they've just been announced, perhaps those manufacturers will be motivated to try and launch faster. and if tariffs continue as they've just been announced perhaps those manufacturers will be motivated to try and launch faster That could be something to watch for. that could be something to watch for But we're very pleased. but we're very pleased I'd say everything that we've said was going to happen has happened. i'd say everything that we've said was going to happen has happened There's a lot of noise around the EV side of things, but that's a very small percentage of the total. there's a lot of noise around the ev side of things but that's a very small percentage of the total Those things have been largely, in many cases, delayed, but they're less than 10% of our total, and more is replacing that with other opportunities. So I think Sean can give you some numbers, but what happened in 2024 was what we expected. What's going to happen in 2025 is what we've been planning for and expecting. And lately, we're getting even more, our industrial development team is telling us we're getting even more calls than usual. And that may be a cascading effect of all this talk around tariffs again and other localization efforts. But our guys say the phone's been ringing much more than it has been even recently. So more to come on that, but we do expect that contribution to come. And so far, so good. Those things have been largely, in many cases, delayed, but they're less than 10% of our total, and more is replacing that with other opportunities. those things have been largely in many cases delayed but they're less than 10% of our total and more is replacing that with other opportunities So I think Sean can give you some numbers, but what happened in 2024 was what we expected. so i think sean can give you some numbers but what happened in 2024 was what we expected What's going to happen in 2025 is what we've been planning for and expecting. what's going to happen in 2025 is what we've been planning for and expecting And lately, we're getting even more, our industrial development team is telling us we're getting even more calls than usual. and lately we're getting even more our industrial development team is telling us we're getting even more calls than usual And that may be a cascading effect of all this talk around tariffs again and other localization efforts. and that may be a cascading effect of all this talk around tariffs again and other localization efforts But our guys say the phone's been ringing much more than it has been even recently. but our guys say the phone's been ringing much more than it has been even recently So more to come on that, but we do expect that contribution to come. so more to come on that but we do expect that contribution to come And so far, so good. and so far so good

Speaker 3: Yeah, just to size it, last year, those industrial development projects, the ramp of existing projects, contributed about one percentage point to overall merchandise growth. We think this year will be pretty similar. What's exciting is we actually have projections that tell us that that impact is going to go up over the next couple of years. It'll be more like one to two percentage points of total CSX growth. Yeah, just to size it, last year, those industrial development projects, the ramp of existing projects, contributed about one percentage point to overall merchandise growth. yeah just to size it last year those industrial development projects the ramp of existing projects contributed about one percentage point to overall merchandise growth We think this year will be pretty similar. we think this year will be pretty similar What's exciting is we actually have projections that tell us that that impact is going to go up over the next couple of years. what's exciting is we actually have projections that tell us that that impact is going to go up over the next couple of years It'll be more like one to two percentage points of total CSX growth. it'll be more like one to two percentage points of total csx growth

Speaker 2: Okay. So when we're looking at this, trying to measure performance from the outside, we should be looking at merchandise initially. But when do we actually see CSX aggregate volumes outperforming the industry by that 1%-2%? Okay. okay So when we're looking at this, trying to measure performance from the outside, we should be looking at merchandise initially. so when we're looking at this trying to measure performance from the outside we should be looking at merchandise initially But when do we actually see CSX aggregate volumes outperforming the industry by that 1%-2%? but when do we actually see csx aggregate volumes outperforming the industry by that 1%-2%

Speaker 3: I think we've been in a muted industrial development economy over the last couple of years, so it's harder to see. It's the first time for two consecutive years we've materially outperformed industrial production in our merchandise business going all the way back to 2013, 2014. If you remember back then, that was when the rails were taking advantage of crude shipments that were coming from the west. If you exclude crude, we didn't do that. It's the first time effectively in recorded history that we've been able to outperform the industrial economy two years in a row. Our merchandise revenue over the last two years is up 8% with fuel down. Excluding fuel, up 12%, or $900 million of merchandise revenue that's been added at very high incremental margins. I think we've been in a muted industrial development economy over the last couple of years, so it's harder to see. i think we've been in a muted industrial development economy over the last couple of years so it's harder to see It's the first time for two consecutive years we've materially outperformed industrial production in our merchandise business going all the way back to 2013, 2014. it's the first time for two consecutive years we've materially outperformed industrial production in our merchandise business going all the way back to 2013 2014 If you remember back then, that was when the rails were taking advantage of crude shipments that were coming from the west. if you remember back then that was when the rails were taking advantage of crude shipments that were coming from the west If you exclude crude, we didn't do that. if you exclude crude we didn't do that It's the first time effectively in recorded history that we've been able to outperform the industrial economy two years in a row. it's the first time effectively in recorded history that we've been able to outperform the industrial economy two years in a row Our merchandise revenue over the last two years is up 8% with fuel down. our merchandise revenue over the last two years is up 8% with fuel down Excluding fuel, up 12%, or $900 million of merchandise revenue that's been added at very high incremental margins. excluding fuel up 12% or $900 million of merchandise revenue that's been added at very high incremental margins It's harder to see because of what's happened with storage revenue going down and export coal prices and fuel prices, but it's there. It's underlying it. And that's what's driven the core growth in the business the last couple of years. It's harder to see because of what's happened with storage revenue going down and export coal prices and fuel prices, but it's there. it's harder to see because of what's happened with storage revenue going down and export coal prices and fuel prices but it's there It's underlying it. it's underlying it And that's what's driven the core growth in the business the last couple of years. and that's what's driven the core growth in the business the last couple of years

Speaker 1: Yeah. So I mean, you're accurate, and it's okay to talk about it because there's been so many moving parts. It's hard to see what's happening a little bit at CSX. But we're confident that the underlying strength of the business continues to improve. And we have data, and we've shown some of that, as Sean has alluded to. And the strength of our business is around the merchandise business. And we've outgrown the industry over the last couple of years on volume, with one exception of outgrowing everybody else on revenue. And that's due to some unique dynamics with the merger or the coming together of CP and KCS. But when you look at it, that's continuing. And it's industrial development, and it's also service levels. Yeah. yeah So I mean, you're accurate, and it's okay to talk about it because there's been so many moving parts. so i mean you're accurate and it's okay to talk about it because there's been so many moving parts It's hard to see what's happening a little bit at CSX. it's hard to see what's happening a little bit at csx But we're confident that the underlying strength of the business continues to improve. but we're confident that the underlying strength of the business continues to improve And we have data, and we've shown some of that, as Sean has alluded to. and we have data and we've shown some of that as sean has alluded to And the strength of our business is around the merchandise business. and the strength of our business is around the merchandise business And we've outgrown the industry over the last couple of years on volume, with one exception of outgrowing everybody else on revenue. and we've outgrown the industry over the last couple of years on volume with one exception of outgrowing everybody else on revenue And that's due to some unique dynamics with the merger or the coming together of CP and KCS. and that's due to some unique dynamics with the merger or the coming together of cp and kcs But when you look at it, that's continuing. but when you look at it that's continuing And it's industrial development, and it's also service levels. and it's industrial development and it's also service levels Because in many of those cases, those contracts come up, and when you're renewing them, service is a big topic because they have long memories from just a few years ago. Big companies, so they have long memories. Because in many of those cases, those contracts come up, and when you're renewing them, service is a big topic because they have long memories from just a few years ago. because in many of those cases those contracts come up and when you're renewing them service is a big topic because they have long memories from just a few years ago Big companies, so they have long memories. big companies so they have long memories

Speaker 2: And we're going to have your competitor here in the East in a little bit, but they're talking about potential share gains within the East Coast. How competitive of an environment is it right now? And do some of these near-term headwinds actually put you at a relative disadvantage, or are you working through that? And we're going to have your competitor here in the East in a little bit, but they're talking about potential share gains within the East Coast. and we're going to have your competitor here in the east in a little bit but they're talking about potential share gains within the east coast How competitive of an environment is it right now? how competitive of an environment is it right now And do some of these near-term headwinds actually put you at a relative disadvantage, or are you working through that? and do some of these near-term headwinds actually put you at a relative disadvantage or are you working through that

Speaker 1: We don't feel we're at a disadvantage because our service levels continue to be, especially on the merchandise side, continue to be stronger. Yeah, obviously, there's a competitive dynamic always when contracts come up. We haven't lost anything of any magnitude or size that would be concerning. We watch it very carefully. But again, we're in a competitive environment, and Norfolk Southern is running better. We're running better. It's all about taking care of your customer. But we have the benefit of a couple of years now of treating our customers at a higher level. And they value that, and they remember that. So when the contract comes up, that's part of the conversation. Obviously, rates and all that and distance and time and everything is a conversation as well. But we feel really good about what's been happening with renewals on our merchandise contracts. Pricing has been good. We don't feel we're at a disadvantage because our service levels continue to be, especially on the merchandise side, continue to be stronger. we don't feel we're at a disadvantage because our service levels continue to be especially on the merchandise side continue to be stronger Yeah, obviously, there's a competitive dynamic always when contracts come up. yeah obviously there's a competitive dynamic always when contracts come up We haven't lost anything of any magnitude or size that would be concerning. we haven't lost anything of any magnitude or size that would be concerning We watch it very carefully. we watch it very carefully But again, we're in a competitive environment, and Norfolk Southern is running better. but again we're in a competitive environment and norfolk southern is running better We're running better. we're running better It's all about taking care of your customer. it's all about taking care of your customer But we have the benefit of a couple of years now of treating our customers at a higher level. but we have the benefit of a couple of years now of treating our customers at a higher level And they value that, and they remember that. and they value that and they remember that So when the contract comes up, that's part of the conversation. so when the contract comes up that's part of the conversation Obviously, rates and all that and distance and time and everything is a conversation as well. obviously rates and all that and distance and time and everything is a conversation as well But we feel really good about what's been happening with renewals on our merchandise contracts. but we feel really good about what's been happening with renewals on our merchandise contracts Pricing has been good. pricing has been good And so we feel we like the hand we're dealt. We've created that hand with some of ourselves, and we feel good about it. And you've seen it again in the strength of our merchandise business. We haven't lost share even year to date. We've lost a little bit of coal because of some of the dynamics that Sean was talking about, but we haven't lost share on the merchandise side. And so we feel we like the hand we're dealt. and so we feel we like the hand we're dealt We've created that hand with some of ourselves, and we feel good about it. we've created that hand with some of ourselves and we feel good about it And you've seen it again in the strength of our merchandise business. and you've seen it again in the strength of our merchandise business We haven't lost share even year to date. we haven't lost share even year to date We've lost a little bit of coal because of some of the dynamics that Sean was talking about, but we haven't lost share on the merchandise side. we've lost a little bit of coal because of some of the dynamics that sean was talking about but we haven't lost share on the merchandise side

Speaker 2: I guess from a yield perspective, removing coal from the equation, I guess, I think in general, and this isn't just specific to CSX, but yields, as we contract them, haven't been that great for the industry the last couple of years. Apparently, the price environment underlying this has been okay. How should we think about yield performance looking in 2025 and 2026? I guess from a yield perspective, removing coal from the equation, I guess, I think in general, and this isn't just specific to CSX, but yields, as we contract them, haven't been that great for the industry the last couple of years. i guess from a yield perspective removing coal from the equation i guess i think in general and this isn't just specific to csx but yields as we contract them haven't been that great for the industry the last couple of years Apparently, the price environment underlying this has been okay. apparently the price environment underlying this has been okay How should we think about yield performance looking in 2025 and 2026? how should we think about yield performance looking in 2025 and 2026

Speaker 3: Yeah. I mean, I think, again, it's stripping out fuel, stripping out coal. Our merchandise and intermodal pricing on a combined basis has been quite strong the last several years. The percent price that we're getting is lower than we were two years ago, but inflation is also dramatically lower than it was two years ago. So the contribution to operating income from the difference in price gains in merchandise and intermodal versus cost inflation has been actually pretty stable the last couple of years, and we think that will continue going into this year. We actually renewed a lot of our merchandise contracts in January. It's a heavy renewal season for us. We did over $1 billion of renewals in January. And 85% of those renewals actually came in higher than what we had planned going into the year. So we're capitalizing on the service. Yeah. yeah I mean, I think, again, it's stripping out fuel, stripping out coal. i mean i think again it's stripping out fuel stripping out coal Our merchandise and intermodal pricing on a combined basis has been quite strong the last several years. our merchandise and intermodal pricing on a combined basis has been quite strong the last several years The percent price that we're getting is lower than we were two years ago, but inflation is also dramatically lower than it was two years ago. the percent price that we're getting is lower than we were two years ago but inflation is also dramatically lower than it was two years ago So the contribution to operating income from the difference in price gains in merchandise and intermodal versus cost inflation has been actually pretty stable the last couple of years, and we think that will continue going into this year. so the contribution to operating income from the difference in price gains in merchandise and intermodal versus cost inflation has been actually pretty stable the last couple of years and we think that will continue going into this year We actually renewed a lot of our merchandise contracts in January. we actually renewed a lot of our merchandise contracts in january It's a heavy renewal season for us. it's a heavy renewal season for us We did over $1 billion of renewals in January. we did over $1 billion of renewals in january And 85% of those renewals actually came in higher than what we had planned going into the year. and 85% of those renewals actually came in higher than what we had planned going into the year So we're capitalizing on the service. so we're capitalizing on the service We're able to price to the value of that service. There's always going to be puts and takes in terms of mix, and that can sometimes be hard to predict. Aggregates, as an example, is off a little bit to start the year. That's low RPU. That's weather-driven, so that helps merchandise RPU. You're going to have those things every quarter, but if you look past that noise underlying the performance within merchandise is core growth and pricing, and we look at it on a combined merchandise and intermodal pricing. Intermodal pricing has not been great, particularly on the domestic side, the last couple of years, so we get a little bit of an uplift from that as the trucking market normalizes. You could be looking at that spread actually growing over the next couple of years between price and inflation dollars. We're able to price to the value of that service. we're able to price to the value of that service There's always going to be puts and takes in terms of mix, and that can sometimes be hard to predict. there's always going to be puts and takes in terms of mix and that can sometimes be hard to predict Aggregates, as an example, is off a little bit to start the year. aggregates as an example is off a little bit to start the year That's low RPU. that's low rpu That's weather-driven, so that helps merchandise RPU. that's weather-driven so that helps merchandise rpu You're going to have those things every quarter, but if you look past that noise underlying the performance within merchandise is core growth and pricing, and we look at it on a combined merchandise and intermodal pricing. you're going to have those things every quarter but if you look past that noise underlying the performance within merchandise is core growth and pricing and we look at it on a combined merchandise and intermodal pricing Intermodal pricing has not been great, particularly on the domestic side, the last couple of years, so we get a little bit of an uplift from that as the trucking market normalizes. intermodal pricing has not been great particularly on the domestic side the last couple of years so we get a little bit of an uplift from that as the trucking market normalizes You could be looking at that spread actually growing over the next couple of years between price and inflation dollars. you could be looking at that spread actually growing over the next couple of years between price and inflation dollars

Speaker 2: Okay. And if we can cue up question number four, we have a couple of minutes left here. In your opinion, what should CSX do with excess cash, bolt-on M&A, larger M&A, share repurchase, dividends, debt pay down, or internal investment? Okay. okay And if we can cue up question number four, we have a couple of minutes left here. and if we can cue up question number four we have a couple of minutes left here In your opinion, what should CSX do with excess cash, bolt-on M&A, larger M&A, share repurchase, dividends, debt pay down, or internal investment? in your opinion what should csx do with excess cash bolt-on m&a larger m&a share repurchase dividends debt pay down or internal investment

Speaker 1: Something interesting. Something interesting. something interesting

Speaker 2: Share repurchase, right? Question number five, please. Share repurchase, right? share repurchase right Question number five, please. question number five please

Speaker 1: Good answer. Good answer. good answer

Speaker 2: In your opinion, what multiple of 2025 earnings should CSX trade? In your opinion, what multiple of 2025 earnings should CSX trade? in your opinion what multiple of 2025 earnings should csx trade

Speaker 1: This is why you didn't give me a vote. This is why you didn't give me a vote. this is why you didn't give me a vote

Speaker 2: My unbiased responses here. My unbiased responses here. my unbiased responses here

Speaker 1: Yes. Yeah. Yes. yes Yeah. yeah

Speaker 2: All right. And then question number six, please. What do you see as the most significant headwind for CSX? Core growth, margin performance, capital deployment, or execution and strategy? And, Joe, as we await the results here, I guess wrapping this up, I think everyone understands you have some headwinds between coal and the Howard Street Tunnel project this year. But is there a strong commitment from yourself and the team to getting back to significant up-and-coming growth? Because I think you guided long-term compound growth of mid to high single digits. All right. all right And then question number six, please. and then question number six please What do you see as the most significant headwind for CSX? what do you see as the most significant headwind for csx Core growth, margin performance, capital deployment, or execution and strategy? core growth margin performance capital deployment or execution and strategy And, Joe, as we await the results here, I guess wrapping this up, I think everyone understands you have some headwinds between coal and the Howard Street Tunnel project this year. and joe as we await the results here i guess wrapping this up i think everyone understands you have some headwinds between coal and the howard street tunnel project this year But is there a strong commitment from yourself and the team to getting back to significant up-and-coming growth? but is there a strong commitment from yourself and the team to getting back to significant up-and-coming growth Because I think you guided long-term compound growth of mid to high single digits. because i think you guided long-term compound growth of mid to high single digits

Speaker 1: Mid- to high single digits, yeah. Mid- to high single digits, yeah. mid- to high single digits yeah

Speaker 2: I mean, should we see that really rebound in 2026? Is that the commitment? I mean, should we see that really rebound in 2026? i mean should we see that really rebound in 2026 Is that the commitment? is that the commitment

Speaker 1: That's what we expect. That's the commitment we made at the investor day. We think we're on a path to make that happen. We think we'll continue this year. It'll be a year of cycling through, hopefully, for the last time, some of those things we've been talking about, met coal prices, fuel surcharge, etc. We get the Howard Street Tunnel done. We get the Blue Ridge Subdivision done or the Blue Ridge rebuild done. MNBR continues to grow, and you can start to see where we start to see an opportunity to see that happen. In the areas where we have strength, like autos, like met coal, we expect 2026 to be a good year for that, volume-wise as well, so the fundamentals that we're looking at continue to be strong, and the operating margin and the operating system of our railroad continues to be well-run. That's what we expect. that's what we expect That's the commitment we made at the investor day. that's the commitment we made at the investor day We think we're on a path to make that happen. we think we're on a path to make that happen We think we'll continue this year. we think we'll continue this year It'll be a year of cycling through, hopefully, for the last time, some of those things we've been talking about, met coal prices, fuel surcharge, etc. We get the Howard Street Tunnel done. it'll be a year of cycling through hopefully for the last time some of those things we've been talking about met coal prices fuel surcharge etc we get the howard street tunnel done We get the Blue Ridge Subdivision done or the Blue Ridge rebuild done. we get the blue ridge subdivision done or the blue ridge rebuild done MNBR continues to grow, and you can start to see where we start to see an opportunity to see that happen. mnbr continues to grow and you can start to see where we start to see an opportunity to see that happen In the areas where we have strength, like autos, like met coal, we expect 2026 to be a good year for that, volume-wise as well, so the fundamentals that we're looking at continue to be strong, and the operating margin and the operating system of our railroad continues to be well-run. in the areas where we have strength like autos like met coal we expect 2026 to be a good year for that volume-wise as well so the fundamentals that we're looking at continue to be strong and the operating margin and the operating system of our railroad continues to be well-run That will bear fruit as we get through and cycle through some of these things. That will bear fruit as we get through and cycle through some of these things. that will bear fruit as we get through and cycle through some of these things

Speaker 2: All right. Joe and Sean, thank you so much for coming out. All right. all right Joe and Sean, thank you so much for coming out. joe and sean thank you so much for coming out

Speaker 1: Thank you. Thank you. thank you

Speaker 2: Appreciate you being here. Appreciate you being here. appreciate you being here

Speaker 1: Thank you all for being here. Thank you. Thank you all for being here. thank you all for being here Thank you. thank you