The speaker, Joe Hinrichs, welcomes everyone to the conference call and introduces the CSX executives present. He mentions the company's clear and consistent mission and the progress made through their ONE CSX initiatives. He also highlights their industry-leading service levels and the positive response from customers. The company is confident that their efforts will drive sustainable growth and they have taken another step forward in this direction in the third quarter.

In the second paragraph, the speaker thanks the ONE CSX team for their hard work in keeping the railroad running smoothly. They note that the merchandise and coal businesses have remained steady, while domestic intermodal volumes are growing and international intermodal has stabilized. The network is performing well, and the speaker is excited about the potential for CSX. They then review the highlights of the third quarter, including a slight decrease in carloads, lower revenue and operating income, and a decrease in earnings per share. Despite these challenges, the team is actively seeking ways to operate more efficiently.

The company is working closely with customers to increase business and emphasizing cost discipline. The CEO is confident about the future due to the strong leadership team, including the newly appointed Chief Operating Officer, Mike Cory. Cory shares the company's dedication to customer service and has been visiting various locations to meet with employees and stakeholders. He is impressed by the company's potential and the employees' desire to be the best for the company and its customers.

The company recognizes the importance of connecting talent and maximizing their value in order to provide the best service to customers. One of their main goals is to create a visible flow of information to improve decision-making and responsiveness. Safety is a top priority, and the company is taking action to improve the safety culture and reduce incidents. Additional training has been implemented for new hires to improve skills and reduce human factor incidents.

The company has implemented a mentorship program for new hires and partnered with a risk management group to improve safety. Operating highlights show improved train velocity and dwell times, as well as increased performance in intermodal and carload trips. Service performance is improving and the company is focused on utilizing lean management principles to drive consistent service. The company is confident that these efforts will result in a strong team and future success.

The main focus of CSX is to improve service levels, which has been recognized by customers and is leading to new growth opportunities. The company is also adapting to changing markets and has seen gradual improvements in several end markets. In terms of merchandise performance, revenues were down slightly due to lower fuel surcharge and negative mix effects, but the automotive, minerals, and metals businesses have shown strength. The chemical franchise is stabilizing and showing some improvement.

The third quarter saw strong revenue growth for fertilizer despite production challenges in Florida. The Southeastern corn crop resulted in less rail volume for grain, and forest products continue to struggle. October volume trends are showing improvement and the company expects a strong rebound for agriculture and food as the Midwest harvest begins. Coal revenue declined 5%, but volumes were strong due to export demand and a hot summer. The company expects export markets to remain strong and domestic demand to be driven by winter weather. The increase in global benchmark prices should benefit coal yields next quarter.

The speaker discusses the company's diverse portfolio of met customers and how U.S.-based met coal benchmarks have lagged behind those in Australia. They then turn to discussing the challenges in their intermodal business, with revenue and volume declining. However, they have seen positive trends in their domestic business and have successfully converted traffic from the highway to their services. International intermodal activity remains weak, and the company expects trends to continue as they were in the third quarter. They also mention the potential for a turning point in the international market and how their reported growth rate for the current quarter will benefit from past declines in intermodal volume.

In the third quarter of 2023, domestic intermodal volumes have shown improvement, while international volumes remain stable. The CSX team is focused on initiatives to increase business and is confident in their service performance. The operating income for the quarter was $1.3 billion, down 18% due to various factors. Revenue decreased by 8%, but excluding certain impacts, it increased by 2%. Expenses were lower by 2%.

In the third quarter, interest and other expenses increased by $13 million, while income tax expense decreased by $32 million due to lower pre-tax earnings. This resulted in a decrease of $0.10 in earnings per share, including a $0.12 impact from discrete items. Total expenses decreased by $39 million, with lower fuel prices and a decrease in labor and fringe expenses. Purchased services and other expenses increased by $25 million, mainly due to higher casualty expenses. Network performance and cost control initiatives led to a reduction in expenses compared to the previous quarter. Depreciation increased by $21 million, and fuel costs decreased by $89 million due to lower prices. However, fuel efficiency was still unfavorable compared to the previous year, but efforts are being made to improve it.

In the fourth quarter, CSX saw a favorable trend in equipment and rents due to faster freight car cycle times. However, costs related to higher automotive volumes and unfavorable property gains offset some of these benefits. Despite a decrease in free cashflow, the company remains strong and has been able to invest in safety and reliability initiatives and shareholder returns. Economic profit has been impacted by intermodal storage revenue and export coal pricing, but the company is focused on high return initiatives for future growth and efficiency gains. CSX expects low single-digit growth in revenue ton-miles for the full year, with merchandise and export coal driving this growth. The company is also keeping a close eye on developments with the Detroit Three automakers and the UAW, and anticipates a rebound in ag and food business over the fourth quarter. Export coal volumes are expected to remain strong due to high global demand for U.S. met and thermal coal.

The speaker discusses the expected performance of domestic coal and intermodal shipments in the fourth quarter, noting a slowdown in coal and modest momentum in intermodal. They also mention stable international business and favorable pricing. The company remains committed to efficiency and cost control and expects a decline in supplemental revenue for the full year. Their capital expenditures and focus on innovation and growth remain unchanged. The speaker expresses pride in the team's accomplishments and optimism for future opportunities. The session then moves to a question-and-answer segment.

The speaker is asking for the participants on the call to limit themselves to one question in order to save time. The first question is from Chris Wetherbee, who asks about the company's resources and services in relation to the current volume environment. The speaker, Mike Cory, who has been with the company for less than a month, states that they have enough resources to improve the size and velocity of trains, but there are some areas that are affected by the flow of goods. He is working with his team to assess opportunities and they are currently in a good position with enough trained staff and plans to fill any attrition.

The speaker discusses the need for self-help and utilizing assets to improve the company's shape. They also mention hiring in key locations and managing growth in volume. A question is asked about service conversion and the stickiness of it, and the speaker mentions early progress and building momentum. Another question is asked about cost per employee, and the speaker mentions a decrease in overtime and early stages of conversion.

The industry is starting to focus on growth opportunities and becoming aligned. Despite a tough trucking market, there are still opportunities for growth through ESG initiatives. Progress has been made on reducing overtime costs, but there may still be an uptick in cost per employee in the fourth quarter due to capital work and seasonal factors. The U.S. roads have historically struggled with organic growth and coal has been a major challenge.

Mike Cory, in his first month as CEO of CSX, is impressed by the visibility of information and the connection it creates between different aspects of the company. He sees the opportunity for growth in the railway industry, as CSX services two-thirds of the US market. He emphasizes the importance of growing properly and eliminating waste to ensure the company is prepared for future growth.

Mike Cory discusses his previous role as a PSR railroad and the challenges of transitioning to a growth railroad. He acknowledges that it did not go as smoothly as he had hoped, but now at CSX, he sees the market and commodities as different. However, the principles of selling and delivering a reliable service remain the same. He emphasizes the importance of staying close to the teams and being resilient in the face of any service disruptions in order to maintain reliability for customers. Overall, he does not see a big difference in the approach to managing capacity and delivering service at CSX compared to his previous role.

Kevin and his team are focused on making the service more reliable and predictable. The next question is about the expected increase in coal yield in Q4 and Q1 and the factors that will impact the operating ratio. Kevin expects a low to mid-single digit increase in coal yield due to mix issues. Sean mentions that volume is off to a good start and fuel costs will be less of a negative in Q4 compared to Q3. However, costs are typically higher in Q4 compared to Q3.

The company's operating income has been worse in Q4 compared to Q3 for the past five years, except for 2020 due to COVID. They are focused on eliminating waste and controlling costs to improve this trend. The company has seen market share gains in both truck and rail, particularly in their merchandise portfolio. They have been successful due to their reliable service and expect to see benefits from industrial development in the future.

The speaker discusses a recent meeting with Christina about industrial projects in the US, which are mainly focused on the East and involve railroads. They express optimism for these projects and note that each industry is unique. The next question asks about the cost structure for 2024, and the speaker responds that they are still in the planning stages but see potential for leveraging costs in areas such as PS&O.

In response to a question about the impact of labor costs and inflation on the company's future performance, the speaker explains that there will be a 4.5% wage increase next year and inflationary pressures will start to normalize. They also mention cost and efficiency opportunities and a pipeline of growth stemming from their service to customers. The speaker is confident that there will be fewer headwinds next year compared to this year. In terms of future performance, the speaker suggests that there is potential for improvement in the operating ratio (OR) even without volume growth, and there may be a catch-up on pricing related to inflation.

The company is focused on growing volume ahead of the economy, but this may not be enough to improve the operating ratio due to inflationary pressures. The pricing environment is still supportive and the company will continue to price based on improved service levels. There is some conversion from truck in the domestic intermodal sector, and the company is working on building trust with customers through improved reliability.

Joe Hinrichs and Mike Cory reflect on the performance of the domestic intermodal and intermodal franchise during the pandemic. They mention that the limitations caused by the pandemic no longer exist, allowing the team to capitalize on the strength of their service product. They also discuss the solid operations and the potential for cost-saving measures to improve operating leverage. Mike, who recently joined the company, emphasizes the importance of identifying waste and teaching and learning from it.

The speaker discusses their focus on identifying and reducing waste in the company's operations. They believe there is great opportunity in this and are confident that their team will be able to achieve it with the help of the new member, Mike. The timing of his arrival is seen as perfect as the company has already made progress in improving their service metrics and now can focus on advancing even further. The speaker also mentions the acknowledgement from customers about the sustained service levels and the potential to become more efficient and improve even more.

Mike Cory is the new addition to the team and is excited to take the company to the next level by focusing on improving service metrics and teaching the young team about what it takes to move forward. He will also be focusing on culture, sales, and integrating Kevin's department with his, and hopes to see improvements in all metrics, including velocity and fluidity. He plans to share his experience and teach the team how to use data effectively in order to become self-sufficient and reach the next level of success.

The speaker emphasizes the importance of communication and coordination between different teams within CSX in order to handle potential increases in demand. They plan to create resiliency in the network and have discussions about market projections for the next few years. The speaker also mentions bringing together all employees involved in servicing customers to improve response time and customer satisfaction. This unified approach is seen as crucial for the success of CSX.

In this paragraph, Joe Hinrichs discusses the vision of ONE CSX and how the company aims to be seen as one entity, rather than separate departments, in order to improve service and increase growth potential. He also mentions the importance of teamwork and training employees to work together in service of the customer. The next question is directed to Kevin, who talks about reasons for optimism, including improvements in domestic plastics and industrial development projects with Christina.

Kevin Boone discusses the current state of the businesses they are involved in, stating that many are already in a recession and have been for the past year. However, he remains optimistic due to the potential for growth and the large pipeline of projects they have. He also mentions the collaboration between different companies to increase rail transportation and decrease reliance on trucks.

The speaker discusses the strength of their industrial projects and the challenges they face in creating readily available sites for industrial development. They also mention the potential impact of the ongoing auto sector strikes on their business, but note that their diverse portfolio allows them to supply cars to other customers and mitigate some of the effects.

The speaker's boss is knowledgeable about the industry and the speaker seeks their thoughts daily. They believe that the current challenges are due to deferred revenue and that demand will pick up in the future. The next question is about the drivers of domestic intermodal growth, which has been strong recently. The speaker credits the teamwork and creativity of the team for this success and expects even more growth once the trucking industry improves. The following question is about a specific driver of this growth, but the speaker emphasizes that it is a combination of factors and praises the team's ability to adapt and respond to market demand.

Ravi Shanker from Morgan Stanley asked about the headwind on accessorials and why it got worse. He was surprised because it seemed like the company had a good handle on it. The company explained that there have been challenges on the West Coast and they are making investments to prepare for future growth. They also mentioned a migration out of China and other markets, which has resulted in more imports coming to the East Coast. The company expects this trend to continue and is confident in their ability to capitalize on it.

The speaker addresses a question about the decrease in accessorial revenue and explains that it is due to a variety of factors. They also mention that trucking is not seen as a source of growth, but they will always be open to opportunities. They highlight the acquisition of Quality Carriers and mention that they will be opportunistic in seeking growth.

The company believes that providing excellent service to customers is the best way to promote growth. They have invested in the New England region and are starting a new interchange point in Alabama. They are also working with other Class I railroads to improve customer service. Incremental steps, such as improving their intermodal product and competing with the trucking market, can also contribute to growth. The company is committed to providing reliable service to continue their path of success.

The speaker mentions that there are many exciting developments happening in addition to industrial projects. They will provide more information about these projects in the future. There are hundreds of projects in progress and the speaker is excited about the potential of their network to utilize them. The operator then ends the call.

This summary was generated with AI and may contain some inaccuracies.