The operator introduces the speakers for the CSX Corporation Fourth Quarter Earnings Conference Call. Matt Korn, Head of Investor Relations, introduces the speakers, including President and CEO Joe Hinrichs. The presentation includes forward-looking and non-GAAP disclosures. Joe Hinrichs discusses the company's momentum and the challenges faced due to weather. The ONE CSX team is praised for their work and the railroad is performing well. The operations team is bringing new ideas and customers are satisfied with the consistent service. Kevin Boone will discuss the impact on profitable business opportunities.

In the second paragraph, Sean Pelkey will discuss the strong financial position of the company and the accomplishments of the ONE CSX team in 2023. Despite challenges in the industry, the team has focused on delivering sustainable growth and has made significant achievements, such as reaching agreements with union partners and improving safety and service metrics. These accomplishments have helped the company move forward and benefit all stakeholders.

CSX has remained ahead of its competitors and has improved the customer experience, gaining their trust and market share. The company's positive volume growth, improved efficiency, and intermodal business have contributed to its success. The commercial and operating teams are closely aligned and the company's efforts to renew its culture have been successful. In the fourth quarter, total volume and revenue increased, but earnings per share decreased. Safety is a key factor in the company's success.

The company has seen a decrease in accidents and injuries, thanks to the efforts of its employees. However, there is still room for improvement, particularly in transportation and engineering related incidents. The company values employee input and has made positive changes in response. The network has stabilized and the company is focused on improving customer metrics and optimizing operations to better align with volume. This includes maximizing car connections, train load, and reducing locomotive dwell and active horsepower.

The reduction in active locomotive use and daily train starts has led to quicker connections and a focus on using locomotive technology to reduce fuel usage. This has resulted in tangible opportunities to open up more capacity on the network. Network fluidity and key metrics have improved, and the company is performing full territory reviews to further improve customer service and align asset use. The speaker is excited about the potential of the ONE CSX team to deliver better service and work together as one group.

In 2023, CSX's teamwork and focus on service has led to positive momentum and growth in all of their end markets. Although business conditions were challenging, the fourth quarter showed improvement and the team is optimistic about delivering strong revenue growth. Their merchandise performance has also been strong, with a 5% increase in revenues and a 3% increase in volume. Automotive performed well, chemicals had positive growth in the fourth quarter, and fertilizers and metals also showed growth opportunities.

In the minerals sector, there was strong demand for infrastructure-related projects, with new cement production driving volumes. Forest products volumes were slightly lower compared to the previous year, but showed signs of improvement. The ramp up for agriculture and food was slower due to ample local supply and slower export growth. Looking ahead, CSX sees opportunities for growth in all the markets it serves, with their service being a key differentiator. In the coal sector, revenue decreased due to lower export prices, but volumes remained positive. Domestic demand was weighed down by lower natural gas prices and reduced restocking, while export demand remained strong. CSX is optimistic for the New Year, with continued strength in export demand and expected production growth in West Virginia. Domestic demand in 2023 was driven by aggressive restocking at utilities and a hot summer.

The demand for electricity is largely dependent on weather conditions in 2024, but total demand is expected to grow, especially in the Southeast due to new industrial capacity and EV charging stations. In the fourth quarter, intermodal revenue decreased on flat volumes, but domestic intermodal volume increased and international volumes showed improvement. The company is working to build new partnerships and service offerings to drive growth in both domestic and international business. The company is also monitoring potential disruptions at the Panama Canal and Red Sea, but has not been significantly affected so far.

In the fourth quarter of 2023, the company saw a 1% decrease in revenue and a 10% decrease in operating income, which was impacted by declines in other revenue, real estate gains, and export coal benchmark prices. However, the underlying results showed growth in core pricing and volume in merchandise and coal. Interest and other expenses were higher compared to the previous year, while income tax expenses decreased. Overall, there was an 8% decline in operating income and a 5% decrease in earnings per share for the full year.

In the fourth quarter of 2023, CSX reported lower results due to a decline in intermodal storage revenue and lower export coal benchmarks. However, the company's ONE CSX team provided reliable service and laid the foundation for long-term growth. Going forward, CSX will report operating margins rather than operating ratio in order to target margin improvement. In the fourth quarter, expenses increased by $89 million due to inflation, increased depreciation, and higher headcount, but were partly offset by lower fuel prices and efficiency savings. Labor and Fringe costs were up $82 million, while Purchased services and other expenses increased by $4 million. The company expects a lower sequential cost per employee in the first quarter and a modest increase in Purchased services and other expenses.

In 2024, the company expects increased technology costs and locomotive overhauls to impact expenses, but they are implementing cost-saving measures to offset these challenges. Depreciation was up $24 million, and fuel costs were down $59 million due to a lower gallon price and improved efficiency. Equipment and rents were $9 million favorable, and there were no significant property transactions expected in 2024. Free cash flow was strong at $3.3 billion, with $2.3 billion invested in network infrastructure and strategic opportunities. However, there will be an impact of $380 million in Federal Cash Tax Payments deferred from 2023. Shareholder returns for the year totaled close to $4.4 billion.

The company's economic profit decreased this year due to lower intermodal storage revenue and export coal pricing, but they are focused on increasing it over time. For the full year 2024, they anticipate growth in total volume and revenue, driven by market share gains, new industrial development, and strong demand for export coal. They also expect improved profitability through pricing, operational efficiency, and moderate cost inflation. The company plans to increase capital spending to invest in safety, locomotive rebuilds, and technology.

The speaker discusses the company's approach to capital returns and thanks the team for their hard work and dedication. They also mention their goal to expand margins by growing the business, operating safely, and running an efficient railroad.

The speaker, Joe Hinrichs, discusses the progress made in the first year of leading the business and how the focus will evolve in the next 12-18 months. He mentions that the business has stabilized and customer service has improved, allowing for a focus on efficiency. Manpower levels have reached targets and there is a positive momentum in culture and teamwork.

The company is looking to leverage its strengths and become more efficient with the help of new team members. They aim to improve safety and grow with customers. The network and manpower are in good shape, giving them confidence for the future. In the Q&A, they discuss a decrease in comp per employee in the first quarter and potential improvements in fuel efficiency and network fluidity.

The company saw some improvements in terms of vacation and sick leave expenses in the fourth quarter and expects a couple of percentage point improvement in the first quarter. They will also have a 4% wage increase in July and are focused on efficiency initiatives. The company is currently focused on improving the productivity and efficiency of their network and employees, with a goal of optimizing the use of assets and technology. They are working on improving the size and state of trains, as well as utilizing technology to get the most out of locomotives. This effort will continue over the next few quarters.

In this paragraph, the speaker discusses their plans for the future of their business. They mention the importance of efficiency and safety, as well as their confidence in their team's qualifications. They also address their projected growth for the year, which may be impacted by a healthy coal market and a potential rebound in the intermodal market. The speaker also acknowledges the potential for fluctuations in these markets and their impact on the company's revenue. They then move on to discuss costs and potential areas for improvement.

In the paragraph, the speaker discusses the increase in costs in the fourth quarter and the potential for stabilizing or decreasing costs in the future. They mention some unusual costs that occurred in the quarter, such as a true-up on vacation and sick leave and a derailment, but state that these costs will not recur in the first quarter. They also mention efforts to increase efficiency and reduce costs, which they believe will lead to better financial results in the second half of the year. The speaker then moves on to the next question from a different caller.

Sean Pelkey and Kevin Boone discuss the revenue side for the company in 2024. They mention a storage revenue headwind and a surcharge impact that will continue to affect the company in the first quarter. They also mention a favorable lag impact from the first half of last year. They expect sequential momentum in the first quarter and a lower cost inflation for the business in 2024.

Mike Cory, the speaker, expects the number of labor efficiency to decrease after having conversations. However, the historical rates are still healthy and important for revenue growth. Brandon Oglenski asks about labor efficiency in reference to Kevin's remarks about new merchandise business. Mike responds that they have had success with a higher train size, reducing the impact on headcount. They have not yet addressed all areas, but see opportunities in reducing the touches of cars and improving service reliability. With added locomotives and reduced movements, they can handle more volume with their current capacity.

The speaker is answering a question about the company's performance and explains that their focus is on increasing efficiency in yards and terminals to improve on-time arrivals. They are not concerned about the current decrease in on-time performance as it is due to growth and maximizing assets. The speaker emphasizes the importance of delivering to customers and addressing their pain points.

The company is focusing on efficiency by running a more condensed network. They plan to hold headcount flat and absorb new growth in the network, and they believe they have the capacity to grow with their current resources. They also plan to use their locomotives more effectively to increase productivity.

Sean Pelkey is answering a question about the company's operating ratio and cost of PS&O. He mentions that their goal is to deliver operating income growth in the first quarter and that margins can potentially grow as well. He also reminds everyone that the addition of Quality Carriers and PanAm has a significant impact on PS&O expenses, which are volume variable.

The company's PS&Operator expenses have increased due to added revenue and can also be impacted by volume. The company is focused on reducing these costs. In regards to domestic intermodal, the market for trucking is expected to improve after last year's poor performance. The company's service levels are being recognized by customers and they are working to improve terminal fluidity and measure customer experience in a different way.

The company has several initiatives underway that give them confidence that the market has bottomed and they will gain share. There is a $600 million headwind to cash flow due to deferred tax and increased CapEx. The incrementals are expected to be better in the back half of the year and there will be a single, low to mid-single digit volume and revenue increase, with a high watermark in the first quarter. The industrial side of the business showed some weakness in the second quarter.

The company expects to experience some challenges in their forest products business due to weakness in the chemical sector. However, they anticipate growth throughout the year and believe they have the underlying operating leverage to support this growth. In the first half of the year, there will be some headwinds to overcome, but the second half is expected to show a cleaner picture. Despite a potentially flat macro environment, the company is confident in their ability to grow.

The speaker discusses their business wins and plans to absorb new business with existing resources. They then move on to discussing the forecast for the coal industry, noting that their forecast differs from others due to their bottom-up approach and focus on production constraints rather than demand. They express optimism for the export market and acknowledge the potential for changes in the global environment.

The speaker discusses the potential impact of weather on their business and mentions the possibility of an export market to mitigate any domestic weakness. They then announce the end of the conference call.

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