The paragraph is an introduction to the CSX Corporation's Third Quarter 2024 Earnings Conference Call. It begins with the conference operator, Jay, introducing the call and mentioning that lines are muted to prevent background noise. Matthew Korn, Head of Investor Relations and Strategy, then welcomes participants and introduces key executives, including Joe Hinrichs, the President and CEO. Joe Hinrichs thanks the CSX team for their efforts in recovering from two hurricanes, particularly Helene, which impacted their network. He acknowledges that additional repairs are needed but expresses pride in the organization's accomplishments over the quarter. Executives Mike Cory and Sean Pelkey will discuss the infrastructure repairs needed.

The article discusses CSX's successful performance in the third quarter compared to the previous year, highlighting growth in volume, revenue, and operating margins. Despite challenges such as severe weather and equipment issues, the company achieved a 3% increase in total volume and a 6% rise in merchandise revenue, driven by strong performance and favorable pricing. The operating margin improved by 180 basis points to 37.4%, and total revenue increased by 1% to over $3.6 billion, despite lower fuel and coal prices. Operating income rose by 7%, and earnings per share saw a 12% growth, demonstrating the company's focus on sustainable and profitable growth.

The paragraph reports on CSX's operational performance, highlighting strong execution and team collaboration under the ONE CSX initiative, despite facing challenging conditions. Mike Cory underscores the team's efforts in maintaining safety standards, noting a reduction in the severity of FRA injuries and a year-over-year decrease in FRA train accidents, particularly those caused by human factors. He attributes this progress to the safe CSX initiative, which aims to minimize workplace exposures. Despite weather-related challenges impacting overall velocity, the network's resilience is emphasized as a positive aspect of the quarter's performance.

The paragraph discusses how a company successfully maintained operational fluidity and ensured safe service restoration during challenging weather conditions through effective teamwork and response strategies. Despite weather-related difficulties affecting certain metrics, the company increased carloads while reducing train starts. The focus on service, efficiency, and close customer communication helped align operations with customer needs, emphasizing excellent service and cost discipline. The team's collective effort and resilience enabled a fast recovery and continued network velocity, contributing to the development of future operating leaders.

The paragraph discusses the strong communication and efforts of the CSX team in navigating recent challenges, including storms, a strike at East Coast ports, and an outage at the Curtis Bay terminal. Despite these difficulties, customer satisfaction is high, as evidenced by their Net Promoter Score. The team is working on creative solutions to keep freight moving and assist in rebuilding efforts. Although market conditions are mixed, CSX has seen growth in volumes and revenue, driven by service-led initiatives and collaboration with customers.

The paragraph discusses CSX's merchandise business performance, highlighting a 6% increase in revenue compared to the previous year, driven by a 3% rise in volume and strong pricing despite lower diesel prices affecting fuel surcharges. Chemicals saw a 9% volume increase, with strength noted in areas like plastics and industrial chemicals. The agriculture and food sector also experienced a 9% volume uptick, particularly in grain and feed ingredients. The minerals business had mixed results, with a 1% volume increase, as cement performed well due to construction demand, though aggregate shipments were hindered by rainy weather. Overall, the merchandise segment contributed positively to CSX's growth, despite some challenges in other market areas.

The paragraph discusses the current state of various markets impacting the metals and coal industries. The metals market, especially steel, is soft due to low demand, high supply, and low prices. The automotive sector's weaker demand is attributed to high retail prices and interest rates. There's negative trajectory in total fertilizer volume, though some spot opportunities were capitalized on. Positive momentum is expected in chemicals, agriculture, food, forest products, and minerals sectors, while trains and metals face challenges. In the coal sector, third-quarter revenue declined with decreased domestic shipments but increased export tonnage. Low natural gas prices limit utility coal usage, and coal revenue per unit decreased. The outlook for the fourth quarter suggests stable markets, with sufficient utility stockpiles and steady export demand.

In the paragraph, the company reports a slight anticipated decline in coal revenue per unit for the fourth quarter due to export contract lags. Intermodal revenue dropped 2% year-over-year despite a 3% increase in volume, with international shipments up mid-single digits and domestic shipments flat. A shift to West Coast arrivals boosted transcontinental interchange business. Though the domestic market gained some momentum, activity with major partners remains subdued. Intermodal revenue per unit fell 5% due to lower fuel surcharges and more international than domestic growth. A resolution to the ILA strike helped volumes, while trucking remains challenging but shows signs of improvement. The company is positioned for increased volumes as conditions improve, despite mixed market conditions and interest rate impacts. They remain committed to customer service and are optimistic about future opportunities. The speaker passes the conversation to Sean Pelkey.

The paragraph highlights the impact of recent hurricanes on business operations, specifically noting a $10-15 million revenue loss in Q3 due to Hurricane Helene and an estimated $50 million impact in Q4, including recovery, rerouting, and net revenue effects. A significant track and bridge rebuild is underway, with expected costs exceeding $200 million, extending into next year. Despite these challenges, CSX achieved 7% operating income growth and double-digit EPS growth in the third quarter, driven by their operating model and customer collaboration. Merchandise and intermodal revenue grew for the seventh consecutive quarter, while total revenue rose 1%, offset by declines in coal, fuel recovery, other revenue, and trucking. Expenses decreased by 2%, though income tax expense increased by $16 million due to higher pretax earnings.

In the third quarter, total expenses decreased by $36 million, primarily due to lower fuel costs, despite slight increases in other costs from inflation and 3% volume growth. Labor costs rose by $45 million due to inflation, increased head count, and union wage hikes. Employment has remained stable, with a 3% growth in carloads and 2% head count growth, influenced by converting outside drivers to company drivers. Purchased services decreased by $25 million due to lower casualty expenses and favorable inventory adjustments, while depreciation increased by $13 million due to a larger asset base. Fuel costs dropped by $73 million thanks to lower prices and better efficiency. Equipment and rent expenses fell by $3 million, but property gains were $7 million unfavorable. Free cash flow was strong at over $2.2 billion, with a focus on investing in safety, reliability, and long-term growth, and $1.9 billion has been returned to shareholders so far this year.

The paragraph discusses the economic outlook and guidance updates for the company's fourth quarter. Economic profit priorities include growing operating income, maintaining capital discipline, and pursuing high-return investments, with a focus on increasing economic profit long-term. Operating conditions have become more challenging, with lowered diesel prices and declining global benchmarks for met coal negatively impacting revenue. Additionally, recent hurricanes and softened volumes in key customer segments like metals and automotive are influencing expectations. Despite this, modest volume growth is anticipated, supported by strong performance in sectors like chemicals and agriculture. Due to these factors, a slight decrease in total revenue is expected for the fourth quarter, with lower fuel and coal prices contributing to a projected $200 million revenue effect year-over-year. The merchandise franchise remains strong, and efficiency measures are yielding benefits.

The paragraph discusses CSX's financial outlook and operational updates. The company is facing short-term challenges due to lower revenue and increased expenses from rebuilding efforts after hurricanes. Despite this, they remain committed to $2.5 billion in capital expenditures (CapEx) this year, with some additional needs anticipated in 2024. CSX is maintaining its balanced approach to capital returns through buybacks and dividends. The company is adjusting its short-term plans due to market uncertainty and hurricane recovery but remains optimistic about building momentum into 2025. The paragraph also mentions an upcoming Investor Day event where more details on their growth strategy will be shared. The Q&A session starts with a question from Brian Ossenbeck about the company's ability to achieve a positive spread in price cost next year.

The paragraph discusses labor negotiations and their impact on pricing and costs. Sean Pelkey explains that despite inflation, the difference between price increases and cost inflation has been positive throughout the year, benefiting their financial standing. Wage inflation is expected to exceed 4% next year, with some agreements already ratified. Health and welfare expenses might be lower, keeping total wage inflation under 4%. Overall inflation is expected to align with PPI at 2% to 3%. Kevin Boone adds that they have successfully exceeded their financial plan despite challenges in the trucking market.

The paragraph discusses opportunities and strategies for the future, emphasizing that while inflation is expected to decrease and affect pricing, the focus will remain on covering costs and enhancing service delivery. The idea is that improved service justifies pricing adjustments, showing value to customers. It highlights the importance of moving beyond wage and benefit negotiations with union partners to focus on work rules and safety improvements, ultimately aiming for better efficiency and work-life balance. There are plans to reduce healthcare-related costs for union employees. The discussion is interrupted by a new question from Ari Rosa of Citi, referencing the current state of the trucking market.

In the paragraph, Kevin Boone discusses the outlook for intermodal pricing and the potential for revenue growth in the coming year. He acknowledges that the current 1% revenue growth is modest and suggests that focusing on merchandise could improve the business mix. Boone indicates that there will be updates on merchandise markets in November. Regarding intermodal pricing, Boone notes that while current market dynamics are challenging for truckers and supply adjustments are slower than expected, there is hope for price increases next year. He believes this could create opportunities for converting more volume in the East at better rates. Boone suggests that the situation next year will likely improve compared to 2024, with gradual progress expected.

In the paragraph, Jonathan Chappell asks Sean Pelkey about the impact of various financial challenges, including $200 million from fuel and coal costs and $50 million from a hurricane, on revenue and operating margins. Sean Pelkey confirms the figures and explains that these factors create significant year-over-year headwinds, particularly impacting Q4 operating income and margins. The usual seasonal decline in margins from Q3 to Q4 will be more pronounced due to these challenges, such as storms. Despite efforts to recover lost revenue and enhance efficiency, margins, and operating income will be adversely affected.

In the paragraph, Mike Cory discusses the company's focus on retaining employees to address high attrition rates, noting that they are primarily hiring to replace those who leave, particularly in the Northeast. He mentions that headcount is expected to improve as operations become more efficient after recent disruptions. The company aims to maintain service quality while managing costs effectively. Sean Pelkey adds that historically, the company sees a slight headcount increase from Q3 to Q4, and anticipates a similar trend this year.

The paragraph discusses factors affecting train and engine hiring and employee compensation. It highlights that current hiring efforts are geared towards meeting demand by mid-next year, considering vacation peaks and some attrition. Although modest attrition is expected, volume growth is anticipated to surpass headcount growth, especially when adjusted for the quality of company drivers. Employee compensation typically rises from Q3 to Q4 due to various factors, such as capital programs, vacation time, and increased overtime due to storm impacts. The paragraph also includes a Q&A where Tom Wadewitz of UBS asks Kevin Boone about the sensitivity of industrial development projects to economic cycles, election impacts, and how these factors might influence the pace of projects in 2025 and 2026. Kevin Boone acknowledges that these are certainly factors to consider.

The paragraph discusses adjustments in a portfolio related to electric vehicles (EVs) and the impact of economic conditions on project timelines. Despite potential delays of 3 to 6 months, there is confidence in the continuation of larger projects due to significant capital investment, indicating they will provide future benefits. Upcoming visibility into these projects will be provided in November. Following this, there is a transition to a Q&A, where Brandon Oglenski from Barclays questions Joe about a new five-year agreement with 3.5% inflation locked in. He asks why the agreement was made early, considering current declining inflation, and seeks elaboration on Joe's focus on labor relations, a priority since entering the industry two years ago.

The paragraph discusses the dissatisfaction among employees and union leaders with past treatment, particularly regarding lack of raises during inflation and the COVID-19 period, despite being essential workers. There is a consensus that repeating past mistakes is undesirable. The priority is to create a stable, enjoyable work environment to retain experienced staff. The industry has engaged in discussions to avoid previous issues, aiming for early voluntary agreements with unions. Although a coalition approach initially failed, agreements were quickly reached with individual companies like CSX, followed by others. A general economic pattern for agreements has been established.

The paragraph discusses upcoming changes in health care costs and wage increases for CSX employees, highlighting a gradual decrease in wage growth from 4% to 3% over five years. It emphasizes the importance of this approach amid mixed economic signals, aiming to ensure employees feel valued. The company plans to focus on improving network efficiency and safety, leveraging the next five years without the distraction of national negotiations. The speaker also notes significant third-quarter efficiency gains and addresses a question from Christian Wetherbee about the challenge of improving fourth-quarter margins year-over-year due to certain headwinds.

The paragraph discusses CSX's outlook for 2024 and beyond, focusing on margin growth. Sean Pelkey explains that while it's early in the planning process for 2025, the company is well-positioned for strong incremental margins due to factors like the service product's impact on customer experience and pricing strategies that keep pace with or exceed inflation. CSX has enough capacity with its locomotives and crews, mostly hiring for attrition, and line-of-road capacity to support growth. Challenges and uncertainties exist, such as fuel and export coal prices, but overall, CSX is set up for operating income growth, with operating margin as the eventual outcome.

The paragraph discusses the challenges and opportunities facing the company in the upcoming year. It mentions potential difficulties due to construction on the Howard Street Tunnel in Baltimore, network disruptions, and recovery from storms, which could create headwinds. However, there may be tailwinds from improvements in the trucking market. The focus remains on maintaining high service levels and capacity for growth. Daniel Imbro from Stephens asks about the company's volume growth and merchandise pricing. Kevin Boone responds by emphasizing their competitive service product and how improved service quality makes it easier to win business, contrasting with past challenges due to staffing and other issues.

The paragraph discusses a company's strategy to deliver value to customers beyond pricing, such as by improving service, cycling assets, and reducing capital expenditures. The company has ongoing discussions about these strategies, with notable contributions from Mike and his team. As the trucking market faces challenges, the company has been successful in converting truck volume to its merchandise franchise, particularly in areas like forest products, metals, and equipment. They anticipate future growth opportunities as market conditions evolve. The paragraph ends with a transition to a question from Jordan Alliger of Goldman Sachs regarding a modest improvement in domestic intermodal services.

The paragraph discusses the current state of the intermodal market, highlighting optimism about reaching a bottoming point with hopes for a more normalized peak season. Despite challenges, there is a belief that the trucking supply will eventually rebalance following the pandemic's impact. Meanwhile, Stephanie Moore from Jefferies inquires about diverted volumes due to labor negotiations on the East Coast. Kevin Boone responds, indicating that the impact was modest.

The paragraph discusses the impact of a port shutdown on the East Coast, noting that while there was some disruption, the intermodal team quickly resumed operations, minimizing long-term effects. It acknowledges temporary setbacks but expects recovery within the quarter. Ken Hoexter from Bank of America then asks about the stability of export coal demand and the alignment of service levels with observed erosion in on-time performance. Kevin Boone comments on the cyclical nature of the coal market, highlighting a lack of supply response to high prices due to limited financing and investment for new volume. This situation might lead to longer-term price stability, despite rising global costs.

The paragraph discusses the coal market's potential stabilization above current prices, spurred by Chinese demand, which could create a better pricing environment. It highlights global competition and the positive outlook for the metallurgy business due to a lack of supply response. Additionally, Joe Hinrichs explains their focus on the CSD (Customer Service Delivery) number, which dictates the company's logistical processes like train scheduling to meet customer needs, emphasizing efficiency and cost-effectiveness over strict on-time performance metrics.

The paragraph involves a conversation between Ben Nolan and Kevin Boone regarding pricing in the chemical segment of the business. Ben Nolan inquires if the improved pricing in the chemical market is due to a healthy market or a result of quality improvements. Kevin Boone responds by stating that various factors such as RPU (Revenue Per Unit) and length of haul play a role, and suggests that the chemical market is not substantially different from other merchandise markets. He attributes success to improved service, faster car cycles, and capital savings for customers, which allow the company to monetize these efficiencies through pricing. The exchange is then followed by Jason Seidl, who wants to discuss intermodal yields.

The paragraph discusses the movement of freight between the East and West Coasts of the United States, particularly in the context of a potential port strike and shifting manufacturing locations away from China. Kevin Boone expresses hope for an agreement to prevent a port strike and suggests that freight naturally gravitates towards the East Coast due to these factors. He highlights the East Coast's recent outperformance over the West Coast and notes the investments being made there. Boone mentions the strategic advantage of freight movement in terms of opportunities for trucking and potential growth in regions like Chicago due to increasing East Coast volumes.

The paragraph discusses a port strategy aimed at enhancing value and creating opportunities by efficiently moving freight through East Coast ports, benefiting the railroad company. Despite potential disruptions from labor negotiations, the overall trend is positive. In response to a question about competition, Kevin Boone emphasizes the company's effective and improving service, stable leadership, and clear objectives, which are seen positively by customers and assist in competitive scenarios against other rail companies and trucks.

The paragraph discusses a company's focus on maintaining a competitive cost base and expanding its market presence by moving freight beyond rail and retaining existing business. The conversation then shifts to the company's cultural investments, where Joe Hinrichs highlights the difficulty of measuring culture, comparing it to love, which is felt rather than quantified. He notes improvements in internal metrics, such as Net Promoter Scores, particularly on the management and union sides, though more progress is needed with union employees. Additionally, attrition rates for both new and mid-to-long-term hires are being monitored as part of cultural assessment.

The paragraph discusses the significance of attrition rates among new hires, emphasizing the investment in training and the negative impact of losing employees, particularly in key sites. The author highlights the positive outcomes of improved efficiency and record-high Net Promoter scores, attributing them to employee engagement and a supportive work environment. Efforts such as organizing family days and aiding employees during hurricanes have fostered a sense of pride and belonging among staff. These initiatives are crucial for retention, attracting talent, and enhancing service quality, as employees are central to the service business.

The paragraph discusses the positive impact of CSX's strong company culture on various aspects of their operations. It highlights that consistent growth in merchandise intermodal revenue for seven consecutive quarters has been achieved despite challenging conditions, thanks to the team's resilience and ability to recover quickly from disruptions like Hurricane Helene. The company's efforts in fostering a "ONE CSX" team spirit and achieving early national agreements are noted as unprecedented in the railroad industry. This cooperative culture is credited with improving customer service, reducing injury severity rates, and effectively managing capital costs for network rebuilding.

The conference call has ended, and participants can now disconnect.

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