The paragraph is a transcript of the introduction to the CSX Fourth Quarter 2024 Earnings Conference Call. The operator, Abby, introduces Matthew Korn, the Head of Investor Relations and Strategy, who welcomes attendees and introduces key executives present on the call. Joe Hinrichs, President and CEO, then reflects on the challenges faced by CSX in 2024, including weaker commodity prices, infrastructure issues, hurricanes, flat US industrial production, and labor disruptions. Despite these challenges, he praises the resilience and adaptability of the ONE CSX team in maintaining their commitment to customer service and improving the business.

In the past year, CSX achieved significant growth despite challenges, outperforming the industrial economy with a 2% increase in volume and 3% revenue growth in the merchandise business, despite factors like reduced fuel surcharge and disruptions from a collapsed bridge and hurricanes. The company emphasized strong customer service, operational improvements, and successfully negotiated early labor agreements. In the fourth quarter, while underlying operations were strong, lower coal and diesel prices and hurricane impacts affected revenues and expenses. However, total volume still grew by 1%, driven by a 4% increase in intermodal volume.

The paragraph reports on CSX's quarterly financial and operational performance. Revenue declined by 4% due to lower coal prices and fuel surcharges, and earnings per share dropped by 7% on an adjusted basis. Despite these challenges, the company remains committed to its vision shared at Investor Day. Operationally, Mike Cory highlights the efforts of the team in overcoming challenges like weather and structural issues while maintaining cost controls and safety. There was a sequential decline in FRA injuries in the fourth quarter, although the annual rate was still high compared to the previous year. The company achieved its lowest total work days lost due to injuries in its history in 2024. While FRA accidents increased quarterly, they remained flat annually. CSX is focused on hazard identification, exposure controls, and training to reduce injuries and accidents.

The paragraph discusses the challenges faced by the company due to strong hurricanes that affected their service areas at the beginning of the quarter. Despite difficulties in delivering cars to customers and a drop in trip plan compliance, the company managed relatively good first and last mile switching. They are focused on improving these metrics and are pleased with the progress in training field employees to be more responsive to customer needs. Weather-related challenges in 2024 have impacted operating metrics, particularly in Florida due to Hurricane Milton, but the company has managed to maintain capacity and speed through careful management of train operations.

The company has made significant improvements in its locomotive utilization, transportation, engineering, and operational efficiency, resulting in substantial cost savings and productivity gains. They've achieved notable progress in fuel efficiency, reduced power usage per ton of freight, and improved work block performance. The Howard Street Tunnel project has been accelerated from a three-year timeline to six to eight months. At Cumberland, the reconfiguration is nearly complete, doubling the number of cars processed daily. While challenges remain, the company is pleased with the advancements and expects continued long-term benefits from these initiatives.

The paragraph discusses the company's efforts to improve transparency between costs and services, enhancing service quality while maintaining cost expectations. The Safe CSX program is being implemented, benefiting employee retention and network reliability. The team has effectively responded to last year's challenges, positioning the company to achieve its objectives by 2025. Kevin Boone acknowledges the sales team's hard work in 2024, with customer satisfaction reaching an all-time high despite market challenges like high interest rates and muted industrial output. The company remains optimistic about future growth, with strong activity expected into 2025 and a focus on exceeding industrial production. Revenue and volume for the fourth quarter remained flat compared to the previous year.

In the full year, revenue rose by 3% and volume by 1%. The chemicals sector performed strongly with a 6% volume increase, driven by high demand for plastics and LPGs, while minerals and forest products also saw growth. However, the fertilizers business was affected by supply chain disruptions from hurricanes in Florida, and the metals market remained weak due to low steel demand. The automotive sector saw a 2% drop in volume due to higher dealer inventories. For 2025, strong demand is expected in agriculture, fertilizers, minerals, and chemicals, but challenges will persist in the automotive, metals, and housing markets. Moderate merchandise carload growth is anticipated due to new industrial projects. In the coal sector, revenue fell 20% due to lower volume, reduced global pricing, and production issues, with export volumes slightly down from certain mines facing temporary production limitations.

In 2024, CSX experienced a 9% growth in export coal volume, despite disruptions, with exports accounting for more than half of total coal carloads for the first time. Domestic coal shipments were affected by low natural gas prices and high utility stockpiles, but colder weather has begun to deplete stockpiles, creating new opportunities. However, coal volume is expected to decline in 2025, particularly in the first quarter due to temporary production outages and plant closures at domestic utilities. Despite these challenges, there is increased power demand in areas with data center expansions. Additionally, intermodal business revenue decreased by 5% in the fourth quarter, with a 4% increase in volume, impacted by lower diesel prices, though the domestic segment performed well.

The paragraph outlines various business initiatives and financial results for the company. Initiatives include expanding the direct business, enhancing intermodal capabilities, and maintaining strong international performance. Despite challenges like lower fuel and coal prices and disruptions from hurricanes, the company reported an 8th consecutive quarter of growth in merchandise and intermodal revenue. Operating efficiently led to a 2% reduction in adjusted expenses. However, reported operating income and earnings per share dropped by 16% due to a goodwill impairment charge. Adjusted income tax expense decreased, resulting in an effective tax rate of 22%, influenced by a revaluation of state deferred tax liabilities. Sean Pelkey takes over to discuss further financial details.

The paragraph discusses the company's expected tax rate of 24.5% going forward and reports a $0.03 decline in adjusted earnings per share due to various impacts. Adjusted fourth-quarter expenses decreased by $40 million, with labor costs down $26 million due to reduced incentive compensation, although this was partly offset by inflation. Headcount increased slightly due to new hires, and stable headcount is expected for 2025 despite higher labor costs. Purchase services expenses rose by $43 million due to impairment charges, storm recovery, and inflation, although partly offset by a legal settlement. Depreciation increased by $17 million, fuel costs dropped by $86 million due to efficiency savings, and equipment and other rents went up by $7 million, while property gains were $5 million unfavorable. For the full year, revenue was 1% lower despite 2% volume growth, with adjusted operating income falling 3% and earnings per share rising by $0.01, factoring in over $400 million of operating income headwinds.

The company has achieved consistent volume growth across all quarters for the first time in a decade, supported by collaborative customer relationships and operational improvements. Despite facing cost pressures, including storm-related and insurance costs, they managed to maintain core PS&O expenses stable while improving fuel efficiency, saving approximately $45 million in 2024. However, PS&O costs are expected to increase in 2025 due to the Howard Street Tunnel project, locomotive upgrades, and cloud computing expenses. The company's headcount stabilized with productivity gains continuing into the future. Despite export coal benchmarks and fuel prices posing challenges for 2025, the company is focused on building a strong culture, serving customers efficiently, and investing in future growth opportunities to maintain strong financial performance.

The paragraph discusses the financial impact of various events and projects on the company's future performance. It projects a combined $300 million effect through 2024, with significant impact in Q1. A $50 million benefit is expected from specific past events like hurricanes and the Key Bridge collapse, despite higher anticipated incentives in 2025. Construction on key projects, Howard Street Tunnel and Blue Ridge Subdivision, will add $10 million monthly to Q4 impacts. Although Q1 operating income will be low, growth is anticipated in the second half of the year. At Investor Day, CSX emphasized a theme of consistent growth and momentum. Capital spending priorities for 2024 include infrastructure safety, increased rolling stock investments, and $50 million initial investment in Blue Ridge post-Hurricane Helene, with total costs likely exceeding $400 million. Strong cash flow enabled $3.2 billion in shareholder returns, including share repurchases at a market discount.

The article discusses the company's economic performance, noting a decline in economic profit due to specific factors. Despite market uncertainties, the company aims for volume growth in the low to mid-single digits, driven by merchandise and intermodal business, although coal volumes are expected to decline in 2025. Revenue will be affected by lower coal pricing and reduced fuel surcharges, particularly in the first half of the year. Efficiency improvements and cost management efforts will continue amid expenses from rebuilding the Blue Ridge Subdivision and expanding the Howard Street Tunnel. The company plans to maintain a stable headcount despite these challenges.

The paragraph discusses CSX's capital expenditure (CapEx) plans and capital allocation priorities for 2024 and beyond. They aim for their CapEx to remain flat year-over-year, excluding hurricane recovery expenses. Their priorities include investing in network safety, high-return growth projects, and distributing excess capital to shareholders. The speaker expresses pride in their team's response to 2024's challenges and anticipates opportunities in 2025. During the Q&A session, Tom Wadewitz from UBS asks about the impact of headwinds on full-year margin performance. Sean Pelkey acknowledges that first-half headwinds will make margin improvement difficult unless there are changes in commodity prices.

In the paragraph, the speaker discusses the potential growth in operating income and margins in the second half of the year, provided the operating environment remains stable and fundamentals are maintained. They anticipate volume growth in the low to mid-single digits, which should support operating income and margin growth. In response to Scott Group's question, the speaker clarifies that although specific guidance for the year was not provided, operating income growth would have been solid if not for $350 million in headwinds. These challenges include utility coal issues, mine problems, and some closures expected later in the year. Despite these difficulties, there is optimism about maintaining stable coal volumes and opportunities in exports. Adjusting for the discrete headwinds, they expect operating income growth to be toward the lower end of mid-to-high single-digit growth as mentioned in their Investor Day guidance.

The paragraph features a Q&A segment from a conference call, where Joe Hafling, speaking on behalf of Stephanie Moore from Jefferies, asks about customer interactions concerning the industrial development pipeline since a recent election. Kevin Boone responds, highlighting that contrary to expected slowdowns due to the political landscape, they've experienced continued health and activity in new project bids, which is encouraging. These projects have long timelines due to permitting processes, but ongoing strength is anticipated, potentially bolstered by future policies. The operator then introduces the next question from Chris Wetherbee of Wells Fargo, who references a comment about operating income (EBIT), suggesting it would be at the lower end of the mid-single-digit range excluding certain cost items.

In the paragraph, Sean Pelkey and Kevin Boone discuss the financial outlook and pricing strategy for 2025 compared to 2024, amidst low to mid-single-digit volume growth. They acknowledge some headwinds, including $350 million from factors like network disruptions and stable commodity prices, but remain optimistic about pricing. Boone mentions that merchandise pricing remains stable while coal prices have decreased due to market dynamics. He notes some stabilization in intermodal rates, indicating potential improvement in the latter part of 2024. Ari Rosa from Citigroup is then introduced for the next question.

The paragraph discusses the impact of tightening truck capacity on different areas of a logistics company's operations. Kevin Boone emphasizes that intermodal services are the most obviously affected, but there's also potential for positive impact on merchandise services as customers seek cost savings by converting from truck to rail. This shift could be beneficial, especially after a challenging few years. Intermodal pricing tends to lag behind the market, with contracts typically spanning around a year, suggesting that significant benefits might be seen next year, although some advantages could emerge by the end of this year. Following Boone's discussion, the operator introduces a question from Brandon Oglenski regarding long-term growth opportunities amidst current earnings challenges due to GDP influences.

The paragraph discusses the anticipated benefits of the Howard Street Tunnel project, which aims to improve transport efficiency in the Blue Ridge region following hurricane damage. Although industrial growth has been stagnant, the company is optimistic about potential economic improvements, like interest rate reductions, that could boost industrial growth. The Howard Street Tunnel project, initially planned for three years, has been accelerated to be completed in 2025, incurring higher costs that year but leading to earlier-than-expected benefits in 2026 and 2027. These benefits include the ability to operate double-stack trains along the East Coast, including routes from Chicago, which is currently hindered by the tunnel and nearby bridge limitations.

The paragraph discusses the resolution of competitive disadvantages in the company's intermodal business through infrastructure improvements, such as the recently opened MBR interchange and the future completion of the Howard Street Tunnel by the end of 2025. These developments will enable double-stacking and better access to high-density areas on the East Coast, improving efficiency and reducing route miles. The company anticipates these changes will lead to significant profit growth in 2026 and 2027, supported by industrial development, network efficiency actions, and customer collaboration. Confidence in meeting targets outlined at the company's Investor Day is emphasized.

In this paragraph, Brian Ossenbeck asks Mike Cory about the potential impact of a tunnel project on service metrics, considering it is a significant and time-sensitive undertaking. Mike Cory responds by explaining that they have already started rerouting traffic to prepare for the project, and he doesn't anticipate significant disruptions in service metrics. He mentions costs related to maintaining customer commitments and paying for alternative routes. Cory also reflects on the past year's network challenges, such as hurricanes and port strikes, and describes efforts to align crew starts with service requirements, emphasizing that adjustments were made to improve operations.

The paragraph discusses the performance and resilience of a railroad company amid challenges like hurricanes and snowstorms. Despite these disruptions, the company is pleased with its productivity and operations, and they are focused on maintaining safety and customer service. The stable headcount will aid in future productivity improvements. The company has successfully mitigated disruptions from storms and is committed to the principles that led to previous successes. Sean, during the discussion with Jon Chappell from Evercore ISI, addressed the anticipated increase in cost per employee, which will align with labor inflation, estimated around 4%. He also noted the challenges presented by varying financial comparisons across different quarters.

The paragraph is a transcript of a conversation during an earnings call. Sean Pelkey outlines a strategy for modeling employee costs for the year, suggesting using the Q4 number with an adjustment for incentive compensation as a basis for the first half of the year and then adding 4% for expected wage inflation in the second half. Ken Hoexter from Bank of America asks Kevin about met coal levels and potential impacts from mine outages, including a recent fire, as well as clarifying the expected growth and EBIT targets. Sean is queried about a possible $50 million decrease in EBIT from the target of $5.35 billion due to discrete items.

In the paragraph, Kevin Boone discusses the current state and future expectations for coal demand and production. He mentions that while current levels are under market expectations, there's hope for improvement by the year's end, with prices potentially exceeding $200. He also touches on a recent outage and the expectation of compensating for the shortfall through other mine locations. Sean Pelkey then responds to a query about financial calculations, suggesting that while current projections are imprecise, factors such as coal challenges and incentive compensation may increase expenses by $30 million to $40 million compared to 2024.

The paragraph discusses financial challenges and strategies for the first half of the year, with focus on managing costs amid economic uncertainties. It includes a Q&A segment where David Vernon from Bernstein questions Kevin and Sean about specific financial metrics, such as a $300 million impact, broken down into price and volume effects. Kevin explains that this figure is related to met coal prices and fuel surcharges, not volume. Sean adds that momentum in Q4 was affected by hurricanes, which influenced the overall numbers. They acknowledge potential headwinds, including volume pressures from factors like the Blue Ridge outage and Howard Street Tunnel issues, as they look ahead to 2025.

The paragraph discusses the financial impact related to a $50 million issue, with $30 million attributed to revenue, potentially higher. Despite the shutdown of the Howard Street Tunnel, there is no anticipated volume disruption as they are investing in preserving volume and exploring growth opportunities. Kevin Boone mentions minimal, temporary volume shifts due to a longer haul but emphasizes effective solutions maintaining their volume. Bascome Majors questions about regulatory opportunities and productivity impacts in 2025 or '26. Joseph Hinrichs highlights the importance of advancing technology in inspections and working with unions for enhanced efficiency and safety. He also notes Patrick Fuchs' appointment as STB Chair.

The paragraph discusses the positive outlook for the railroad industry, emphasizing collaboration between industry stakeholders, such as Patrick and David Fink, and regulatory bodies like the STB and FRA. It highlights efforts to focus on data, safety, technology, and increasing rail volume, which benefits the economy by reducing road congestion, enhancing safety, and improving environmental efficiency. There is optimism about a supportive environment fostering advancements in the industry. In response to Ravi Shanker's inquiry, Kevin Boone mentions that despite bottlenecks, customer conversations are filled with excitement, and there is no significant concern about a shift in market share or impact on service.

The paragraph discusses the significant investments made by the company to maintain and enhance their service, allowing them to reach new markets and provide single-line service. Despite challenges like hurricanes, the company achieved high Net Promoter Scores in recent quarters, reflecting customer satisfaction with their commitment to resolving issues and maintaining communication. This proactive approach is fostering customer confidence and encouraging long-term growth in the rail network. Joseph Hinrichs commends the collaboration between the operating and marketing teams in achieving these results.

The paragraph discusses the company's strategies for achieving EBIT growth despite facing a $350 million net headwind for 2024. They are aiming for mid to high-single-digit growth, emphasizing the importance of efficiency and cost management in achieving this target. The speaker, Sean Pelkey, stresses that the focus is on driving efficiency across operations and general and administrative (G&A) expenses, particularly in maintaining flat costs in the face of volume growth and inflation. This includes negotiating new agreements to reduce purchase service costs and seeking ongoing opportunities for efficiency improvements.

The paragraph discusses a financial Q&A session, where Walter Spracklin from RBC Capital Markets questions Sean Pelkey about their three-year forward compound annual growth rate targets for earnings per share given at an Investor Day. Walter expresses concern about meeting the 2027 target of 243, due to an expected dip in 2025, which would require a low-teens growth rate in 2026 and 2027. Sean Pelkey reaffirms the adherence to the original guidance of high-single-digit to low-double-digit EPS growth, and mentions ongoing network disruption costs of $10 million a month.

In the paragraph, the speaker discusses the impact of current challenges on their business, noting that while there are headwinds this year, they expect these to reverse by 2026, leading to growth in volume and efficiency. The three-year business guidance assumes stable commodity prices for export coal and fuel, which are currently lower than they were on average in 2024, but are expected to return to those levels by 2027. The speaker acknowledges potential difficulties if coal prices remain low but remains optimistic about meeting the guidance. In a discussion with Daniel Imbro from Stephens, Kevin Boone addresses concerns about the auto industry, noting that high inventories have impacted auto and metal sectors. He acknowledges the slow start to the year, influenced by weather issues affecting auto loading, but expects improvements in the coming weeks.

The paragraph discusses the current state and future potential of the auto industry in terms of sales and production, noting that current sales are in the low-16 million range while production is in the mid-15 million range. This contrasts with pre-pandemic sales and production levels, which were over 17 million. The speaker, Joseph Hinrichs, mentions that realizing potential growth requires a decrease in interest rates and a balance of various factors, recognizing the current administration's focus on auto manufacturing and interest rates. The discussion then shifts to a question from Jeffrey Kauffman, who asks about the costs associated with issues at Howard Street and Blue Ridge, including outer route miles, fuel consumption, crew requirements, asset costs, and additional locomotives and cars. He inquires about the potential savings once these issues are resolved.

The paragraph discusses future opportunities for growth and cost savings following certain projects. Sean Pelkey highlights that while there are significant operating expenses this year, estimated around $100 million, the company expects to fully recover these costs within a few years. The projects will lead to increased capacity and offer potential revenue growth, turning into a positive outcome over a three-year period. The discussion concludes with the operator ending the call.

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